Wider gap expected between public and private housing prices in Singapore

Prices of housing and development board properties in Singapore are expected to fall up to 10% in the next six months while those of private real estate will rise up to 7%, according to a new survey.

It will create a two tier real estate system making it harder for people to upgrade in a country where property accounts for almost half of private wealth, according to the poll of property analysts by Bloomberg.

‘Who these rules will hit the most are people who have little savings and who live from day to day. They are mostly those who live in public housing,’ said Mohamed Ismail, chief executive officer of home broker PropNex Singapore.

Four out of six analysts polled by Bloomberg expect prices for HDB flats to drop in the next six months, while four out of seven predict private apartment prices will gain.

In August, the government increased down payments for second mortgages and extended the stamp duty to residential property sold within three years in a bid to calm real estate prices which surged 38% in the second quarter from a year earlier.

‘This is targeted at the HDB and mass market, where we’ve seen continuous price increases which have exceeded previous peaks,’ said Han of Cushman & Wakefield.

The government has been trying to slow the increase in home prices for a year, with earlier measures banning developers from absorbing interest payments for flats under construction and stopping interest only loans for some projects.

‘The previous measures were only scratching the surface. The recent measures are more impactful because they really hurt people’s cash outflow’ said Chua Chor Hoon, of DTZ’s Southeast Asia Research.

HDB resales fell 50% the week after the new rules were introduced, according to Ismail at PropNex, who said people have been shocked into a wait and see attitude. He expects cash premiums paid for HDB flats to drop by half to about S$25,000 by the end of the year.

CapitaLand, Southeast Asia’s biggest developer, expects Singapore’s home prices to fall a little with the cooling measures.

But many investors will not be deterred. Recently a Chinese national paid a record S$36 million for a private bungalow in Sentosa Cove and a Singaporean couple paid S$1.1 million for a Bishan flat, S$200,000 more than the official valuation.

Banks are only allowed to lend up to 80% of the appraised value, so the buyer has to pay the rest in cash or by drawing on pension funds. Any premium over the valuation has to be paid in cash. Since the August announcement, buyers who hold more than one mortgage can now only borrow up to 70% of a property’s appraised value.

Singapore subsidizes new HDB flats to help citizens get a start on the property ladder. When an HDB flat is resold, the price is decided by the seller and buyer.

The government’s action to try to avoid a bubble is a lesson to speculators and buyers not to overspend on real estate, according to Tan Tion Cheng, chairman of property agent Knight Frank.

At the time of the new measures, the government said price levels had exceeded the peak reached in the second quarter of 1996. ‘The rising prices were infringing into public housing. The measures remind investors that if they don’t have money, don’t buy,’ he explained.

Source : Propertywire – 22 Oct 2010