(E) October 2007 price trend in HDB resale flats

• (E.1.) Prices for new and resale flats to go up

HDB has managed to sell a huge portion of its stock of unsold new flats. For example, 1,269 new HDB flats were offered in the North and West zones in the April bi-monthly sale exercise. Out of these, 92% or 1,172 flats were sold. Then in June, 992 new flats in the North-east zone were offered and 97% or 892 flats were snapped up.

HDB has stated in general that the pricing policy takes into consideration the affordability factor for the public, changes in the market value of resale flats, individual attributes of the flats and the general demand and supply condition in the resale market.

So far, resale prices have been rising steadily with the latest resale price index registering an increase of 6.6% in the third quarter of 2007 quarter-on-quarter. (11 Oct)

• (E.2.) Number of unsold new HDB flats drop to 3,500

The stock of unsold HDB flats has dropped to 3,500 units. It may be further reduced to about 2,200 units by year end.

In the recent HDB’s bi-monthly walk-in sale exercise, 4,800 people filed in online applications for 489 units available for sale. This means that the flats were almost 10-time oversubscribed.

The projected completion programme of HDB flats in the next few years is as follows: (18 Oct)

• (E.3.) Higher cash over valuation (COV) for HDB flats

According to data released by the Housing Board on 26 October 2007, five-room flats in popular areas like Queenstown, Tiong Bahru and Toa Payoh are being sold for more than $100,000 above valuation.

Since July this year, COV has become a norm and about 80% of HDB resale transactions attracted cash above valuation. This may be due to middle-income buyers, who had been priced out of the private home market, buying cheaper public flats.

According to HDB figures, buyers of executive flats are forking out the highest median cash-over-valuation amounts. For example, the median price is $155,000 in Clementi. Overall, the median amount for this flat type was $25,000.

The median price for four- and five-room flats, are $18,000 above valuation. For two- and three-room flats, the median amount was $15,000.

The highest amount paid above valuation for a five-room flat was $91,500. The figures were $57,500 for a four-room flat and $40,000 for a three-room flat.

In general, the areas requiring the least cash-over-valuation were Woodlands, Yishun and Bukit Panjang. The Central area, Queenstown and Marine Parade were the locations where buyers have to fork out more cash in order to stand a chance to own a flat there.

However, total HDB resale transactions in the third quarter were 8,700 units - a fall of 11% after rising 38% in the second quarter. (27 Oct)

See “Why HDB resale prices will continue to rise?” – Annex D

• (E.4.) Median HDB rent went up

The overall median rental for HDB five-room flats went up by 21.2% in the July-September period.

For HDB resale flats, median rents crossed the $2,000 mark for five-room flats in Bukit Merah and the Central area, as well as executive flats in Bishan, Kallang/ Whampoa, Clementi and Queenstown.

Overall, median rents were $1,200 for three-room units, $1,400 for four-room units, $1,600 for five-room flats and $1,700 for executive flats. (27 Oct)

(F) Deferred payment scheme withdrawn

The government on 26 Oct 2007 made a surprise withdrawal of the Deferred Payment Scheme (DPS) for property purchases with immediate effect - in view of the strong economic and property market conditions.

The rationale for DPS is no longer valid with the current robust economy. In fact, with no requirement to prove repayment abilities, many speculators have taken advantage of the DPS to engage in sub-sale activities, causing a property bubble to form recently.

From now on, buyers will have to ensure that they have sufficient funds or are able to secure adequate loans from banks before they commit to buying a property. (26 Oct)

The withdrawal of DPS immediate brought about the following responses:

• (F.1.)Stock exchange in tailspin

Except for CapitaLand which has extensive overseas operations, major local developers have become poorer in stocks. The table below gives a gist of their losses in share prices.

Many believe the sell-down was just a knee-jerk reaction to the Government's surprise move on 26 Oct 2007.

Many bankers were of the view that the change would only affect only a small group of HDB upgraders who cannot afford two mortgages. Most property analysts were of the view that the run-up in the residential property market has been buttressed by strong economic fundaments such as high economic growth, rising rents, and a tight supply of new properties. (30 Oct)

• (F.2.) Investors buy into bank shares

However, bank stocks rose after the announcement of the withdrawal of Deferred Payment Scheme (DPS).

The exit of DPS was seen as positive for banks whose risks have been considerably reduced as more genuine buyers will come forward. The buyers will be compelled to take up home loans which will be drawn down progressively. The net result, the property market will be backed by the correct fundamentals.

The second reason for the bank to cheer the government’s initiative is that the risks of default by corporate borrowers are always higher than individual households in a downward market.

The removal of the scheme will restore some balance, and the banks should have their exposure to households raised while lessening their exposure to developers.

The removal of DPS will definitely cool the property market somewhat and buyers will become more cautious in the near term. For the time being, newly launched projects may suffer from a slower take-up rate.

But in the longer term, property prices will be rising more realistically or falling in line with economic fundamentals.

• (F.3.) All is not lost with DPS withdrawal – real economy is still red-hot

A report by Goldman Sachs Global Investment Research said that those who are likely to be affected by the withdrawal of the Deferred Payment Scheme (DPS) are speculators, foreign buyers and buyers who are stretching their affordability to buy a property.

While the high-end residential market will also be affected by the withdrawal, it is the mid to mass market which will take the full brunt of the government’s move. This is because such projects saw more buyers using the DPS. With the new rule, there will be a need for buyers in these two categories to secure financing before they could commit to the purchase.

As such, in the short run, the pace of new launches and take-up of new launches are expected to slow as property prices are likely to come under some downward pressure. This may lead the developers to offer lower discounts on price.

However, all is not lost as there are also positive factors to support the growth of the property market. Such factors include strong job creation and economic growth.

Compiled by Sam Gian – Independent Real Estate Sales Trainer

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