Despite the slew of cooling measures announced by MND and HDB on 30 August, the flash estimates released by URA and HDB for 3Q10 reveal a sustained demand for both public and private housing.
The HDB resale price index (RPI) inched up a further 4.0% to yet another new high of 167.8. Leading real estate agency PropNex Realty says the increase could be attributed to median Cash-Over-Valuation (COV) continuing their upward trend quarter-on-quarter.
“Our transactions for 3Q10 saw median COV prices of $30,000, $32,000, $35,000 and $38,000 for 3-room, 4-room, 5-room and Executive flats respectively,” reveals PropNex CEO Mr Mohamed Ismail. “This is up from HDB’s 2Q10 figures by between 4 and 15%, with the largest increase being for 3-room flats. Our overall median COV recorded is about $31,000, a mere $1,000 more than HDB’s figure for 2Q10.”
PropNex, which holds about 20% of the HDB resale market share based on unique transactions recorded in 2Q10, explains that this increase in 3Q10 reflects that demand for resale flats is still very strong.
However, Mr Ismail cautions that the numbers are largely based on July and August figures, which is before the new cooling measures were announced by HDB, and it cannot thus be concluded from HDB’s 3Q10 results that the cooling measures were ineffective.
“Since the measures were announced,” he says, “we have seen COV levels drop by 20–30%, based on our most recent transactions. Following the impact of the new measures, which caught many potential buyers by surprise with its immediate effect, the demand for resale flats has wavered and dipped. Our number of unique transactions for 3Q10 show a 35% drop in the sales volume from 2Q10. Besides the fact that the buyers and sellers are taking time to digest the new measures’ implications, the lower Loan-To-Value ratio has also impeded some HDB upgraders from moving to a larger HDB flat, as they do not have the means to support a 70% bank loan.”
He points out that the actual 3Q10 figures from HDB, slated for release on 22 October 2010, will not reflect this level of decline. The reason for this, he explains, is that PropNex records a transaction upon an agent’s submission after the Option has been exercised. However, HDB records a transaction after the sale has been completed, which could be up to about 16 weeks after the Option has been exercised.”
“Hence,” he says, “what we are seeing within our own records will indicate the next quarter’s figures for HDB.”
However, Mr Ismail also does not expect HDB’s 4Q10 results to display a 35% drop in sales volume, as the market will have recovered from the initial impact of the measures’ announcement and genuine buyers will have continued with their purchases.
“Taking into consideration the first few weeks of ‘wait-and-see’ by both buyers and sellers,” he analyses, “as well as the fact that the measures will indeed be effective in cooling the HDB resale market, the number of resale transactions for 4Q10 should dip from 3Q10 by about 20%. COV prices will probably stabilize from 3Q10 to 4Q10, and we should see the overall median COV at around $22k for 4Q10”
In terms of the HDB RPI, Mr Ismail forecasts a 0% or negligible growth for 4Q10, as the market goes through a consolidation phase before seeing a more sustainable growth in 2011 of about 2% per quarter.
Looking at the price index flash estimate for private properties, as released by URA, Mr Ismail notes that it is continuously maintaining its steady growth from 1Q10 into 2Q10, with an overall increase of 3.1%, from 2Q10’s 184.2 to 190.0.
Upon examination of the price growths in the three geographical regions, the Outside Central Region (OCR) and Rest of Central Region (RCR) grew by 2.4% each, while the Core Central Region (CCR) only grew by 1.6%.
“These figures are likely to be different in 4Q10,” says Mr Ismail. “This is because the new measures, which again will see an impact in URA’s 4Q10 results, are affecting the mass market private properties for the most part,” he says, referring to feedback from agents on the ground.
This forecast is further supported, he points out, by the fact that July and August private home sales saw 2,419 out of 2,792 units sold, or 86.6%, transacting at $1,000psf or more, indicating a shift in buying power. In 2Q10, only 47.6% of the properties transacted were sold at or above $1000psf. However, the growth for OCR edged out the CCR due to the higher prices per square foot in some of the newer projects.
“The new measures will affect mainly speculative investors in the middle-income bracket,” says Mr Ismail, “especially the lower Loan-To-Value ratio. HDB upgraders or smaller investors may now be unable to afford the increased Minimum Cash Payment and not have the liquid cash and CPF assets for a 30% down payment.”
Moving forward, Mr Ismail expects the URA price index to continue a slower upward climb by another 2–3% for 4Q10.
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