HDB resale prices fall for the third consecutive quarter
Resale prices for HDB flats continued their decline in the first quarter of 2014, a trend which is unlikely to reverse even by the end of this year — this is the result of a convergence of measures imposed last year to cool the market and a continued supply of new flats. Flash figures released by the HDB today indicated that the resale price index in 1Q14 was 198.6, which represented a 1.5% contraction from the previous quarter.
This continued decline comes after a 6.6% price growth in 2012 and double-digit growth in 2011. It also marked three consecutive quarters of price decreases from 2013 (the index dipped 0.9% in 3Q13 and 1.5% in 4Q13). Resale transactions also decreased by 12% from 4,529 in 3Q13, to 4,001 in 4Q13. Resale transaction volume for the full year of 2013 was 18,100—a drop of almost 28% from 2012, making it the lowest level in years.
Mr Mohamed Ismail, CEO of PropNex Realty said, “The potent combination of the measures has been effective at slowing down the price growth of HDB resale prices. I am not surprised that the downward trend to continue with prices dropping by between 6 to 8% in 2014 and beyond,” commented Mr Ismail.
Over the next three years, 80,000 new BTO flats will be completed and keys handed over to buyers. HDB will also launch a total of 24,300 BTO flats in 2014 – this is just slightly lower than last year's supply of 25,100 units. And according to Minister Khaw, 6,000 households in the next 3 years will be moving to a BTO flat, thus they are required to sell off their existing flat within the 6 months. With the forthcoming supply of HDB resale units in the market, it is expected that it will further create a downward pressure for HDB resale prices. In the next 2 years, we are expecting HDB resale prices may well drop by 15%," predicted Mr Ismail.
With the softening of prices in the HDB market, resale flats with little or zero cash-over-valuation will be the norm. As evidenced by SRX’s Residential Property Report in February 2014, median COV fell to zero in February 2014 from the peak of $38,000 in mid-2011.
Mr Ismail does not expect a turnaround this year, given a looming flood of new homes, an uncertain global economy and the continued impact of property measures such as lower mortgage servicing ratio, shorter loan tenure and a minimum three-year waiting period for PRs wanting to buy HDB resale flats.
“Home buyers are now more restrained as they have to think twice if their MSR is over 30% or TDSR is near 60%. In summary, home-buying is more complicated, and have discouraged many. Loan curbs and softer prices will ultimately mean that HDB upgraders have less to spend on their next property as their purchasing power is being eroded,” concluded Mr Ismail.
Private property resale prices continue to head south
After a tumultuous year that saw the most severe set of property cooling measures and lending curbs implemented by the government, private homes prices may fall further. According to the flash estimates released by URA today, private home prices in Singapore continued to fall in 1Q14 as government interventions crimped real-estate investment.
The private residential property price index fell 1.3% in 1Q14 to 211.6 points—this is the second consecutive quarter of decline and could herald further price falls this year, when large supplies of new homes are expected to reach the market amid a possible rise in interest rates. Mass-market homes in the OCR saw prices declining by 0.3% while RCR prices fell by 2.8%. For the fourth consecutive quarter of price decline, CCR properties also saw its prices continued dipped by 1.3% in 1Q2014 flash estimate results.
"By now, we are convinced that the private residential market has turned the corner and is entering into a consolidation phase with reduced transactional activity and prices under pressure," said Mr Ismail, "the various government measures have effectively curtailed demand from all groups of home buyers," said Mr Ismail.
“The demand for private homes might also be affected by the drop HDB resale prices. This possibly deterred sellers who are looking to sell their HDB flats and upgrade. The smaller gain achieved from the sale of their HDB will limit their budget for their new private property and may cause some to put their plans on the backburner because the potential profit is insufficient to allow them to upgrade.”
Buyers and investors will be more cautious resulting in a more subdued demand and weaker sales volume. Prices are widely expected to show a modest decline or remain flat. Mr Ismail said he expects prices to cool further over the course of this year and next, but it will remain resilient in the long term.
"We expect prices to remain relatively stable with a bit of downward pressure in the first half of 2014. Developers will adjust their launch prices to match the current inertia in the market, but will not drop prices too much due to the high price in which they have secured the land. Similarly, I believe secondary resale prices will take cue from the primary market in a bid to attract buyers. In addition to the weak market sentiments, the large oncoming supply and various measures in place will work to further dampen demand. We are looking at an around 5 to 6% correction for the rest of the year, but it won't be a knee jerk fall. The 7th round of cooling measures clearly impacted the market, I think it is timely to tweak the Additional Buyers’ Stamp Duty (ABSD), while maintaining the Total Debt Servicing Ratio (TDSR) which was intended to ensure buyers’ financial prudence," he concluded.
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