Monday, January 2, 2012

HDB resale flat prices rised 1.7% in Q4 2011

Housing Development Board, HDB, has just released the "Flash Estimate of 4th Quarter 2011 Resale Price Index" and is 190.4 now, an increase of 1.7% over 3rd Quarter 2011. Although the increase is lower than the 3.8% seen in the previous quarter, it is still a significant rise.[1]

The index was 172 at the end of 2010 so the year-on-year increase is around 10.6% in 2012. The price index doubled since 2006 in just 5 years.

Between 2001 and 2008, the average number of HDB units completed fell to 8,260 units per annum from the average of about 25,700 units per annum between 1991 and 2000 (See Forecasting the future of Singapore property market). This under-supply situation is the key reason for the continuous HDB resale price rise. Although HDB now responsed to under-supply situation with 25,000 units in 2011 and plans to release 25,000 more in 2012, these units will be completed in 2-3 years and will require 5 years of occupancy before entering the resale market.

Supply crunch is also fueled by the cooling measures of August 2010:

"Beyond the historical under-supply of HDB flats in the 2001 to 2010 decade, some of the key reasons for the supply crunch lie in policies that have been effected in recent times. As part of the cooling measures implemented in August last year, it was mandated that resale flat buyers who are private property owners had to dispose of their private homes within six months of purchasing their HDB resale unit. In addition, the Minimum Occupation Period (MOP) of non-subsidised flats was increased from three to five years. This means that HDB upgraders might be reluctant to sell their HDB flats because it may be more difficult for them to buy a HDB flat in the future, said DWG’s Mr Lee. These upgraders will be looking to rent out their HDB flats, resulting in less supply of resale flats."

But the price index only tells a part of the story. There is also a Cash-Over-Valuation (COV), money paid in cash to the seller over the valuation of the HDB flat. And COV has fallen $5000 just for the month of December 2011 to $25,000 - $40,000. "COV are likely to remain soft and could dip $10,000 to $15,000 in the coming six to nine months" says PropNex Chief Executive Mohammed Ismail.[2]
Source : HDB
Since supply side crunch has no magic and fast cure, demand side measures are the ones which can make difference. For example, In 2011, HDB has offered 28,043 HDB flats 25,196 of which were new flats under the Build-To-Order (BTO) system. For 2012, HDB plans to release 25,000 BTO flats in the various towns/estates. This month, in January 2012, 3,890 BTO flats in Choa Chu Kang, Punggol, Sengkang and Tampines will be offered for sale.[1]

Income ceiling is also raised from 8,000 to 12,000 to enable more Singaporeans to buy new BTO flats rather than going to resale flat market. One another measure is also reducing the Singapore PR intake, which has slowed significantly in the last 3 years and expected to slow further. Singapore PRs are eligible to purchase HDB from resale market and many had done so to avoid paying ultra high rents to the same flats.

[1] - Flash Estimate of 4th Quarter 2011 Resale Price Index
[2] - Resale flat prices still up, but at slower pace

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