July 17, 2009 by admin
By Jeremy Koh and Eugene Yeo
A relative of mine bought a 3 room unit of a 99 year old
condominium in Tampines last month at a whooping $900,000K.
If I remembered correctly, the median price of the project was
only $700,000 in 2007.
A colleague bought a penthouse at The Calrose for over $1.5
million dollars. The launch price 3 years ago was slightly less
than $1 million dollars.
Are we entering another bull run in the property market?
The Straits Times seems to think so, at least from its
suggestive headline “Record private home sales’: -
“It was another electrifying month for the private home market,
with sales last month surpassing even levels seen at the height of
the boom two years ago.
The recession-defying numbers for yet another month point to
surging confidence among buyers and sellers, and signal that the
worst is likely over.”
[Source: Straits Times, 16 July
2009]
Are the good old days coming back soon? Will prices go up
indefinitely?
One does not need to be a property expect to realize that
current prices are unsustainable in the long run for the following
reasons:
1. Though the government has moderated its GDP forecast in view
of better than expected performance of the economy in the second
quarter of 2009, the global economy, especially that of the United
States, remain in the doldrums and is not expected to recover till
the end of 2010.
2. Over 70% of the private residential projects are bought by
foreigners which contributed to the latest property boom from 2006
to 2008. With MNCs scaling down their operations and moving to
cheaper destinations, the number of foreign buyers in Singapore’s
property market is expected to decrease.
3. Rentals continue to fall in 2009 as the market cools down,
with the most appreciable decline noted in the prime areas.
The average monthly rent for luxurious non-landed homes in
Singapore fell 18.8% on a quarterly basis to $5.20 psf pm in Q1
2009.
For example, St Regis rents start at $7,500 for the smallest
1,507 sq ft three-bedroom unit and $20,000 for the 3,757 sq ft,
four-bedroom unit, or around $5 to $5.30 psf per month. The average
rent record for Grange Residences, a prime but slightly older
condo, is at $6.20 psf per month at the end of last year.
Meanwhile, the average rents of non-landed homes in the prime
districts fell 16.2% on a quarterly basis to $3.65 psf pm in Q1
2009. However, newer projects are still able to command rents of
$4.60 psf to $5.00 psf per month. For example, the transacted rents
for one-bedroom units of 690sq ft at the Sail @ Marina Bay now
stand at $3,200 a month.
[Source:
iproperty.com]
4. There will be a deluge of new projects which will obtain
T.O.P. in 2009 and 2010 thereby exerting further downward pressure
on the prices.
Based on these multitude of factors, it is highly unlikely that
prices will continue to rise any longer. In fact, the market should
be heading for a crash if it is not popped up artificially by the
HDB resale market.
Singapore is the only
democratic country in the world that has a huge public housing
programme. Even china does not have a public housing programme that
takes up 86% of all residential land.
Due to the sheer size
of Singapore’s public flat segment, and the tendency for the
government to intervene directly in the property market, home
prices in general (excluding the high-end segment) tend to swing
back and forth within a manageable range.
The recent HDB
resale transactions in March 2009 have shown that buyers are paying
prices high enough to prop up the S$600 per sq ft threshold for
most mass market condo projects.
Flat buyers are
paying between S$250 per sq ft to S$330 per sq ft just to own
quarter-century old HDB resale 3-room flats in suburban areas such
as Yishun, Woodlands and Hougang.
In Kim Tian
Road, which is a short drive from the Central Business District
(CBD), buyers would have to pay much higher per sq ft prices such
as between S$450 per sq ft to S$550 per sq ft for six-year old
resale 5-room flats.
[Source:
iproperty.com]
The resale prices of Housing Board flats have risen
by 10 to 15 per cent in the past one to two years, despite the
recession that began in September last
year.]
The HDB may have contributed to the spike when it decided to
raise the valuation prices of its flats last year, saying it would
help buyers as a lower cash-above-valuation payment would
result.
While the cash request is slightly lower, the valuation price
has leapt. The price of a four-room flat in Tampines is about
$370,000 now, some $40,000 more than the price early last year -
and this is largely due to the higher valuation price.
Instead of helping to stabilise prices, the HDB’s spike in
valuation has been instrumental in increasing resale prices.
[Source: Straits Times, 14 July
2009
How much longer can HDB continue to pop up the resale
market? Will it come to a day when a four room 99-year resale HDB
flat in the suburbs fetch more than $500,000K on average?
Left alone to market forces, the prices of HDB resale flats are
likely to plummet, at least back to the 2007 levels.
The astronomical prices of HDB resale flats help to support the
prices of mass market condos which in turn ameliorate the expected
plunge in the prices of luxurious condos.
Capitalizing on the profits made from the sale of their flats,
HDB upgraders are able to afford paying over-valuation prices for
private apartments and landed homes which in turn fuel the
inflation of prices.
It is a vicious cycle which will eventually implode upon itself
in the event of a crash in either the high-end or HDB resale
market.
With the continued efflux of foreigners from Singapore, the high
end market may crash sooner than later which will bring down prices
drastically in the mass market condos and HDB flats in a
domino-like effect.
The median prices of HDB flats will never exceed that of mass
market condos. They are after all, public housing built by the
government and they are supposed to be easily affordable.
Already, some HDB flats in prime areas like Bishan, Tanjong
Pagar and Bukit Merah are fetching prices close to or exceeding
that of condomniums in remote areas like Woodlands and Jurong.
Unless the prices for the mass market condominiums continue
to increase, the present HDB valuation hike is untenable.
The ongoing “boom” in the property market may soon become a
“bomb” for some when supply far outstrips demand precipitating a
general drop in the prices.
Given the economic uncertainty plaguing the world and Singapore
in the days ahead, it is advisable not to purchase a property now
unless it is absolutely necessary.
It may be more prudent to sit on the fence and wait rather than
to jump onto the bandwagon and get ‘burnt’ in the end.
http://wayangparty.com/?p=10493
3 Comments on "Record private home sales: a boom or bomb
in the making?"
Singapore Citizen on Fri, 17th Jul 2009 10:51
am
Will HDB flat easily cost 1 mil over the next 10 years ?
True blue singaporean on Fri, 17th Jul 2009 10:56
am
Since independence, our hosuing pricing has always go upwards
because it contributes into GDP numbers, which in turn translates
to higher bounus to ministers besides the millions of taxes it can
generates.
