Saturday 4 January 2014

Public, private home prices down after govt curbs

Weak demand plus bumper supply could spell a buyer's market this year
By Melissa Tan, The Straits Times, 3 Jan 2014

BOTH public and private housing prices in Singapore have finally come down after a raft of government market curbs.

Prices in the once red-hot suburban private home market dropped in the fourth quarter of last year for the first time since 2009, new data yesterday showed. This dragged down overall private home prices.


This marked the first time public housing prices have slid for two straight quarters since 2005.

Consultants said weak demand for homes could mean that sellers will finally be at the mercy of home buyers this year, adding that a bumper crop of upcoming homes will swing things more heavily in favour of buyers.

"Beyond doubt, it is a buyer's market," said PropNex chief Mohamed Ismail. "Sellers today cannot dictate prices at whim."

Colliers International research head Chia Siew Chuin said buyers expect a correction this year - and this is likely to keep prices in check. Prospective home buyers want to wait for prices to fall further before buying, pointing to heftier stamp duties and tough debt-to-income ratio limits on loans imposed last year.

"There are a lot of new launches and they can't really sell, and rentals are softening. It's a good time to scout around," said Ms N.C. Ling, 59, an entrepreneur.

Overall private home prices sank 0.8 per cent in the fourth quarter from the third, Urban Redevelopment Authority (URA) flash estimates yesterday showed. This was the first overall slide since the first quarter of 2012, and a reversal of the 0.4 per cent gain in the third quarter.

The main factor was suburban non-landed private homes, previously the only segment propping up the overall price index amid lacklustre market activity.

Suburban private home prices slipped 0.6 per cent in the fourth quarter - their first slide since the second quarter of 2009 - after climbing 2.2 per cent in July to September.

Falling HDB resale flat prices likely dented demand for mass-market private homes by shrinking the pool of HDB upgraders, said Knight Frank research head Alice Tan.

HDB flat resale prices fell 1.3 per cent from the third quarter to the fourth quarter.

Ms Tan said stricter loan restrictions have forced buyers to tighten their belts.

 Mr Alvin Leow, 45, a senior manager in the paint industry, said that prices would have to fall a little more before he would buy a private home in the suburbs, due to smaller home loan amounts. He lives in a five-room HDB flat.

The city centre had the sharpest price drop in the fourth quarter, with non-landed private home prices sliding 2.2 per cent.

OrangeTee research head Christine Li cited price cuts at new launches such as Duo Residences in Bugis that were priced "below market expectations".

The price declines in both the mass-market and luxury home segment outweighed a rise in non-landed home prices on the city fringe.

As a whole, private home prices grew 1.2 per cent last year, well down on the 2.8 per cent rise in 2012, the URA said.





Resale flat prices fall for second quarter in a row
Index down 1.3% - sharpest quarterly drop since 2005
By Charissa Yong, The Straits Times, 3 Jan 2014

HOUSING Board resale flat prices continued to fall in the fourth quarter of last year, recording the sharpest drop in 81/2 years.


Further, the fall was the sharpest quarterly drop seen since 2005, when resale prices plunged 4.8 per cent in the second quarter.

Analysts said the dip was expected. It followed a 0.9 per cent fall in resale prices during the previous quarter.


Now, flat buyers may use only up to 30 per cent of their monthly salary to service a mortgage, so they are less able to afford larger, pricier homes.

Also, new permanent resident households must wait for three years before buying a resale flat.

Moreover, the large number of new flats has prompted more buyers to purchase directly from HDB.

All in, resale flat prices are likely to have fallen by 0.4 per cent over the whole of last year, said analysts.

This puts an end to the continued rise in resale flat prices seen in previous years, but a drastic and instant cut in prices has been avoided, said R'ST Research director Ong Kah Seng.

It "sets the stage for HDB resale prices to take the downward trend" this year, said PropNex chief executive officer Mohamed Ismail.

Both he and ERA Realty key executive officer Eugene Lim expect prices to drop by between 5 per cent and 8 per cent this year.

The news is good for buyers, more of whom could be drawn back to the resale market during the second half of this year, said Mr Ismail.

"As resale prices and cash premiums continue to decline, and the Government decreases the supply of new three-room and larger flats, we might see more buyers back in the resale market over the course of this year," said Mr Lim.


However, it will raise the number of new two-roomers in non-mature estates, from 2,600 last year to 5,000 this year, to cater to singles.

More detailed public housing data for the fourth quarter will be released on Jan 24.





Large drop in private home sales in 2013
By Cheryl Ong, The Straits Times, 2 Jan 2014

MEASURES aimed at cooling the property market appear to have worked, with fewer private homes sold by developers in 2013 compared with the preceding year.

An estimated 14,950 new homes were snapped up in the first 11 months of the year, according to the Urban Redevelopment Authority. The figures exclude executive condominiums.

With hardly any new launches in December - traditionally a quiet month for property - total sales for last year are likely to be well down from 2012's 22,197 new homes sold.

Experts had tipped sales of about 15,000 units for the year, anticipating the decline after steeper Additional Buyers' Stamp Duty rates and the Total Debt Servicing Ratio framework were introduced last year.

And even fewer homes could be sold this year, as the impact of the new rules is unlikely to wear off soon, they said.

Last January, the Government implemented a duty of 5 per cent on permanent residents buying their first home and a 7 per cent duty on Singaporeans purchasing their second property. ABSD rates became higher for non-PR foreigners as well.

Tougher loan rules were then introduced in June to ensure home-buyers opted for more prudent financing.

CBRE Research associate head Desmond Sim said the tighter lending guidelines "appear to have had the most far-reaching impact on property compared with the previous property-specific measures".

Despite the curbs, a handful of large property developments managed to attract enough demand to support the market.

The Tembusu in Kovan, for example, moved 218 out of 337 units in August, while Sky Vue in Bishan sold 433 of the 505 units launched in September.

New home sales also climbed in November after developers adjusted prices to suit cost-conscious buyers. A total of 1,228 units were snapped up in the month.

The biggest sellers in November were Duo Residences in Bugis, which sold 600 of 660 units, and Alex Residences in Redhill, where 171 of 429 homes were moved.

The upshot is that property prices will have ended 2013 likely only 2 per cent higher than a year ago, said Mr Sim.

He also expects the impact of the loan curbs on property demand to extend into 2014, with a lower 10,000 to 12,000 new homes to be sold this year.

New home prices should also remain flat this year, as there are fewer new projects located near MRT stations compared with last year. The lower availability of these popular homes could dampen buying demand.





Softly, gently does it to cool HDB market
Is the HDB resale market headed for a hard landing? And with 77,000 new flats launched from 2011 to 2013, will there be an oversupply?
By Janice Heng, The Straits Times, 2 Jan 2014

AT THE start of 2013, the question was whether the Government would succeed in its policies to cool down an exuberant housing market.

A year on, Housing Board resale prices have slipped, cash premiums have gone down and fewer flats are changing hands.

Against today's backdrop, one might instead wonder if the landing may not be as soft as planned. But is the HDB resale market in any real danger of a hard landing? Experts say no.

''There is almost no possibility that public housing is heading for a hard landing in 2014,'' says property market research firm R'ST research director Ong Kah Seng, echoing the sentiments of other analysts.

Instead, the market seems to be cruising towards National Development Minister Khaw Boon Wan's planned ''soft landing''.

Softly, softly

THOUGH there is no official definition, a hard landing would mean a fall of something like 15 to 20 per cent, say analysts.

Since the late 2000s, flat prices have soared - as have the tempers of those who felt priced out of the housing market. From end-2006 till end-2010, for instance, the resale price index - tracking prices of HDB resale flats - rose 66 per cent. Such soaring house prices were seen as a source of voter unhappiness in the 2011 General Election.

The Government has tried to bring the market gently back down to earth. Last year, there were finally signs of success.

HDB resale flat prices have fallen. In November, the resale price index slipped to 146.9 points - the lowest level since September 2012, according to Singapore Real Estate Exchange (SRX) figures.

The cash premiums which buyers pay, known as cash over valuation (COV), have also fallen. Median COV fell from a high of $35,000 last January to $8,000 in November.

This is on the back of more ''negative COV'' deals, in which flats go for less than their valuation. SRX reported 97 such deals in November, compared to just three or so a month in the first six months of 2013.

And predictions from analysts are that resale prices will fall further: by 5 to 10 per cent in the whole of this year.

But they add that such a fall still counts as a soft landing, in contrast to the 15 or 20 per cent plunge that would constitute a hard landing.

For instance, four-room flats in Bedok, a mature estate, were going for $447,000 in the third quarter of last year. A 10 per cent fall this year might bring this down to just over $400,000. But a hard landing could see the price plunge to $357,000 instead.

This sort of dive is unlikely, barring another global financial crisis - and economists are optimistic about this year, notes SLP International Property Consultants head of research Nicholas Mak. He observes that the last time the housing market fell as steeply as 20 per cent was in the Asian Financial Crisis.

Resale prices ''didn't even drop'' during the more recent sub-prime crisis of 2007 to 2009, he notes.

The cushion of demand

ONE reason for the soft landing is that deliberate government cooling measures - rather than external blows - lie behind the current market slide.

These include tighter rules for HDB loans. The maximum tenure was cut from 30 years to 25 years. The mortgage servicing ratio limit was lowered so that buyers can use only up to 30 per cent of gross monthly income to repay HDB loans, down from 35 per cent. And new permanent residents now have to wait three years before they can buy a HDB resale flat.

Beneath these top-down restrictions, however, buyer demand remains.

The high home ownership rate of 90 per cent does not stand in the way of demand, since existing home-owners may still wish to upgrade or downgrade.

Such buyers might form about 70 per cent of the resale market, says ERA Realty key executive officer Eugene Lim.

What about the Government's ramped-up supply of new Build-To-Order flats in the last three years? More than 77,000 BTO flats were launched from 2011 to 2013, more than twice the number in the three years before.

But there is limited overlap between BTO and resale flat buyers, say analysts. Some resale flat buyers cannot or do not want to wait for BTO flats. Others seek better locations. And still others simply do not qualify for a BTO flat, whose buyers are subject to an income ceiling. So higher BTO supply will not dampen resale demand.

What of the private property market, where prices are falling? Could this siphon off demand from resale? Some buyers might switch, says Mr Ong - but not many. ''The shift in demand from resale flat to private residential will be very marginal, as the price gap between the two types of properties is still very wide,'' he says.

Far from a hard landing, analysts instead expect prices to stabilise in 2014.

''It is more likely that resale prices will go on a slight descent before plateauing,'' says OrangeTee head of research Christine Li.

These falling prices may then have their own in-built braking mechanism: attracting buyers who were biding their time.

''Once buyers notice that prices have come down, COVs are down, they'll be tempted to come back in the market again,'' says Chris International director Chris Koh.

In any case, the BTO programme is tapering off this year. This could drive some buyers back into the resale market.

Fear of a glut?

 THE current fall in prices and transactions is therefore no cause for alarm, with all analysts interviewed saying the market is headed for a soft, not hard landing. But another issue is cropping up: the prospect of an oversupply.

It wasn't too long ago that HDB blocks lay empty in towns such as Sengkang, in the late 1990s and early 2000s, during the aftermath of the Asian Financial Crisis.

The resale market was also hit by falling demand and prices, as buyers had plenty of ready-built new flats to buy.

From 2014 to 2016, more than 97,000 new HDB flats will be completed. The large supply of flats has prompted some to ask if there could be another HDB flat supply glut.

But analysts say those fears are misplaced. In the 2000s, the glut of unsold flats only arose because there was no Build-To-Order system then. ''With the BTO system today, chances of (a glut) happening are low,'' says Mr Mak.

Previously, the HDB built in anticipation of demand based on couples who put their names down to ''queue'' for a flat, assuming all those in the queue were serious buyers. But when the Asian Financial Crisis hit, many dropped out of the queue for a new flat. The HDB was left with 31,000 unsold flats on its hands.

In 2002, the HDB switched to the BTO system, under which blocks of flats are built only if enough units are booked. With this, the risk of oversupply is contained. The announced tapering of BTO supply this year should also help keep supply in check.

Many levers

IN ANY case, there are many levers the Government can pull to manage a cooling HDB market.

''The Government can easily remove or ease cooling measures if prices drop too fast for their taste,'' says Ms Li.

It could loosen loan rules and restrictions on purchase of resale flats.

As for the risk of an oversupply, the Government has another tool to deal with that: the Selective En bloc Redevelopment Scheme (SERS).

Under this scheme, which aims to renew older public housing estates, old flats are demolished. Residents have the choice of moving to new flats elsewhere, with their neighbours.

By speeding up SERS and demolishing more blocks, the Government can create a need for new flats and soak up excess supply. If there are too many new flats with no takers, the Government can knock down a few precincts to rejuvenate more estates.

The cooling of the overheating HDB market which the authorities have worked at through 2013 for has finally dawned. This year, it seems likely that they will pull the manoeuvre off: softly, gently, and without a crash.








Median COV falls to $5,000
Cash premiums for resale flats drop to four-year low, from $8,000 in Nov
By Janice Heng, The Straits Times, 10 Jan 2014

CASH premiums for resale Housing Board flats hit a four-year low last month.

The median cash-over-valuation (COV) was $5,000 in December, down from $8,000 in November, according to Singapore Real Estate Exchange (SRX) flash estimates yesterday.

Resale prices and volumes also slid, capping a quarter in which median valuation dipped for the first time since 2009.

December's COV was the lowest since June 2009. The drop came on the back of transactions in which flats went for less than their valuation. These accounted for about one in five of all deals - the highest proportion since May 2009.

The towns with the most of such deals were Woodlands, Sengkang and Jurong West. In Sengkang and Punggol, more than half of transactions closed below valuation.

Experts predict the fall will continue. PropNex Realty chief executive officer Mohamed Ismail Gafoor said: "We are expecting COVs to continue to moderate, especially over the festive period."

But flats in good locations should still fetch "reasonable premiums", he added.

R'ST Research director Ong Kah Seng thinks the median COV could hit zero by the end of the first quarter, with offering a flat at its valuation price becoming a "given thing".

Resale prices themselves continued to slide. The resale index fell 0.5 per cent in December to 145.9 points, the lowest level since July 2012.

Fewer flats changed hands last month, with an estimated 908 HDB resale deals, down from 1,004 in November.

In the rental market, volume stayed flat with about 1,364 flats rented. But prices slipped for the second month in a row, down 2.1 per cent to $2,300.

Overall, December completed a lacklustre quarter.

According to SRX data, HDB median valuation prices in the last quarter of 2013 fell by $3,000 to $435,000 - the first quarterly drop since late 2009.

ERA Realty key executive officer Eugene Lim said the continued slowdown was expected.

He pointed to tighter home loan rules, more Build-To-Order flats, restrictions on permanent resident buyers, and new flats being made available to singles.

Both ERA and PropNex predict resale prices will fall by 5 per cent to 8 per cent for the whole year.

But as prices and COVs fall, activity may pick up, said experts.

For instance, zero COVs "will start to encourage buyers to get a resale flat, as it seems more affordable without a 'hard cash' component," said Mr Ong.

Market recovery or stability may come in the middle of the year, when economic activity and property sentiments tend to be higher.

Mr Lim expects about 8 per cent to 10 per cent more transactions this year, compared to 2013.






Time for sellers to be more realistic
By Janice Heng, The Straits Times, 11 Jan 2014

AFTER hitting record highs in previous years, cash premiums for Housing Board flats are tumbling.

From $35,000 in January last year, median cash-over-valuation (COV) across Singapore plummeted to $5,000 in December. And more flats are commanding no premiums at all, or going for less than their valuation. Should this be any cause for alarm?

No, say experts. First, for a large proportion of the population, it is obviously cause for celebration instead.

“To the buyer, it’s good news,” notes SLP International Property Consultants head of research Nicholas Mak.

COVs have to be paid in cash, so the high premiums of earlier years made HDB resale flats hard to afford. With that initial financial hurdle now eroded, buyers today are in a much better position.

Those previously put off by high COVs might well return to the resale market – as experts expect them to do – later this year.

Second, the fall in COV is generally less alarming than movements in resale prices themselves. Experts say low and negative COVs will cause valuations themselves to come down, but only gradually.

“Unless there is a sharp drop in valuation itself, this is not a worry,” says Century21 chief executive officer Ku Swee Yong.

A flat’s valuation accounts for the bulk of its resale price. And resale prices have been falling by only about 2 per cent each quarter, notes Mr Ku.

“I think that is the sort of slow drop that the Government is happy to see,” he adds.

What about HDB flat sellers, who seem to have the most to lose from falling COVs?

Well, given that flat prices have probably appreciated quite a lot since these sellers bought their units, Mr Ku thinks they have little to complain about.

The resale price index went up 100 per cent in the last six years, he observes. Now, it has merely edged down a few per cent.

“You’re still making a profit,” he says.“You’re just making less of a profit.”

Mr Mak notes that some sellers could admittedly be in trouble if they were making future plans “counting on a high COV”.

For instance, they might have bought a condominium two years ago, based on the expected proceeds from selling their flat.

Now, if these people are about to sell the flat and collect the condo keys, they might find themselves short of cash.

But the mistake, says Mr Mak, was banking on that high COV to begin with.

“Perhaps we can draw a lesson from the recent trend of HDB resale prices and COV, and that is that property owners should not expect the values of their properties to be immune to price correction,” he adds.

Experts say that sellers have to accept that things have changed.

In today’s market, with tighter home loan rules restricting what buyers can afford, “sellers have to become more realistic if they want to sell their flats and move on”, says ERA Realty key executive officer Eugene Lim.

“If you were to stubbornly hold out for a high COV, you may not find a buyer at all,” he adds.

R’ST Research director Ong Kah Seng sees a new, low-COV norm on the horizon.

With COVs now so low, sellers no longer see them as a major source of liquidity, he says. And since they have lost that significance, they are more willing to accept a low COV.

By the end of the first quarter, Mr Ong expects flats in far-flung locations to be offered at slightly below their valuation.

Those in mature estates and good locations will be sold at around valuation price, commanding either zero or “a few thousand dollars of COV”.

If this sounds bleak, let us keep in mind that – by definition – the COV is a bonus paid above what the flat is intrinsically worth.

High premiums are a sign of a seller’s market, with more demand than supply. A zero COV, in contrast, indicates that a flat is sold for what it is worth. You can’t say fairer than that.



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