Waiting for the storm to hit …

Source : Today - 4 Dec 2008

Going by past recessions, it could take nine more months before prices fall

FOR first-time flat seekers like Mr Neo Tze Siang, the economic downturn was meant to provide some respite from HDB prices pushed skyhigh by the property boom last year.

But despite the raft of job cuts and the gloomy economic forecasts trotted out, HDB prices are showing few signs of sliding.

“We hear about private property prices falling substantially but the current prices of new HDB flats do not seem to reflect the market realities. When the tide goes down, you would expect all ships to move down. But it seems that new HDB flats are not part of the ocean,” lamented Mr Neo, a 28-year-old salesman.

According to industry players, the wait could be at least another nine months - if prices do come down at all - no thanks to the slew of foreigners and private property downgraders eyeing the HDB rental and resale markets respectively, which indirectly pushes up the prices of new HDB flats.

Said Dennis Wee Group director Chris Koh: “Whenever you have a recession, the first to be hit would be the private property market. So, a lot of people will start downgrading from private homes to HDB flats.”

HDB’s “market-based” pricing approach for new flats takes into account several factors, including a project’s location, its individual attributes and the prevailing market conditions. The new flats are sold according to the prices they would fetch on the resale market minus the Government’s subsidy.

And in the first nine months of the year, HDB’s resale price index rose 12.4 per cent, rising by 4.2 per cent in the third quarter.

While HDB resale prices are expected to stabilise in the year ahead, the recession has yet to hit the man-in-the-street, said Mr Koh. A case in point: The latest Built-To-Order project Punggol Arcadia was more than three times oversubscribed, despite having five-room flats going for as much as $356,000 to $416,000.

Still, ERA Asia-Pacific’s assistant vice-president Eugene Lim noticed in recent weeks that prospective home buyers are now trying to get more bang for their buck. Said Mr Lim: “If your house is not near an MRT station, people are offering you prices that match the valuation or even lower.”

National Development Minister Mah Bow Tan explained in 2002 that prices of new HDB flats rise and fall more slowly than do resale flat prices. This was necessary to maintain a stable property market and protect the value of the flats, the minister said.

Prior to last year’s property bull-run, which saw HDB’s resale price index matching its previous peak of 1996, resale flat prices fell by 30 per cent in the aftermath of the 1997 Asian financial crisis. But prices for new flats dropped just 10 to 15 per cent.

Some market experts believe it could be the same story this time round - with prices of new flats in the outlying areas expected to fall faster.

But Mr Lim, for one, doubted that prices of new HDB flats would fall at all, given the perpetually high demand for housing here.

Reiterating how HDB “followed the market and moved prices downwards” in the aftermath of the Asian financial crisis a decade ago, a HDB spokesperson reiterated that the Government “remains committed to ensure that HDB flats are affordable to the vast majority of our citizen families, especially young married couples and the lower-income households”.

Still, in view of the current economic climate, the spokesperson advised flat seekers to “buy a flat within their means, bearing in mind how their future earnings may be impacted”.

The spokesperson added: “Given the current economic climate … They may have to start off with something more modest in size or less than ideal in location if prudence calls.”