HDB resale market buoyant but upgrader effect still muted

July 26, 2008
HDB resale market buoyant but upgrader effect still muted
Resale price index very close to record high of Q41996; Q2
transactions up 22%
By ARTHUR SIM

THE Housing and Development Board (HDB) has announced that its Resale
Price Index rose by 4.5 per cent in Q2 2008 over the previous quarter
and 8.4 per cent since Q4 2007.

The number of resale transactions also increased by 22 per cent
quarter on quarter to hit 7,760 transactions.

On a half-yearly basis, a total of 14,120 transactions have been
recorded so far, almost half of the 29,450 transactions for the whole
of 2007.

The HDB Resale Price Index is now hovering very close to the all-time
peak in Q4 1996, boosted by high resale prices in estates like
Queenstown and Bukit Merah where the median price for five-room flats
is now around $600,000.

But while a buoyant resale market can translate into a stronger HDB
upgrader base, it may still be too early for developers to count on
upgraders to prop up the private residential market.

DTZ executive director and regional head for consulting and research,
Ong Choon Fah, said that HDB upgraders are 'still price-sensitive'.

According to DTZ's analysis, HDB upgraders accounted for 28 per cent
of all private homes bought in Q1 2008, up from 22 per cent in the
preceding quarter.

However, in 1998, when private property prices bottomed out, HDB
upgrader transactions peaked at 62 per cent of all private property
transactions.

And when the property market tanked again in 2002, HDB upgraders went
in to buy up to 59 per cent of all private property transacted.

While the numbers suggest that HDB upgraders still find private
property too expensive, Mrs Ong also pointed that HDB does now offer
a 'spectrum' of property types to cater to more specific needs and
price brackets.

Mrs Ong was referring to HDB's new Design, Build and Sell Scheme
flats which have been selling well.

Sources also say that the 578-unit Park Central at AMK has received
around 1,000 applications since its launch on June 23.

HDB has also launched a total of 4,524 new flats under the Build-To-
Order (BTO) system for H1 2008.

ERA Asia Pacific assistant vice-president Eugene Lim points out that
HDB upgraders tend to be those who sell their five-room or executive
flats, and according to his analysis, this number has not increased
significantly.

Five-room flats made up 26 per cent of all HDB resale transactions in
Q2 2008, up from 25 per cent in the previous quarter while executive
flats made up 9 per cent, up from 7 per cent quarter on quarter.

Four-room flats made up 37 per cent of all resale transactions, and
Mr Lim also notes that the median price for this segment saw the
highest increase by $15,000 to $300,000.

Mr Lim believes that the upgrader effect on the private property
market could be curtailed by affordability too.

'Most upgraders will be looking for properties in the $650-$750 psf
bracket,' he said.

Interestingly, the influx of new permanent residents (PRs) here has
added to the demand for resale flats.

Mr Lim estimates that 20 per cent of buyers in the resale segment are
PRs, up from 10-12 per cent a year ago.

However, whether PRs are partially responsible for the buoyant resale
market is not known. HDB has not revealed the number of flats bought
by PRs.

Perhaps a more interesting development is that the HDB Resale Price
Index has begun to diverge from the private property price index,
which grew by just 0.2 per cent in Q2 2008.

Still, most property consultants believe the chances of the two
indices decoupling, to represent a disconnected private and public
property markets, are remote.

Knight Frank director (research and consultancy) Nicholas Mak also
highlights that between Q2 2002 and Q1 2004, prices of private homes
fell, while HDB resale prices increased.

During this period, both indices did, however, remain relatively flat.

Mr Mak does believes that any divergence in price trends, if any,
will only last for a few quarters before a correlation is re-
established.

He added: 'Both private and public sectors do relate to the same
macro-economic factors.'

DTZ's Mrs Ong also said that both sectors are linked by
the 'substitutional effect'.

'If prices are too high in the private housing market, buyers will
shift to the public housing market,' she added.

She also noted that significant shifts in price movements only tend
to follow changes in housing policy and related spheres like Central
Provident Fund.

Savills Singapore director (marketing and business development) Ku
Swee Yong believes that HDB upgraders will eventually return to 'lend
strong support' to the private property market, citing the interest,
if not the take-up, in new mass-market launches like Livia and Clover
by the Park as examples.