Bumper Prices Fetched By HDB Flats Fuel Condo Demand

Source : The Business Times, January 25, 2008

High cash over valuation provides 'filter-up' demand for private homes

More Housing Development Board flats in prime locations are now being sold for more than half-a-million dollars each, and the trend is pushing up the asking prices for mass market condominiums and adding to demand for entry-level private homes.

Data compiled by property firm ERA showed that 269 HDB flats were sold for $500,000 or more in the fourth quarter of 2007 - a 69 per cent increase over the 159 flats sold for more than $500,000 each in the previous quarter.

While most of such flats in the fourth quarter of 2007 went for between $500,000 and $599,999, 50 were sold at $600,000 to $699,999.

And 12 changed hands at $700,000 or higher.

Anecdotal evidence also suggests that larger HDB flats in Singapore's central locations are fetching more money than before.

For instance, a 21st-storey executive flat along Mei Ling Street in Queenstown sold for a record $890,000 earlier this month.

Last November, another executive flat along the same street went for a then-record $780,000.

The sellers of such flats will now have the capacity to buy entry-level private homes, said ERA assistant vice-president Eugene Lim.

New homeowners could also look at private homes for their first property purchases, rather than at resale HDB flats in the more central parts of Singapore.

'HDB flats provide the support for entry-level types of private housing,' said Mr Lim.

'If HDB prices keep moving up, people will begin to look at private properties.'

CB Richard Ellis executive director Joseph Tan pointed out that the recent surge in HDB prices has narrowed the price gap between public housing and private homes.

Many of the pricier flats are being sold for high amounts of cash-over-valuation (COV), which means that sellers will have cash on hand to make the downpayment when they purchase private properties.

'The HDB sellers now have greater purchasing power, especially with the high COVs, which can be used for downpayments on private properties,' said Nicholas Mak, director of research and consultancy at Knight Frank.

HDB statistics show that the median COV for executive flats in Bukit Timah rose to $137,500 in the third quarter of 2007.

In Marine Parade, the COV for five-room flats hit $84,000 in the same quarter.

The massive growth in COV for larger flats in central districts can largely be attributed to homeowners that have sold their properties through en bloc sales and are now moving into HDB flats.

But the reverse also applies now, analysts said. Sellers of these flats are starting to upgrade to mass market private homes with spare money fetched from the high COVs of their old flats.

Property agents told BT that sellers of HDB flats with cash on hand are looking mostly at mass market condominiums in the resale market as they need replacement properties to move into.

New mass market homes, by contrast, are not as popular.

But eventually, this 'filter-up' demand will cause mass market property prices to climb, analysts said, which could once again put private homes out of reach of HDB upgraders.

Property agents also report that sellers of mass market private homes are upping their asking prices as they see HDB prices in prime locations head skywards.

'Sellers are seeing five-room and executive HDB flats fetching $700,000,' said one property agent.

'So they think, I can ask for $1 million for my four-room private home.'

The agent said that at least two sellers of mass market homes that he is representing have recently upped their asking prices, even though the new prices are not 'realistic', in his opinion.

Knight Frank's Mr Mak agreed. 'Word gets around that HDB prices are going up, and quite quickly, sellers (of mass market private homes) start upping their asking prices.'