Monday, September 15, 2008

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HDB Upgraders: Lessons learnt from the Property Boom-Bust of the 90s

More HDB owners upgrading

My Paper reported on 11 sept 2008 in the article entitled "More HDB owners upgrading: Trend is fuelled by falling prices of private homes in Q2 this year" that HDB upgraders' share of private property bought in Q2 of 2008 has risen to 34% from the 28% in the previous quarter. The report was based on a DTZ's analysis of caveats captured by URA (Urban Redevelopment Authority of Singapore). The data is shown in the Number of Private Property Transactions Chart below:

Singapore Private Property Sales Chart
According to the data shown on the chart, the numbers of HDB upgraders (buyers with HDB address) were 888 and 1,199 in Q1 2008 and Q2 2008 respectively, which gives an increase of 35%. At first glance, it'd indeed look like the HDB upgraders are back in the private property market. The jump off course is largely attributed to the continuous increase in HDB resale flat price.

HDB Upgraders: Lesson Learnt in the Boom-Bust of the 90s

But let's take a harder look at the given data. If you compare Q2 2007 and 2Q2 2008, also quarter on quarter, the numbers were 2,982 and 1,199; a decline of more than 50%. It clearly says that the HDB upgraders are also cooling off the property peak of mid-2007. Under the current economic turmoil, prudent HDB upgraders, I believe, would have preferred to stay put. Some may still remember the lesson learnt in the last Asian financial crisis when HDB upgraders bought into hugely over-priced private properties in the mid 90s peak, counting on the similarly soaring HDB resale price then to pay for their private properties. But came 1998, with Asian Financial Crisis, the property market crashed. These HDB upgraders found themselves trapped in a "buy HIGH, sell LOW" situation.

I remember specifically a friend who was caught in the above situation. In 1996 when he bought an uncompleted private condo at $1.2M, his HDB executive flat was valued at $600+K. But when his condo was completed in 1998 and he had to sell his HDB executive flat, it could only sell for $400+K. What's worse, that year he was retrenched ... (I can say for sure that this is a typical rather than a special case.)

Big Picture: Private Property Sales has declined sharply

As the chart above shows the total purchases of private property has declined sharply from 35,623 in 2007 to 6666 for the first half of this year. So HDB upgraders or otherwise, the number of buyers in the private property market is quickly shrinking. Given the increasing pace of deterioriation in the global economic turmoil which is likely to last to 2009 and possibly even 2010, the Singapore private property market looks set to decline further.

May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
When to Buy, When Not to by
Property Price Index Graph Plotter & Online Property Valuation
Your Property Investment Determines Your Financial Success in Your Life
HDB Resales: West Sees Highest Price Increase


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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

Smart Buyer :)