HDB resale flat prices keep going up in 2011

Strong demand and shrinking supply behind the price rise: Analysts

By Jessica Cheam, The Straits Times, 29 Oct 2011

FEWER people bought Housing Board (HDB) resale flats between July and September this year, but they were prepared to pay more.

That sent resale flat prices rising 3.8 per cent to a new record in the third quarter.

It was the second consecutive quarter of accelerated resale price rises. Prices were up 3.1 per cent in the April-June quarter, and 1.6 per cent from January to March.

Analysts said the numbers reflect continued strong demand for a shrinking supply of resale flats.

The number of resale transactions declined by 10 per cent to 5,903 deals in the third quarter - below the usual 6,000-a-month average.

But sellers reaped handsome gains, given latest figures of what buyers paid in cash-over-valuation (COV) - the cash premium on top of the bank valuation for the property.

Figures released yesterday showed that the median COV has risen to more than $30,000 for almost all flat types and estates.

Analysts told The Straits Times that uncertainties in the global economy coupled with rules introduced last August to restrict HDB flat ownership had resulted in some owners deciding not to sell their flats.

The rules require private property owners who buy HDB resale flats to dispose of their private property within six months.

Another rule requires owners to prove they have sold their existing flat before qualifying for higher 80 per cent financing on their next home, making it more onerous for owners to upgrade their homes.

As a result, some flat owners have opted to rent out their flats or hold on to them - unless an irresistible offer comes along.

'Owners are treating their HDB flats as investments and prefer to keep them if they can. There are not enough resale flats in the market, so demand is driving prices up,' said Dennis Wee Group director Chris Koh.

Supply of resale flats likely to remain tight

On the other hand, noted ERA Realty key executive officer Eugene Lim, people with immediate housing needs are keeping demand for resale flats up - first- time home-buyers, singles, permanent residents (PRs) and families upgrading or downgrading.

While HDB's aggressive launch of new Build-To-Order (BTO) flats has absorbed some demand from the resale market, he said the wait for a new flat is still three years and 'many buyers cannot wait'.

Analysts add that recent moves to raise the monthly income ceiling for buyers of new HDB flats from $8,000 to $10,000 would also take some heat out of the market, but the effects would not yet have been felt in the third quarter.

Mr Colin Tan, research and consultancy director at Chesterton Suntec International, pointed out another factor - that there is a historically low supply of five-year-old flats eligible for resale.

HDB flats are typically eligible for resale only after a minimum of five years' occupation by their owners.

There are fewer such flats because HDB's building programme slowed dramatically about eight years ago due to the economic and Sars crises, as well as the availability of tens of thousands of unsold flats.

The current tight supply of resale flats is therefore likely to continue for some years until the bumper crop of BTO flats launched recently reaches the market, said Mr Tan.

The HDB also said yesterday that it will be launching another 4,200 BTO flats for sale next month in towns such as Bedok, Bukit Panjang, Hougang, Punggol and Yishun.

This will raise its total flat supply for this year to 28,000 homes.