Resale flat market hots up again Prices rise 3.1% to fresh record in second quarter

23 July 2011, The Straits Times

Resale flat market hots up again

Prices rise 3.1% to fresh record in second quarter


PRICES of Housing Board (HDB) resale flats are starting to sizzle again, after having grown at a slower pace in the last three quarters.

Fresh figures from the HDB, signalling that the red-hot housing market will take some time yet to stabilise, showed resale flat prices rose 3.1 per cent to a fresh record in the second quarter.

The rate of increase was only 1.6 per cent in the first quarter.

The median cash premiums paid to sellers, called cash-over-valuation (COV), also reached eye-popping levels.

In Marine Parade, for example, the median COV for five-room flats hit $95,000 in the second quarter, up from the $28,800 in the first. In Clementi, median COV for executive flats was $94,000, up from $20,000 in the first quarter.

However, it has to be noted that these COV figures are based on fewer than 20 resale transactions over the quarter and may not be representative of the market.

The HDB departed from its usual practice of releasing the overall median COV figure across all estates. (See other report: HDB to stop releasing overall nationwide COV figures) In the previous quarter, it was $21,000. But figures from property agencies obtained by The Straits Times do indicate a spike in median COV in the second quarter to about $32,000.

Property agency PropNex said yesterday that its July numbers show overall median COV, based on its sales so far this month, to have reached $36,000.

Yesterday’s numbers also reverse a moderation in the rate of increase of prices seen in the last three quarters, when price growth dropped from 4 per cent in the third quarter last year to 2.5 per cent in the fourth; price growth was 1.6 per cent in the first three months of this year.

Analysts noted that the previous estimates for the second quarter, at 2.9 per cent, indicate that resale flat prices inched up towards the end of last month. This could spell further price increases until the end of the year.

The rise in private home prices, on the other hand, continued to moderate even as they set a record, with prices rising 2 per cent in the April-to-June quarter, slowing from 2.2 per cent in the previous three months.

ERA Realty key executive Eugene Lim attributes the price pressure in the HDB market to the shortage of resale flats.

‘The number of resale flats put up for sale has fallen, partly because mass market condo prices have increased beyond the reach of many HDB dwellers, who had intended to upgrade. Many have postponed their upgrading plans,’ he said.

This, coupled with stringent rules introduced last August that bar concurrent ownership of HDB flats and private properties in the first five years of owning an HDB flat, have led many owners to hang on to their HDB homes – or let go only at high prices, say analysts.

This may explain why, despite the perceived supply crunch, HDB’s figures show the number of resale flats that changed hands rose by 6 per cent to 6,581 transactions in the second quarter.

Dennis Wee Group director Chris Koh said this fierce demand was ‘in line with expectations’, as second and third quarters are generally stronger. ‘I believe the third quarter will be even stronger than the second one because of the activities we’re seeing on the ground,’ he said.

Chesterton Suntec International’s head of research and consultancy Colin Tan said: ‘We are undergoing a supply crunch, and if you look at the completion rate of HDB flats five years ago, it’ll get worse before it gets better.’

Although the HDB has aggressively ramped up supply in the past two years, it will be some years before each batch of these flats reaches the resale market.

The HDB yesterday put the price movements down to an ‘imbalance in supply and demand for resale flats’, and said it was increasing the supply of new flats to provide more options for eligible buyers.

It has offered about 15,000 new flats under its build-to-order or BTO system and is on track to deliver 25,000 new flats this year.

Mr Tan added: ‘The question now, is how fast HDB can pull away people from the resale option before buying the new flats. If there’s a large price gap between resale and new flats, and it doesn’t make sense for people to buy resale any more, then the volume of buyers will shrink.’

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