HDB's resale price index grows 3.1% in 2Q11

PropNex blames the lower 60% Loan-To-Value ratio for the supply crunch.

The Housing and Development Board's Resale Price Index edged up 3.1% to 180.3 in the second quarter, compared to only a 1.6% growth the quarter before, according to a PropNex report.

This growth was coupled with a 6% increase in the resale transaction volume to 6,581cases. According to PropNex data, the median Cash-Over-Valuation increased from $22,000 in 1Q11, to $32,000 in 2Q11.

Supply crunch—a byproduct of cooling measures
“Those who took 1Q11 to understand the cooling measures have come back to buy on the resale market,” says PropNex CEO Mohamed Ismail.

“However, there are still many owners who, due to the effects of the cooling measures— especially the lower 60% Loan-To-Value ratio and revised Minimum Occupation Periods, are reluctant to move or sell their flat, resulting in a supply crunch and driving median resale prices as well as COV levels up,” elaborates Mr Ismail.

“Also, some would-be upgraders are hanging on to their HDB flats because of the widening price gap between HDB resale flats and private property.”

“As such, potential HDB upgraders could have found private property prices to be out of reach so they postponed their upgrading plans,” says Mr Ismail.

“In addition, those with existing home loans could be put off upgrading because of the rule that they cannot borrow more than 60% of the value of the property they want to buy,”continues Mr Ismail, “the 40% cash upfront is a substantial amount for those who are taking bank loans, which have a close to 25%, also means they would have to sell before getting another loan and have nowhere to stay in the interim.”

COV set to rise further
According to data from PropNex data, which has a 25% market share in the HDB resale market, COV levels have risen.

“Also noteworthy is that, for the months of April, May and June—which constitutes 2Q11—PropNex data showed a 1%, 4% and 10% increase respectively in the number of HDB resale flats being transacted at COVs of $50,000 and above.”

“Home sellers must remain realistic about their COV demands,” pronounces Mr Ismail, “because if not, there will be resistance from the buyers.”

“Overall median COV looks set to rise to $38,000 in the third quarter before plateauing in the beginning of next year,” he predicts.

Resale transaction volume will continue at a healthy pace “In the latest Build-to-Order exercise in which 3,556 flats were launched,” continues Mr Ismail, “the over subscription rate was between three to four times, which demonstrated a continued strong demand for public housing.”

Mr Ismail also expects the transaction volume to exceed 13,000 for 2H11, coupled by an increase of the RPI by about 5 to 6% for the next two quarters.