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Resale flat prices still up, but at slower pace

Estimates show prices rose 1.7% in fourth quarter of last year

Published on Jan 4, 2012

By Jessica Cheam, Housing Correspondent


PRICES of resale Housing Board (HDB) flats are still rising, but the pace of this increase finally moderated in the final quarter of last year.

Estimates released by the HDB yesterday showed resale flat prices rising 1.7 per cent in the three months to Dec 31 - about half the 3.8 per cent rise seen in the third quarter.

The growth in resale flat prices had similarly eased at the start of last year, rising 1.6 per cent in the first quarter. But a strong economy and hot demand for homes continued to boost flat values. Prices rose 3.1 per cent in the second quarter, and a further 3.8 per cent in the third, before ending the year 10.7 per cent higher than prices in the fourth quarter of 2010.

This year, however, analysts are less optimistic about the strength of resale flat prices, with some predicting that they will further moderate and could even begin correcting.

Two key factors are at play here.

First, the global economic outlook is far more uncertain this year compared to the last and a downturn could spell a correction in home prices, say analysts.

Second, the Government has introduced a series of measures to cool the market in the past two years. These have restricted home ownership and tightened financing. The latest rules, which impose heavy tax duties on private residential homes, are likely to have a 'trickle-down' effect on the public housing market.

Property firm PropNex chief executive Mohamed Ismail said the numbers from this quarter mark a turning point for the public housing market.

'Price stabilisation will set in and possibly even a price correction of not more than 3 per cent (could happen) in the HDB resale market,' he added.

ERA Realty's key executive officer Eugene Lim said the moderation in price rises was also due to the HDB's aggressive supply of new homes and, to some extent, the policy shift by the HDB to raise the income ceiling for new flats.

It offered a record 28,043 flats for sale last year to address the strong demand for homes. These comprised 25,196 new flats under its Build-To-Order (BTO) scheme and 2,847 balance flats under its Sale of Balance Flats exercise.

And in August, HDB raised the monthly income ceiling from $8,000 to $10,000 for BTO flats, and from $10,000 to $12,000 for executive condominiums.

'More first-time buyers would have moved from the resale market to the new flat market,' noted Mr Lim.

The HDB said yesterday that since it raised the income ceiling, about 8 per cent - or 2,991 applicants - who participated in its two recent sales launches were in the income bracket of $8,000 to $10,000.

Meanwhile, property agencies say the cash premiums paid to the seller for HDB resale flats above a flat's valuation, known as cash-over-valuation (COV), have been decreasing.

PropNex reported a dip of about $5,000 in median COV for the month of December, to a range of about $25,000 to $45,000 across all flat types.

ERA Realty said median COV based on its transactions had stabilised at about $30,000 to $40,000 in the fourth quarter on average with no further rises, similar to levels seen in the third quarter.

'COVs are likely to remain soft, and could dip $10,000 to $15,000 in the coming six to nine months,' said Mr Ismail.

Meanwhile, the HDB will continue to ramp up the supply of homes. It said yesterday that buyers will be offered another 25,000 new flats this year, spread across the island.

This month, 3,890 BTO flats in Choa Chu Kang, Punggol, Sengkang and Tampines will be launched for sale.

Detailed public housing data for the fourth quarter will be released on Jan 27.

Mr Tan Kok Keong, head of research at property firm OrangeTee, said that looking ahead, 'the more challenging economic outlook would play a part in people's willingness to pay increasing prices for resale HDB flats'.

Although recent cooling measures were primarily targeted at the private residential market, as prices start to decline, 'you can expect public housing to exhibit similar trends', he added.

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