Cheers to a stable HDB market

In Singapore, new private housing sales rose to an 18-month record high of over 1,000 units in February after beating an unsurpassed 104 units last January.

Some 80 percent of the purchasers who grabbed units in projects like The Quartz and Caspian have HDB residential addresses, as an observation of ERA. Of these purchasers, 94 percent are permanent residents and citizens of Singapore. Distinctively, the households have dual-income with earnings $8,000 to $12,000 every month. Majority of them have one or two kids and most of them belong to the 35 to 45 year age group. Upgraders from HDB are purchasing for their private occupation instead of speculation or investment.

Certainly, this current surge bears out the trend revealed by the Urban Redevelopment Authority's Realis that the contribution of HDB upgraders to total private residential purchases increased from 22 percent in 2007 to 36 percent in 2008. That is the highest level attained in four years.

With some 80 percent of Singapore's population residing in HDB apartments, the objective to improve to private housing property stays strong. The main cause for purchasing private residences is to improve their lifestyles.

From a small 2 percent rise in 2006, the Resale Price Index of HDB climbed by 17.5 percent in 2007 and 14.5 percent in 2008. This means that the prices have increased by some 34 percent for the past three years.

Following a quarterly increase of 4.1 percent in the early three quarters of 2008, HDB resale prices decelerated to a 1.4 percent increase for the fourth quarter of 2008, primarily caused by a temporary price expectation mismatch between sellers and buyers. However, with this modest increase, the Resale Price Index of HDB has stricken a new height at 139.4 points, and is currently higher than the recent height in the fourth quarter of 1996 by 1.8 percent. This connotes that owners of HDB apartments who had their purchase during the last height can now put their flats on resale at prices tantamount to, if not more than, what they had yielded for them.

For the past three years, the HDB resale price increase was primarily fuelled by the demand from a blend of downgraders, upgraders, and the growing number of permanent residents. Those residents who are financially stable upgrade to bigger apartments while those having financial difficulties downgrade to smaller apartments. The government's drive to boost the populace to 6.5 million is firmly increasing the PRs’ pool, and they distinctively purchase their HDB houses from the resale market since they are disqualified to purchase new homes straight from the HDB.

Almost all HDB upgraders to private condos are more likely to own four-room or five-room apartments. At this moment, four-room apartments account for 37 percent of the entire resale dealings while five-room apartments account for 26 percent. Executive and three-room apartments account for 8 percent and 29 percent respectively.

The HDB five-room apartment’s median resale price is now $380,000. Presuming the original selling price from the HDB five years earlier was worth $250,000, the owner of the apartment can earn a profit of $130,000 on resale. Likewise, a four-room apartment sold at $310,000 median resale price today and was purchased for only $190,000 would make a $120,000 profit upon resale. This earning can be used by a homeowner as a down payment for a private property.

HDB resale costs are viewed to become stable as sentiment may possibly be influenced by the depressing economic environment. Additionally, buyers resist elevated cash-over-valuation (COV) dealings and this tendency is likely to persist as homebuyers control and direct in unnecessary money expenditure.

Quarter-on-quarter, sub-one percent price upsurges may persist as the market finds it’s balanced. If the crisis still worsens, resistance or buyers may increase and HDB resale prices may possibly start to go down. During the Asian financial crisis in 1997, the HDB resale prices went down by 29 percent more than two years from the market height in the fourth quarter of 1996 before start of recovery.

For the moment, HDB resale prices are static and there is no expected significant descending pressure on these prices for the following two quarters.