Tuesday, October 28, 2008

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Demand Shifting to HDB flats from Mass-Market Private Property

Result of housing inflation in a recession: People Downgrade

Notice that people are shifting from private housing to HDB and smaller and smaller HDB ... this is the result of housing inflation in a recession: people downgrade, rather than pay whatever the developers ask ... so bulls' theory of how inflation will chase up private property price is totally wrong.

Source : Business Times - 25 Apr

Demand shifting to HDB flats from mass-market private homes

HDB prices up as demand rises. Rents also rise,
Q3 data shows; prices and rents of private mass-market homes fall as demand shifts to HDB flats

DEMAND is shifting to HDB flats from mass-market private homes - pushing up HDB prices and rents, but causing mass-market home prices and rents to fall. Figures released yesterday by the Housing & Development Board (HDB) and Urban Redevelopment Authority (URA) show HDB’s resale price index rose 4.2 per cent in the third quarter. This means that in the first nine months of 2008, HDB resale prices climbed 12.4 per cent. The number of transactions also increased in Q3 to 8,110, from 7,760 in Q2.

Mass-market home prices will hold steady this year?

In contrast, private mass-market properties put up a decidedly lacklustre showing in Q3. Prices of non-landed properties in the outside central region - where most mass-market private homes are located - fell 1.5 per cent. The decline was not expected - most analysts have said mass-market home prices will hold steady this year.

‘In contrast to the private property market, despite the gloomy economic outlook, demand in the resale HDB market is still very active, with buyers coming from up-graders, down-graders and Permanent Residents,’ said ERA assistant vice-president Eugene Lim.

Buying HDB flat allow liquidity during uncertain time

Analysts attribute this to a shift in demand towards HDB flats and away from private mass-market projects. ‘Demand is moving towards the HDB market,’ said Nicholas Mak, director of research and consultancy at Knight Frank. ‘A greater proportion of new homeowners, such as newlyweds and new immigrants, are looking only at HDB flats.’ In the past, a greater proportion of new homeowners would have considered private mass-market apartments, he said: ‘Compared to purchasing private residential properties, buying an HDB flat may allow some to set aside funds for liquidity during this uncertainty.’

More people are eligible to buy HDB flats now

Statistics show the number of Singapore citizens and Permanent Residents (PRs) is set to hit a record this year. In the first half of 2008, there were 34,800 new PRs and 9,600 new citizens, up from 28,500 new PRs and 7,300 new citizens in H1 last year.

Another reason to choose HDB: HDB flat appreciating, private home prices are falling

Another reason homebuyers are choosing HDB flats over private mass-market homes is that HDB flat prices are still rising, while prices of private homes are falling. ‘People want the asset they buy to appreciate in value. In the HDB market there is still room for prices to move upsaid Ku Swee Yong, ,’ director of marketing and business development at Savills Singapore. At Sengkang, where HDB flats are going for around $250,000-$300,000, prices could climb 5-10 per cent in the next few quarters, he said.

HDB Rental Flats also hit Private Mass-Market Rents

Private mass-market rents have also been hit by the shift in demand. They fell 2.7 per cent in Q3, as demand switched to the HDB rental market. Overall median sub-let rents for HDB flats rose slightly in Q3.

HDB Resale Prices Expected to continue to increase but at slower pace as the economy worsens

But looking ahead, even growth in HDB prices is expected to slow as the economy worsens. ‘As such, although there is good demand for resale HDB flats, we expect buyers to turn more cautious and exercise more prudence by offering less for flats so as not to overstretch,’ said ERA’s Mr Lim.

HDB resale prices are expected to continue to increase, but probably at a more measured pace in the coming months. ERA’s Mr Lim said: ‘For 2008 we may see an overall price increase of 15-17 per cent, slightly lower than the 17.5 per cent increase for the whole of 2007. As for 2009, we are likely to see only marginal quarterly price increases, as current resale prices are a new peak.’ Likewise, PropNex’s Mr Ismail expects the HDB resale price index to increase about 15 per cent for the whole of 2008.

HDB Demand Shifting towards Smaller Flats

Because of this, cash-over-valuation (COV) figures will continue to decline in the coming quarters, analysts say. The median COV for resale transactions fell to $19,000 in Q3, from $20,000 in Q2 and $21,000 in Q1. The bigger drops in median COVs were for five-room flats (down 15 per cent) and executive flats (down 22 per cent), notes Mohd Ismail, chief executive of PropNex. ‘This is evidence of buyers resisting paying larger COVs for larger properties in this bleak economy,’ he said.

The increasing popularity of smaller three and four-room flats was also reflected in the median resale prices. The increase for smaller flats, at almost 5 per cent, outstripped the 1.5 per cent increase for larger flats.

May also want to read:
Singapore Property Forecast: HDB and Private Property will trend in opposite direction until ..,
The days of Cheap, Easy Credits chasing after property is OVER!
When the bubble of greed and fear burst, guess who suffer?
Property Investment Tip: Don't put all your eggs in one basket
HDB Resales: West Sees Highest Price Increase


danny said...

HDB price are sure to go up: Says the people selling you HDBs.

We have seen HDB resale price index rise sharply the past 7 quarters, since beginning of 2007. From 104.9 to 137.5 (32.6 points) which is about 4.7% per quarter.

As we all know, homes have an intrinsic value as shelter, so fundamentally, there is always a basic level of demand for housing. Let’s look at the 5 five years and the next 5 to see if we can figure out what the future might hold.

2003, Population, 4.12M, Private units 219470
2008, Population, 4.59M, Private units 237664
2013, Population, 5.0M, Private units 280000 (gahmen projected)

Therefore since 2003.

2008 pop size up 11%, private units # up 8.3%
2013 pop size up 21%, private units # up 27.5%*

We can see that in the past 5 years, pop size has growth has been 2.2% per year, and private units growth has been at 1.67%. In the next 5 years, population growth is about 2% private units growth is about 3.84% each year.

* The private units projection is based on the 238,853 units available today, and adding to it 66,422 for a total of 305275. Giving a 25275 unit discount for units that are planned but will not finish construction within 5 years.

As we can see, the supply increases faster than demand, I am not sure what will happen to prices so I’ll leave that to the experts. They’d probably tell you it’s a great time to buy.

Looking into the last property boom in Singapore, we have seen a very familiar phenomenon. Private property prices peaked in Q2 96, HDB prices continued to rise for 2 more quarters from 125 points in Q1 96 to 136 points in Q4 96. The prices remained above 130 points for 5 quarters (Q3 96 to Q3 97). HDB prices then remained steady between about 100 – 120 points for 10 years until Q2 07 when it rose above 130 point mark and stands at 137.5 points near its all time high.

Private property prices dropped from 181 in Q2 96 to 166 in Q2 97. A 3.75% slide per quarter. In Q2 98 the index was 126, a 10% drop per quarter. The HDB prices slide form 136 point high in Q4 96 to 120 points in Q4 97 and 102 points in Q4 98.

Mr. Ku at Savills may think a flat in Sengkang will increase by 5-10 percent the next few quarters. I would encourage people to trust the “experts”, it’s not as if these “experts” have a vested interest in your purchase decisions, and even if they did, they would never place their own interests above yours, their customers now would they.

Now if you can believe that, have I got an investment opportunity for you! Lehmean Mini Bonds! Ultra safe! Sure to make money! Contact me before this limited time offer expires!

danny said...

My own opinion: HDB prices are going to drop.

Why I think prices are going to drop:


Observation 1) The weak economy

Back Ground”
The latest headlines show a less than rosy picture for the Singapore economy. After a 50% retreat on the STI, (worse than the Dow Jones, S&P, NASDAQ), the word “Decoupling” has suddenly been dropped from the analyst’s vocabulary.

Last year, the economy grew at 7.9%, outperforming the expected 7.7%. STI soared to a heady high of 3840 points. This year, the situation is more somber, many people have been burned by stocks and other investments. Economy might even be less than the 4 – 6% projected growth. 2009 is projected to be weak. The electronics sector which is 30% of Singapore’s GDP is facing a huge slowdown due to the retreat of the American consumer.

The argument I’ve heard from agents make is that in bad times like these, people will downgrade to HDB, hence increasing demand for HDB. That makes sense on a certain level.

Why I think the weak economy will weaken HDB prices:
The weak economy hurts buyer’s ability to raise cash. If a buyer is facing a downgrade because they now can’t afford a condo due to losses in the stock market what will they make of $20,000 to $30,000 in COV to buy a flat? In last year’s market, cash could be raised by selling stock, this option is far more removed.

Demand/ability to pay COV has evaporated and sellers need to get used to it.

Observation 2) En Bloc fever is over


From over 100 deals in 2007, en bloc activity virtually ground to a halt in 2008. While there were spectacular deals such as $100,000 COV, this does not mean that all the flats in an area are suddenly all a gold mine.

How I think this hurts the market:
If there are 50 – 100 units per enbloc, that will mean that about 5000 – 10000 units were slated to taken off the market. These newly minted millionaires could then easily and quickly snap up property, however, they aren’t an unlimited supply. That boat, has by and large set sail. There are a pool of sellers who upon reading the 100k COV headlines are on the market to sell only if they are offered a windfall amount. Never mind that their flat is old and dingy and does not have a commanding view like that flat. These sellers are not serious to begin with and have skewed the market prices upwards.

Observation 3) Prices are crazy.

From personal experience. There was a 30 year old point block 4 room flat, great view, great location (above the new MRT station near botanical gardens), near Nanyang, very well renovated with top of the line stuff. Valuation, $550k, asking $100k COV, for a total of $650k. While the flat is nice, even paying the valuation price is rather absurd (the gahmen cleverly raised the valuation to reduce COV, only to have people add it on anyway).

To get the flat you will need: $100k COV, + $55k down payment, + $10k closing/moving fees, for a total of $165k. Some important questions to ask is: how many Singaporeans have $165k cash? Of all the Singaporeans who have $165k, how many you think is going to live in a HDB, no matter how nice? If a person has $165k to pay down, don’t you think they’d be living in a condo? At the end of the day, it’s still a 30 year old flat! That’s older than me!

Case 2: A almost 40 year old 3 br flat (the older long block of flats type). Also nicely renovated, 15 mins from MRT, commonwealth. Valuation, $345k, asking $50k COV, for $395k. However, in this case, its still nuts. About $90k down is required to move in a 3br flat. Once again, this begs the question, people who have $90k cash, are they really gonna stay in a 40 year old 3br?

Case 3: For example, in Heritage View and Dover Parkview, the condo prices are now $750 psf. HDBs at Blk 17, 18 and 19 at Dover, are transacting for $500 psf (1000 sq feet flat, valuation $460k, + 40k COV). If you look at 5BR, you are talking about $600k with COV factored in.

The price difference between a HDB and a private condo in comparable locations now is 67% the costs, and that gap could narrow to 75%. To buy the HDB in Dover will cost $40k COV + 46k (10% deposit on $460k valuation) for $86k down. This is the down payment amount as for a condo unit at Heritage View or Dover Parkview.

The value for money in HDBs in these select cases are largely gone

Observation of previous trends:

In my previous post, which smartpropertybuyer has kindly posted, I observed that after the private housing prices peaked in Q2 96, HDB continued to climb, peaking in Q4 96. After HDB prices peaked at about 136 points, they held on at above 130 for 3 quarters before tanking about 20% in the following 2 quarters.

Private property also was resistant to price drops, staying rather firm for 2 months before tanking.

My speculation: Resistance to price drops could be due to human nature and psychology. It also takes a while for foreclosures, and bills are called in after the initial defaults to work its way through the system, for banks to repossess the house and put it on the market.

Putting my money were my mouth (pen/keyboard) is, I’m sitting tight on my cash until the prices have corrected themselves to historically affordable norms and cash out on the next boom.

The internet is a great tool find information and hopefully to make better informed decisions. However, as seen in the US housing boom and now bust of epic proportions, good old fashion greed and fear are still able to cause enough chaos in the market. My prediction, is that HDB prices will peak in Q1 09, hold steady until Q4 09 (slight slippage in prices) and see larger declines in 2010.

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