The impact of the cooling measures announced by the Government on 30 August and 13 January 2011 are clear from the 1Q11 flash estimate results released by HDB and URA today.
The HDB Resale Price Index (RPI) and URA’s Price Index saw minimal increases of just 1.6% and 2.1% Q-on-Q respectively.
“The cooling measures have effectively stamped out short-term speculation in the property market,” explains PropNex CEO Mr Mohamed Ismail, referring to the reduced Loan-To-Value ratio on additional mortgages to just 60% and the increased Seller’s Stamp Duty (SSD) of up to 16% introduced by the Government in January to further cool the
Singapore property market.
“We are now seeing a higher percentage of home purchases made by genuine homeowners or investors with a mid- to long-term view,” he says. And while PropNex data reflects a modest 5.1% increase in the number of HDB resale transactions Q-on-Q for 1Q11, the cooling measures resulted in a whopping 33.7% plunge in the number of private property transactions.
Lower Prices Slow Transaction Volume Decline in Central Regions
“The drop in sales volume for PropNex,” reveals Mr Ismail, “was the highest in the Outside Central Region (OCR), which saw a 39.3% drop Q-on-Q. This could be partly explained by the fact that average prices per square foot (PSF) increased in the OCR by 1.3%.”
URA’s data shows that the price index actually increased 3.1% for the OCR Q-on-Q, as compared to 2.2% and 0.9% for the same period for the Rest of Central (RCR) and Core Central (CCR) regions respectively.
“The 1.3% increase in mass market prices per square foot (according to PropNex data) may have led to some resistance from mass market buyers,” says Mr Ismail, explaining the large drop in OCR transactions, “and these consumers may have been put off by some of the high prices of mass market projects of late, some of which breached the $1,000psf mark.”
Mr Ismail further detailed the decline could also be attributed to HDB upgraders who may have been priced out of the mass market due to the lower LTV.
Despite the 2.2% price index increase for the RCR, which corresponded to a 1.9% increase in the average price PSF for RCR properties according to PropNex data, the drop in the volume of transactions for this region was the lowest for PropNex at 23.5%.
“Investors are now more cautious about the CCR,” opines Mr Ismail, “given the inhibitive nature of the lower LTV and drastically increased SSD announced in January 2011. As such, some investors are now turning to the RCR where the lower quantum will allow them to invest within their budgets.”
Mr Ismail expects the private property price index to increase by 8% for 2011, with the OCR leading the way with 10% growth and the RCR and CCR price indices increasing by 8% and 1–3% respectively.
Now is the Time to Buy HDB Resale: Slightly Higher Sales Volume and Price, Lower COV
As mentioned previously, the cooling measures may have priced many HDB upgraders out of the mass market, forcing them to upgrade within the HDB market. This may have resulted in the number of HDB resale transactions conducted by PropNex rising 5.1% Q-on-Q, despite the minimal 1.6% increase in the RPI.
“Cash-over-Valuation (COV) levels have bottomed out,” he says, referring to an overall median COV of $20,000 for PropNex’s 1Q11 transactions.
Quarter | 3R | 4R | 5R | Exec | Overall |
4Q10 | $24,000 | $25,000 | $27,000 | $35,000 | $25,000 |
1Q11 | $16,000 (-33%) | $20,000 (-20%) | $20,000 (-26%) | $30,000 (-14.3%) | $20,000 (-20%) |
Median COV Q-on-Q, Source: PropNex Data
“Breaking down into individual flat types, this results in a Q-on-Q decline of 14.3% to 33% in COV levels,” he elaborates. “However, if we look at the individual months within 1Q11, we can see that the COV levels are not likely to drop much further.”
Month | 3R | 4R | 5R | Exec | Overall |
Jan 2011 | $16,000 | $20,000 | $20,000 | $30,000`` | $20,000 |
Feb 2011 | $17,000 | $20,000 | $20,000 | $30,500 | $20,000 |
Mar 2011 | $17,000 | $20,000 | $20,000 | $26,500 | $19,000 |
Median COV M-on-M,Source: PropNex Data
Mr Ismail also reveals that with prices increasing between -1.1% and 1.8% Q-on-Q, depending on flat, the sustainable growth desired by the Government has been reached.
Quarter | 3R | 4R | 5R | Exec |
4Q10 | $300,000 | $381,000 | $455,000 | $540,500 |
1Q11 | $300,750 (+0.3%) | $387,944 (+1.8%) | $460,000 (+1.1%) | $534,500 (-1.1%) |
Median Resale Prices, Source: PropNex Data
“Given the fact that resale flat prices are stabilizing and that COV levels are not likely to drop any further, now is probably a very good time to buy a HDB resale flat,” suggests Mr Ismail.
However, he cautions that if would-be HDB upgraders continue to be priced out of the mass market private properties, and the supply of resale flats remain limited due to the Minimum Occupation Period for both first-timers and non-first-time buyers, then the increased demand for HDB resale flats may push the COV levels up.
Regardless, Mr Ismail forecasts the HDB RPI to increase by 6 to 8% for 2011.
