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Published July 4, 2006

S'pore home prices gain pace in Q2
But lower-end lags luxury segment as upgrading ability is clipped


(SINGAPORE) The latest official flash estimates show the housing market continued to recover in the second quarter of this year, with bigger price increases posted for private homes and Housing & Development Board resale flats in Q2 than in Q1.

The Urban Redevelopment Authority's price index for private homes rose 1.6 per cent in Q2 from Q1, after a 1.5 per cent quarter-on-quarter gain in Q1.

The increase for the first six months of this year is 3.1 per cent - which means that earlier forecasts by property consultants for a full-year rise ranging from 4 to 8 per cent are on track. Consultants contacted yesterday said they are maintaining their full-year forecasts.

In the public housing segment, HDB's resale flat price index rose 1.08 per cent in Q2 from Q1 - the best showing in eight quarters.

ERA Singapore assistant vice-president Eugene Lim attributed the Q2 increase to improving demand for well-located HDB flats, coupled with a trend to upgrade to bigger flats and HDB's move to slow sales of unsold new flats through the Walk-in-Selection programme.

'The upgrading phenomenon, which we started to see again about six months ago, took root in the second quarter,' Mr Lim said.

With the HDB resale index having risen 1.3 per cent in the first six months of this year, he predicts the full-year increase could come in around 3 per cent.

'While people are starting to buy bigger flats again, they're also more careful,' he noted, citing increases in housing loan rates and the impact of various changes to Central Provident Fund rules which effectively restrict the use of CPF savings for property purchase.

Indeed, Knight Frank managing director Tan Tiong Cheng believes the impact of the various announcements relating to CPF made over the past few years is still sinking in.

These include gradually lowering the limit on withdrawal of CPF savings for housing purchases to 120 per cent of the valuation for a property, the reduction in the CPF salary ceiling and, from the start of this month, restrictions on the use of CPF savings for multiple property purchases.

Such factors tend to have more impact on lower-priced properties, buyers of which are more sensitive to pricing and affordability, and have contributed to the emergence of the two-tier market over the past two years, market watchers say.

Lower-end housing - including HDB resale flats and entry-level private housing catering to local demand - has lagged high-end property, which has enjoyed a decent recovery in demand and prices, led by foreign investors attracted by what they see as an undervalued market.

The 1.6 per cent quarter-on-quarter increase in URA's overall private home price index in Q2 and the 1.08 per cent rise in HDB's resale flat price index pale in comparison with the 7.7 per cent rise in the average luxury home price in Q2 reported recently by property consultancy group CB Richard Ellis.

Knight Frank's Mr Tan said: 'Singaporeans still have a strong desire to upgrade their homes, but their ability to do so has been constrained.'

Besides changes to CPF rules, unprecedented white-collar job losses in the post-Asian crisis era have combined to make Singaporeans cautious when it comes to buying homes, Mr Tan reckons.

'Since the market peaked in 1996, home buyers have generally not enjoyed a property windfall. The older ones who bought a property then are probably stretched on their investments,' he said.

'The younger cohort in their 20s and 30s missed out on the chance to make a windfall altogether. Even to buy their first home, they have to stretch themselves. Upgrading is not a priority.'

Another factor that has clipped Singaporeans' ability to upgrade is that they have generally not enjoyed big bonuses over the past 10 years.

While observers do not expect the two-tier property market to disappear any time soon, Mr Tan believes that the improving economic outlook - with investments like the two integrated resort/casino projects, the remaking of Orchard Road and Biopolis developments - should translate to better remuneration for Singaporeans, which could in turn improve their ability to upgrade.