HDB upgraders have their say in muted market

Source : Business Times – 5 Jun 2009

The first quarter of this year saw a major trend reversal. HDB upgraders bought more private homes than those already living in private properties.

Fifty-six per cent of caveats for private home purchases in Q1 were lodged by buyers with HDB addresses, up from a 43 per cent share in the previous quarter. The last time this figure breached 50 per cent was in Q3 2002, when it was 52 per cent.

Market watchers note that the pick-up in HDB upgraders’ share in Q1 came amidst the launch of mass-market projects like Caspian near Jurong Lake and Double Bay Residences in Simei as well as the relaunch of The Quartz in Buangkok. Such entry-level 99-year leasehold condos cater to HDB upgraders.

Property consultancy DTZ highlighted this trend in its analysis of caveats from URA Realis as at May 29. The reason behind this could be the pent-up demand from this segment of buyers who had been priced out of the private residential property market during the bull run in 2007.

Another important factor was the narrowing price gap between public and private homes, which resulted in private properties becoming increasingly within reach of HDB upgraders. ‘With cash proceeds from the sale of existing HDB flats, the upgrader needs to borrow only about 50-60 per cent of the value of the new private property,’ estimates DTZ’s head of SEA research Chua Chor Hoon.

Knight Frank executive director (residential) Peter Ow also credited the rise in proportion of HDB upgraders to developers offering a combination of attractive pricing and interest absorption schemes (IAS) for projects. ‘IAS helps tide these buyers until their new condo is completed and when they can sell their existing HDB flat,’ he explained.

‘At Double Bay, which we marketed, we saw many buyers in their 40s currently living in HDB flats nearby,’ Mr Ow added.

DTZ’s analysis showed that the highest proportion of buying (in URA Realis’s 14-year caveats database) by HDB upgraders was in Q2 2002, at 81 per cent.

Generally, HDB upgraders’ share of private home purchases tends to be higher when private residential prices are falling and come within their reach. And when property prices are shooting up, their share of purchases ebbs.

During the 1998 Asian Crisis, for instance, HDB upgraders’ share hovered between 51 and 65 per cent per quarter, against a much lower share of 33-40 per cent in 1995 when prices were spiralling up.

Again, during the recent property bull run in 2007, their share was pretty low at 21-23 per cent, before starting to rise again last year when the property slump began.

DTZ also compared some buying preferences of HDB dwellers and private property owners who bought private homes in Q1. Some 88 per cent of total purchases by those with HDB addresses were under $1 million. In contrast, 40 per cent of buyers with private addresses invested in homes that cost $1 million and above. HDB upgraders also bought mostly smaller apartments.

Some 92 per cent of private homes that HDB dwellers bought in Q1 were outside prime districts 9, 10 and 11. And for those HDB dwellers who did pick up private properties in prime districts, 68 per cent were for units below 1,000 sq ft. Based on caveats lodged in Q1, the most popular projects for those with HDB addresses include The Caspian, The Quartz, Alexis and Double Bay Residences.

HDB dwellers accounted for 57 per cent of the total 227 caveats lodged for Alexis and for 75 per cent of the total 458 caveats for Caspian.

DTZ’s Ms Chua reckons HDB dwellers’ share of private home purchases may ease in Q2, when sales activity permeated to the mid/upper-mid segments where more buyers have private addresses.

Knight Frank’s Mr Ow said the proportion of HDB upgrader buying will vary depending on the profile of property launches or relaunches in the months ahead.