Property market outlook for 2011: All eyes on the HDB marketBy PropertyGuru – January 5th, 2011

Punggol Topaz, a new BTO project by the HDB (image courtesy of PropertyGuru)
By Khalil Adis (courtesy of PropertyGuru)
Rising prices of public flats will be a hot elections issue. However, it remains to be seen if the cooling measures have actually worked.
With elections expected to be called sometime in 2011, all eyes are on the HDB market to see if the cooling measures implemented by National Development Minister Mah Bow Tan have actually worked.
Last year, a slew of property curbs were introduced to both the private and public housing markets.
In August, specifically, the government finally intervened to cool the HDB market after much outcry from the public. Many Singaporeans believe the price spikes are caused by permanent residents (PRs) who are eligible to buy resale HDB flats.
According to a report by the United Nations, 40 percent of Singapore’s population is now made up of foreigners.
Fears of a property bubble forming in the HDB market are very real.
Last July, a HDB flat reached the million-dollar mark when a Singaporean couple paid S$1.1 million for a Bishan flat.
This is some $200,000 more than the official valuation.
The rising prices of HDB flats is fast becoming a “hot potato” for the government as 80 percent of Singapore’s population can only afford to buy public flats.
“There’s no denying that the recent measures are an election move to placate the public to show that the government is doing something,” says an analyst who wishes to remain anonymous.
Minister Mah confirmed this recently during an interview with the TODAY newspaper.
“If you ask me whether it has got anything to do with the elections, the answer is yes. Everything has got to do with the elections,” he was quoted as saying.
Prices still rising
Despite the cooling measures, property prices are still rising.
Flash estimates for the fourth quarter from the Housing Development Board (HDB) shows the Resale Price Index (RPI) is set to rise 2.4 percent to reach 171.9 points.
Prices of HDB resale flats had been increasing steadily from the second quarter of 2003.
Taking the flash estimates into consideration, HDB prices have now gone up by almost 70 percent compared to the said period in 2003.
Meanwhile, in the private sector, the property price index climbed to yet another record high.
Flash estimates from the Urban Redevelopment Authority (URA) show private home prices are expected to inch up 2.7 percent to reach 194.8 points.
Transactions and COVs dropping
While prices are still rising, the volume of resale transactions and Cash-Over-Valuation (COV) that buyers of resale HDB flats have to pay, have dropped.
According to PropNex, HDB resale transactions dropped 50 percent the week after the new rules were introduced.
Meanwhile, median COVs have dropped in the fourth quarter.
“According to our monthly transactions for the fourth quarter, overall median COV levels have dropped from $30,000 in the third quarter to $26,000 in October, $23,000 in November and $20,000 in December, in line with HDB’s flash estimate of a drop to $23,000 for the quarter. This is an indication that the overall median COV level for the country for the fourth quarter, which will be released on 28 January 2011, should fall by about 23 percent quarter-on-quarter,” says PropNex’s chief executive officer, Mohamed Ismail.
Too early to tell
Despite the rising prices, analysts say the fourth quarter’s flash estimates are not truly representative on the impact of the cooling measures.
“Although these figures indicate yet another all-time record for both the public and private housing markets, it is important to note that the growth is indeed slowing down and attaining more sustainable levels,” says Mohamed Ismail.
Others say external factors like an economic crisis will have a much more severe impact to cause property prices to drop rather than government intervention.
“When the economy is buoyant, credit is easy and positive sentiments are strong, it is difficult for government measures to have a substantial impact. At most, such measures will slow down the transaction volume and moderate the increase in prices or at most cause a temporary fall in prices depending on the severity of the measures,” says Chua Chor Hoon, Head of Southeast Asia Research for DTZ.
In a recent media interview, Minister Mah said it will take a few more months before the full extent of the August changes are felt.
Analysts also agree saying it is too early to tell.
“The measures cannot be said to be ineffective, as we have yet to see a full quarter with the measures’ impact. On the ground, we have already heard of a softer market with speculative investors pulling out, and even investors in the high-end market are quieter, as evidenced by the low number of private residential transactions in September 2010 with a median sale price of at least S$2,000 per sq ft,” says Adam Tan, corporate communications manager of PropNex.
Chua said prices are likely to stabilise within six to 12 months, as the public will need to get used to the new measures.
Luxury and rental markets set to rule in 2011
Despite the property curbs, analysts expect the luxury and rental markets to strengthen in 2011.
“The luxury market will hardly be affected simply because a lot of the investors there dabble in private properties. They don’t really touch the HDB market,” says Tan.
In addition, the rental market is expected to strengthen due to the increase in the number of PRs in Singapore.
“As PRs are unable to buy HDB flats, they will need to rent from both the HDB and private property market,” says Chua.
The HDB property curbs have hit PRs the most.
They now cannot buy resale HDB flats without first disposing of their property overseas.
Moving forward, analysts say another round of cooling measures could be introduced depending on circumstances.
“Should there be more desperate buyers than sellers, the government will come up with another round of measures,” says Chua.
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