Surprise increase in index reverses first quarter's dip to reach new high
PRICES of HDB flats have staged a surprising comeback, reversing a first-quarter dip of 0.8 per cent to rise 1.2 per cent in the second quarter and reach a historical high.
Flash estimates from the Housing and Development Board (HDB) released yesterday show the resale price index rising to 140 - a record level not seen since the current index started in 1990.
It beats the previous record set in the fourth quarter of last year when it hit just over 139.Market analysts said they were caught off-guard by the turnaround, as many had been predicting 2 to 10 per cent declines in HDB resale flat prices for this year after a descent began in the first quarter - the first one since 2006.
Yesterday's numbers have changed expectations, with analysts reversing their forecasts for HDB flat prices to hold or increase by up to 5 per cent this year.
Industry observers attribute the latest surprise figures to three factors.
First, talk of an economic recovery has gathered momentum, backed by the recent stock market rally and brisk private property sales. This has slowed the slide in private property prices islandwide.
Flash figures capturing sales prices in the first 10 weeks of the quarter, released by the Urban Redevelopment Authority yesterday, show prices falling 5.9 per cent in the second quarter, compared to a 14.1 per cent decline in the previous quarter.
The marked slowdown in the price decline is in line with rising transaction prices evident since the strong rebound in home sales since February, said Colliers International's director for research and advisory, Ms Tay Huey Ying.
More bullish sentiment, coupled with the strength in HDB resale prices, has supported the private market, say analysts.High HDB valuations is another key factor. HDB upgraders - buyers with HDB addresses buying private property - have been able to sell their units at high valuations and for tidy profits to fund private property purchases.
Banking executive Vic Cheow, 28, is one such HDB upgrader who recently sold a four-room HDB flat to buy a three-bed condominium unit in Jurong.
Due to the high valuations, buyers do not need to dig deep for upfront cash - otherwise known as cash-over-valuation - to purchase resale flats.
'We found selling at a profit easier as a result of this,' said Mrs Cheow.
ERA Asia-Pacific associate director Eugene Lim reports that the agency, which accounts for more than 40 per cent of the HDB resale market, saw transaction volumes surge 52 per cent in the second quarter compared to the first.
'The feeling in the second quarter is the recession hasn't been as bad as it seems,' said Mr Lim. Many sellers have become more willing to negotiate and are realistic, especially those selling larger flats, he added.
The third factor, flagged by Chesterton Suntec International head of research Colin Tan, is that demand far outstrips supply. HDB launched 7,793 new flats last year and will launch another 3,700 in the first nine months of this year.
'HDB may have ramped up the supply of new flats recently, but it's not enough and it takes too long,' said Mr Tan. 'There is still a lot of pent-up demand from a needs-based group of people. And they have no choice but to pay high prices because they cannot wait.'
A Credit Suisse report released recently notes that total public and private housing supply for 2008 to 2012 is 16,000 on average per year - 42 per cent lower than the 10-year historical average.
'This does not look excessive versus the annual average 24,000 household formations or marriages,' said the report.
But, added Mr Tan, it seems 'unnatural for prices to rise against the fundamentals of the economy', which is still in recession.
More detailed public and private housing data for the second quarter is set to be released at the end of this month.
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