(7.2) Interests in HDB Resale Flats Up since July 2007
The table below shows the transaction volume of HDB resale flats for the whole of 2007.

Table 11 – Increasing volume of HDB resale flats transactions Month-on-Month

The tables below show that the 10 largest Housing estates have the highest number of flats sold; while the 3 smallest housing estates enjoy the highest transacted prices, due to rarity and good location.

Table 12 – The 10 largest HDB Estates sell the highest number of flats

Table 13 – The highest transaction prices always come from smaller HDB Estates

(7.3) HDB Resale Prices are Trending Upwards since July 2007
In December 2007, newer Design-and-Build 5-room flats at the precincts around Blocks 687 (A-D) and 690 (A-F) of Woodlands were transacted at between $320,000 and $347,000 depending on different attributes such as floor levels and facing. Other 5-room flats at older precincts have been transacted at the price range of between $270,000 and $300,000.

Six months earlier in June 2007, similar Design-and-Build 5-room flats at the same Woodlands precincts were transacted at between $270,000 and $315,000. That is a difference of 18.5% and 10% growth in transacted prices over a 6-month period.

Likewise, in December 2007, newer Design-and-Build 5-room flats at the precincts of Blocks 680 (A-E) to 683 (A-E) of Jurong West were transacted at between $307,000 and $370,000 depending on different attributes such as floor levels and facing. Other 5-room flats at older precincts have been transacted at the price range of between $205,000 and $287,000.
In June 2007, similar Design-and-Build 5-room flats at the same Jurong West precincts were transacted between $290,000 and $318,000. That is a price growth of around 15% for the similar resale flats.

(7.4) Case study on Tampinese Executive Flats
A study was done on the capital appreciation of Executive flats in Tampines during the past 12 months.

The parameter of the study is to compare prices of two categories of E flats – one group with poor attributes (therefore lower sale prices) and the other with good attributes (therefore higher sale prices) -  and track the price mobility. The study yielded the following results:

 Table 14

* LF = Low Floor / MF = Mid-Floor / HF = High Floor

1. The price growth year-on-year (October 06 and Nov 07) between Executive flats with same attributes:

Price increase of Lowest priced E flat = $47,000 (14.7% increase in price)
Price increase of Highest priced E flat = $119,000 (27.3% increase in price)

• Compare First half-year growth (Oct 06 and May 07) between Executive flats with same attributes:

Price increase of Lowest priced E flat = - ($3,000) (price actually dropped)
Price increase of Highest priced E flat = $12,000 (2.8% increase in price)

• Compare Second half-year growth (May 07 and Nov 07) between Executive flats with same attributes:

Price increase of Lowest priced E flat = $50,000 (15.7% increase in price)
Price increase of Highest priced E flat = $107,000 (24.5% increase in price)

The following conclusions are drawn from the study:

1. The comparative data shows that the price increase occurred only in the second half of 2007. This means that the HDB resale market is beginning to experience the effect of a better economy and the heightened activities may continue for a few years.
2. Price surge in E flat occurred after prices for private homes had reached a new historic height. It also showed that many middle-income group purchasers have been squeezed out of the private home market.
3. Resale flats with good attributes, such as high floor level, younger in age (newer in flat design) and closer to amenities like MRT station and shopping mall, achieve higher and faster appreciation in capital value.

Myth or Reality (7): HDB resale activities have returned to the forth after the past 8 years of doldrums. While the psf prices of private condominiums have increased by leaps and bounds, the unit floor area costs of HDB flats in the heartlands remain affordable. With more and more middle income earners being squeezed out of the private property market, resale HDB flats have regained their favour among the higher income earners – hence the increases in transaction volumes as well as resale prices of larger HDB flats such as 5-room and executive flats.
Sellers of HDB flats that attracted high COVs may upgrade to mass market private homes with spare cash from the high COVs and thereby pumping up market activities. However, the high COVs for HDB resale flats may cause mass market property prices to climb and once again put private homes out of reach of HDB upgraders.

Awkwardness (6) :  More and more sellers of mass market private homes are increasing their asking prices with the logical thinking that if HDB flats could fetch more than $700,000, a four-room private condo should command at least $1 million. Before more new condos come on stream, the tug-of-war between the sellers’ asking prices and the realistic prices buyers are willing to pay may cause the market to go through a three- or four-month drought.

The second half real estate market told a very different story from the first half. The global situation has worsened since last August with the revelation of the sub-prime mortgage problems in the US effectively sidelining the majority of buyers. While the whole year records look impressive, the detailed numbers of the second half results were worrying, to say the least.

(1) The world may go into recession following the cues from the US

The huge losses experienced on the first day of Wall Street augur ill for the entire global economy. Year 2008 will be a volatile and difficult year for the US – the world’s largest economy. The US domestic economy will slow down due to the financial market woes.

The housing crisis in the US is far from over and the credit markets and still saddled with bad debts. With write-offs of over US$40 billion by banks looking to clear their books of sub-prime loans and investments, 2008 looks set to be more of the same story.

This will certainly drag down the entire economy and put pressure on corporate earnings. The crisis is affecting everybody, not just the financial sector.

The threat of recession, inflation and even stagflation cannot be dismissed. It appears that 2008 will be amongst the most challenging market environments facing the US and the rest of the world in many years.

(2) Massive inflation causing entire market to be jittery about 2008

As houses become more expensive and prices of food and petrol continue to climb, Singapore inflation rate could hit a high of 6% in the first three months of 2008.

With an 18% to 25% upward revision, the increase in annual values of properties is significantly higher this year and the quantum of the recent taxi fare hike, food price and oil price increases are all much higher than earlier expected. As such, the inflation rate this year will exceed the Monetary Authority of Singapore’s forecast of 3.5 to 4.5 per cent for 2008.

The consumer price index (CPI) surged 4.2% in November 2007 year on year, a 25-year high. And housing value has a significant weight in the CPI.

However, the irony facing Singapore is that a likely US recession this year could ease inflationary pressure with demand for essential goods and oil going lower as a result.

(3) Inflation but a falling real estate rate

With the cheapening of US dollars, more foreign investors are bringing their funds into the Singapore system in bid to salvage the value of the money they are holding. This has resulted in two developments: firstly, an asset price inflation, and secondly a falling interest rate.

The two phenomena do not usually occur together. When they happen, that is, rising asset prices despite a falling Sibor (Singapore Interbank Offered Rate), asset price inflation will escalate.

The three-month rate has fallen from 3.44% a year ago to 2.13% in the second week of January 2008. This is a negative real interest rate as the bank’s interest rate is lower than the inflation rate.

The challenge this year for Singapore economy is how to stave off the possibility recession in the US. There will be a second round of gradual appreciation of Sing dollar against the US dollar. It is expected that Sing dollar will appreciate against the US unit from 1.43 at the end of the first quarter to 1.39 in the same period in 2009.

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