April 7, 2009 Tuesday

'Resistance level' for condo-style HDB flats: $500,000

Few takers likely above this price due to weak market and restrictions

By Joyce Teo, Property Correspondent

THE tightening property market and demand for smaller homes have created a dilemma for the HDB's design, build and sell scheme (DBSS) - price flats over $500,000 and buyers could stay away.

That price point has been cited as the 'resistance level' for home seekers with less cash to spend but a wealth of options in a buyer's market.

Experts said DBSS homes - public flats designed, built and sold by private developers - are sandwiched in a fast- narrowing price gap between private condominiums and HDB flats.

To move units, these condo-style homes will have to be priced at about $500,000 or less - under an equivalent- sized flat in a private condo - but that may erode any profits for the developers.

'These are the same people who will buy your resale HDB flat,' said Knight Frank director Nicholas Mak.

PropNex chief executive Mohamed Ismail agreed: 'The resistance level of HDB buyers is around the $500,000 level. If they are going to be priced above $450 per sq ft (psf), they may face resistance.

'Buyers may head for the private market where they can get better value for $500 psf to just below $600 psf.'

Mass-market condos that offer full facilities, such as Rosewood Suites in Woodlands and Caspian in Jurong, have units in that price range. Developers have lowered their prices of some mass-market projects by 20 to 25 per cent while HDB resale prices are also falling, though at a slower pace.

Two DBSS projects are expected to be released for sale this month. The first is a 1,203-unit project in Toa Payoh with three-, four- and five-room flats.

And Parc Lumiere in Simei will have 360 units - 120 four-room and 240 five- room flats. A Hoi Hup-led consortium won the tender for the Toa Payoh site at about $160 psf per plot ratio last August, while Sim Lian won the Simei site at $137 psf last June.

Mr Mak estimated the break-even price of the Toa Payoh project at $430 psf to $460 psf and a bit less at Parc Lumiere - $400 psf to $440 psf.

'Demand for DBSS flats depends a lot on the price,' said Associate Professor Sing Tien Foo from the National University of Singapore's real estate department.

The price has to be much lower than that for private flats as there are restrictions involved, particularly on buyers' income.

Assuming a buyer has a monthly household income of $8,000 - the ceiling for a DBSS flat purchase - and negligible savings, he could take up an 80 per cent loan over 20 years to buy a DBSS flat costing at most $550,000, he said.

The first DBSS project, launched at the end of 2006 when private condos were moving beyond the reach of many HDB upgraders, was an instant hit.

Five-room units were priced at just $308,000 to $450,000, compared with close to $700,000 and more at the other three DBSS projects. The latest - Natura Loft in Bishan - recently ran big advertisements to market its unsold units.

'There are pros and cons to buying a DBSS flat. It is good for people who do not want to pay for facilities. Condos have a lot of facilities but you have to pay a higher maintenance fee,' said Prof Sing.

The problem now is that DBSS flat developers have cost constraints and may not be able to lower their prices to a level attractive to HDB buyers, he said.

These developers rushed into the market during the boom, thinking it was a sure-win product. Their risks are keenly felt now that the market has come down considerably, experts said.

'At the end of the day, people must remember that DBSS flats are essentially an HDB product,' said Mr Mak. 'They will likely go through what ECs (executive condominiums) went through until the market recovers.'

Such condos were very hot at one point before demand slumped. 'The down market just makes it harder for DBSS to differentiate itself,' said Prof Sing.

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