January 3, 2009 Saturday

HDB resale prices could dip soon

Economic slowdown expected to lead to people downgrading later in year

By Michelle Tay

PRICES of HDB resale flats have continued to rise even as the economic downturn takes its toll on jobs, wages and private home prices.

But analysts warn this recent steady rise may not last long.

According to flash estimates of HDB's Resale Price Index released yesterday, prices of flats in the fourth quarter of last year rose 1.5 per cent over the preceding quarter.

This figure is considerably lower than the 4.2 per cent increase in the third quarter, and it is the first time that growth has dipped below 3 per cent in six months, said real estate agency PropNex.

But while average prices of HDB resale flats are now at an all-time high, property analysts say that they are likely to dip some time this year.

'Sentiment is pretty soft as many people are taking a wait-and-see approach,' said Mr Eric Cheng, executive director of HSR Property Group. 'If prices dip, they will do so in the second and third quarters of this year.'

Mr Eugene Lim, associate director of ERA Asia Pacific, said: 'With the economy likely to contract further and more layoffs expected in the months ahead, home buyers have become very practical.

'In uncertain times, home buyers go for a 'safer' option - HDB flats - to lessen the financial burden. This is especially so for the 'sandwiched' class that may find private housing a little too stretched for their comfort.'

Mr Nicholas Mak, Knight Frank's director of research and consultancy, said: 'Buyers are increasingly cautious and prefer to purchase HDB flats instead of private homes to limit their exposure to the uncertain market. A number of homeseekers are re-aligning housing requirements from aspirations to functional needs.'

He expects prices to remain flat in the current first quarter, and overall prices to drop 5 to 10 per cent in the full year.

'At the moment, there are still people who need homes. But the economic slowdown and job losses will eventually cause some people to downgrade from larger flats to smaller ones, and only by the second quarter will we start to see a pronounced rate of decline,' he added.

PropNex chief executive Mohamed Ismail is slightly more optimistic.

'If the economy does not improve... there will be more downgraders and cautious home buyers in the wake of retrenchments and tighter budgeting. If more people shy away from the bigger flats above the $500,000 mark, it's just a matter of time before prices dip.'

'Clarity will come in the second half of the year. But we should still see overall average growth of between 3 and 5 per cent in 2009.'

What seems certain to decline, however, are cash-over-valuations (COVs).

'The days of transactions with above $50,000 COV are over. Remote exceptions are well-renovated flats with unobstructed, panoramic views,' said ERA's Mr Lim.

Mr Ismail agreed: 'Today, the bigger flats that are valued at $500,000 and above on the resale market can sit without a buyer for two to three months. The en bloc frenzy of last year has already dwindled, affecting the demand for the bigger flats.'

Added Mr Lim: 'We are thus likely to see the COV statistics continue to decline in the coming quarters.'

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