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Jul 2, 2011

Strong demand drives up HDB prices

By Dennis Chan , DEPUTY MONEY EDITOR

RISING RESALE FLAT PRICES

NATIONAL Development Minister Khaw Boon Wan has his work cut out to meet demand for public housing - while tempering prices - given new data about the red-hot market.

New figures show that HDB flat prices in the second quarter rose at their fastest clip since the third quarter of last year.

According to preliminary estimates, the Housing Board resale price index in the second quarter rose by 2.9 per cent to a fresh record from the previous quarter.

Resale flat prices in the first three months of the year rose 1.6 per cent in comparison.

Prices of private homes, on the other hand, increased at a slower pace in the second quarter.

The 1.9 per cent gain in the private residential property price index is the seventh consecutive quarter in which the rate of increase has fallen.

The data is mostly based on transaction prices in caveats lodged during the first 10 weeks of the quarter.

Taken together, the emerging picture is that of home buyers flocking to buy HDB flats and shunning pricier private homes.

A recent report by Goldman Sachs showed that the price gap between mass market private homes and HDB flats has widened to a record - making it harder than ever for aspiring HDB upgraders to buy a private home.

Analysts noted that HDB flats remain affordable despite public housing prices showing a sharper rise compared with private housing.

'This is because private property prices, in particular mass market condo prices, have increased beyond the reach of many HDB dwellers who had intended to upgrade,' said ERA Realty key executive Eugene Lim.

Four rounds of cooling measures since September 2009 - including lowering the loan quantum to 60 per cent for borrowers with more than one outstanding housing loan - and uncertainties in the global economy have done much to keep a lid on price increases for private homes.

But it is a different story for HDB flats.

First timers, HDB upgraders, private property owners who downgraded to public housing and permanent residents have stoked demand for HDB flats.

Although HDB has rolled out new build-to-order (BTO) flats in record numbers - about 25,000 new flats will be offered for sale this year - the fresh supply will take time to filter down to the market.

Some unintended consequences from stiffer HDB rules introduced last August, such as a blanket five-year minimum occupation period before flats can be resold, have resulted in fewer flats available for sale in the market.

PropNex chief executive Mohamed Ismail said the curbs have deterred many owners from moving or selling their flats, 'resulting in a supply crunch and driving (up) median resale prices'.

While the flash estimates did not provide data on median prices or cash premium paid for a resale flat on top of its valuation - known as cash-over-valuation (COV) - ERA and PropNex records showed that both median prices and COV were up in the second quarter.

PropNex data showed that the greatest price increase was in the executive apartment segment, which rose 5.3 per cent to a median price of $574,500.

This flat type also saw the biggest increase in COV, up by 50 per cent to $45,000. Overall, COV for flats rose to $32,000 from $22,000.

ERA's data also painted a similar picture.

As prices of private homes grew in inverse proportion to their size, some cash-rich home seekers are opting for executive flats for the generous space they afford and are willing to pay higher COV for them, analysts noted.

Providing affordable housing to first-time buyers is a key priority of Mr Khaw, who took over the housing portfolio from Mr Mah Bow Tan in May.

Rising home prices, particularly in public housing, is a major concern among first-time buyers.

Mr Khaw has acknowledged these concerns and has directed the HDB to speed up its offering as well as provide a wider selection of flat locations.

In its statement yesterday, the HDB said it will launch 2,000 flats under a sale of balance flats exercise next month. Some of these flats will be in mature estates.

The board is also on track to offer 22,000 BTO flats by September and a further 3,000 BTO flats in the fourth quarter.