Friday, December 5, 2008

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HDB Resale Price may take another 9 months before falling

Going by past recessions, it could take nine more months before prices fall, said a news report.

According to industry players, the wait could be at least another nine months — if prices do come down at all — no thanks to the slew of foreigners and private property downgraders eyeing the HDB rental and resale markets respectively, which indirectly pushes up the prices of new HDB flats.
“Whenever you have a recession, the first to be hit would be the private property market. So, a lot of people will start downgrading from private homes to HDB flats.”, said Dennis Wee Group director Chris Koh.
HDB’s “market-based” pricing approach for new flats takes into account several factors, including a project’s location, its individual attributes and the prevailing market conditions. The new flats are sold according to the prices they would fetch on the resale market minus the Government’s subsidy.
And in the first nine months of the year, HDB’s resale price index rose 12.4 per cent, rising by 4.2 per cent in the third quarter.
While HDB resale prices are expected to stabilise in the year ahead, the recession has yet to hit the man-in-the-street, saidMr Koh. A case in point: The latest Built-To-Order project Punggol Arcadia was more than three times oversubscribed, despite having five-room flats going for as much as $356,000 to $416,000.
Still, ERA Asia-Pacific’s assistant vice-president Eugene Lim noticed in recent weeks that prospective home buyers are now trying to get more bang for their buck. Said Mr Lim: “If your house is not near an MRT station, people are offering you prices that match the valuation or even lower.”
National Development Minister Mah Bow Tan explained in 2002 that prices of new HDB flats rise and fall more slowly than do resale flat prices. This was necessary to maintain a stable property market and protect the value of the flats, the minister said.
Prior to last year’s property bull-run, which saw HDB’s resale price index matching its previous peak of 1996, resale flat prices fell by 30 per cent in the aftermath of the 1997 Asian financial crisis. But prices for new flats dropped just 10 to 15 per cent.
Some market experts believe it could be the same story this time round — with prices of new flats in the outlying areas expected to fall faster.
But Mr Lim, for one, doubted that prices of new HDB flats would fall at all, given the perpetually high demand for housing here.
Reiterating how HDB “followed the market and moved prices downwards” in the aftermath of the Asian financial crisis a decade ago, a HDB spokesperson reiterated that the Government “remains committed to ensure that HDB flats are affordable to the vast majority of our citizen families, especially young married couples and the lower-income households”.
Still, in view of the current economic climate, the spokesperson advised flat seekers to “buy a flat within their means, bearing in mind how their future earnings may be impacted”.
The spokesperson added: “Given the current economic climate ... They may have to start off with something more modest in size or less than ideal in location if prudence calls.”
Going by past recessions, it could take nine more months before prices fall

May also want to read:
Fire Sale: Owners Dump Condos
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...


First my rants:
I have an overall favorable view of the HDB, although as a new home seeker, I'm balking at the high prices of some HDBs even as a direct purchase from the gahmen. For example, a flat in Jurong West, in 665 or 666, has not been occupied since construction 8 years ago. The reason is because of its MSCP view on one side and open corridor view on the other side. It also has the number #04-174. Yet the price of the HDB is $300+k. There is a reason it has not been sold for the past 8 years. Instead of off loading the flat, the gahmen is doing something silly like raising the price. A friend of ours in Jurong West bought a similar flat for $270k only 1 year ago, so this is not a good deal. I'm sure the gahmen is committed towards affordable housing, but the overall market is just inflated now.

ERA's pacific assistant vice president, Eugene Lim doubts that the HDB prices will even fall at all. First of all, what's up with the fancy title? He could be the Grand Wizard of Oz (real estate company) for all I care. Of course he is going to say that HDB flat prices aren't going to fall, especially since he is in the business of selling them! All this BS of private property downgraders just makes no sense, especially since just a couple days ago, it's reported that HDB upgraders are making up the largest % of Private property buyers. As for the perpetually large number of home seekers Mr Lim claims to exist, then why are rental prices weakening?

Here are some figures, using my own guessitmation from pulling URA figures.

As at 3rd Quarter 2008, there were 66,422 private residential units in the pipeline. Of these, 42,918 units were still unsold. These comprised 3,570 units that had been launched for sale by developers and 12,295 units which had the pre-requisite conditions for sale and could be launched for sale immediately. Of the 66,422 units, 37,051 units were expected to be completed between 4th Quarter 2008 and 2011, of which 26,946 units were already under construction. Developers had obtained planning approvals. for projects making up the remaining 10,105 units, but have not yet commenced construction.

Using 2003 (5 years ago as a bench mark the number of private property units have increased from abt 210k, to 238k (18k units). In the next 5 years, it will be about 288k units (50k more units than now, 68k more units than from 2003)

Does this mean that 12,295 units are ready to be launched immediately, but are not released? If so, then a total of 15,865 units could have been launched in Q3 2008 if the developers really wanted to. Between Q4 2008 and 2011 are 8 quarters, where 37,051 are supposed to be completed. Of these, 26,946 were already under construction. Even if only the ones under construction accounted for, 26,946 + 15,865 (of ready inventory) = 42,811 units are that are going to be ready by 2011.

So taking these figures, on average, in the last 5 years, 900 units were launched per quarter. In the next 5 years, 2500 units launches per quarter on average.

If the last boom/bust cycle is anything to go by, the HDB prices will be sustained at current levels (above 130) for 2-3 more quarters, before sliding back down to the 100 – 110 index point region.

Personally, I’m just gonna pull a # of our my @$$ and say Private Property will drop back to about 120 index points in the next 5 years.

Remember, all these so called experts are wrong. 1 year ago, experts were claiming that Asia has been decoupled from the US and China will fuel growth. Now, some guy trying to sell flats are saying they won’t drop in price due to the demand… even though economy might shrink next year. Puh-lease!

Expert said...

Totally agree with what Danny wrote. I also remembered very clearly the decoupled analysis these "experts" gave early this year right before some economic summit.

This came right about the time when some Citibank "expert" holding some "assistant asia-pacific head of research and analysis...blah blah" position proclaimed that the STI will shoot up to 3,900 points by the end of the year.

Now we are again hearing these "experts" from PROPERTY agencies saying that HDB will not dropped. Please remember that they are the ones that say Singapore's property will shoot up to the heavens because of the IRs, F1, etc.

But look at the situation now: Sands and the IRs begging the govt for progressive opening of IRs, F1 says bye-bye to Honda, NUS passing youth olympics to NTU, STI at 1,600 or maybe lower, etc

Remember what PM lee said: Fat U-shape recovery. Sends chills up my spine with such comments coming from the government. This could indicate that it is going to be worse than we can ever imagine!

Let's see whether or not this Eugene lim will be retrenched next year after giving such "expert" view.

Anonymous said...

First, I think high HDB prices derive from 'true' (as opposed to speculative) demand. People who buy HDB really do expect to live there.

A temporal supply-demand mismatch resulting from years of underbuilding, overwhelmed by a simultaneous spike in new citizens/PRs in the last few years, coupled with buyers displaced from the exhorbitant private property downgraders has resulted in steep rises in resale prices. This, in turn, has dragged up the price of new HDB units.

Nevertheless, this should be temporary. As the influx of immigrants slows and supply rises over the next 2 years (via BTO), resale and new HDB prices should slide. It would be in the government interest to do so because of political, economic and practical exigiencies.

I think prices here have to slide.

I agree. The ERA VP's statement about more HDB upgraders is rubbish. HDB upgraders buying private properties may have risen in percentage terms as the number of foreign buyers fell, but in absolute numbers, they remain small. (I can't tell you off-hand ,but the data is out there somewhere). No surprise since HDB upgraders are a pragmatic lot, and would weigh the need to buy when prices are still high, and when their own jobs may be at risk, and inflation is eating at their ability to service a new mortgage.

There is a glut coming.

37,051 units are going to be completed by 2011. That's 37,051 NEW units looking for occupiers.
Currently there are already 13,939 vacant units sitting idle in Singapore.
Supposing many units are held buy investors buying-to-rent or, worse still, flippers, we could be looking at a near TRIPLING in empty homes just by 2011.
What do you think that's going to do to rents and selling prices?
And this annual flood of newly completed units will continue till 2012 even assuming developers completely withold all new sales.

Yes, there are 12,295 units ready to be launched right this very moment, but they'll drag their feet. Afterall, there are still no takers (at current prices) for 3570 units already launched.

The 3570 units already on the market are going to face new compeition from:
- 12,447 TOP's by end 2009 of which a potentially large proportion could be up for resale from people running into financial difficulties, people who have already made a profit (those who bought early), speculators and investors who cannot hold.
- And 39,000 odd units waiting to be launched, some of which will be released, despite the developers own instincts, because of debt and cash flow problems.

No wonder MAS has found it necessary to come out and defend the banks these last 2 weeks over their exposure to the potentially disasterous DPS market.

Sure, I think we COULD retrace much of the 2004-2008 price rise. Even if we disregard the most bearish economists (who predict a Depression), the majority of economists and politicians say this is going to be the most severe recession in the last 20yrs.
Perfect storm of severe and long recession, coupled with supply glut. This will make the fall in property prices of 1997, and 2001 look like a mild drizzle.


smart_buyer said...

People think that Singapore HDB market will take the same course as 96. I dont think so as things have changed a lot in last 10 years.
Following are the reasons:
1. cost of construction in last 10 years has gone too much.
2. HDB homes were undrpriced as Singapore emerges as new politically safe Financial Hub in the world.

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