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Saturday, 11 July 2009

HDB Prices - Still so sticky???

In my earlier post on property prices in February this year, I shared my view on why I think there are still room for the prices to drop further. However, one waiting since then will be quite disappointed to note that the prices are still very sticky, especially HDB resale prices:


High prices to stay?

I came across at least one article that doubts the prices can be sustained for long. But prices seems stuck on an up trend, although at a slower pace. To provide potential glimpse of the future prices, HDB had voiced their position:

Mr Mah continued: "If there is increased demand, yes, we will push out new flats. But we cannot be building new flats to cater to every last person who wants a new flat because if you do that, you are overbuilding and you don't want to do that. So some of the new demand will have to be met by resale flats."


Comparing DBSS and Resale Condominium in the suburbs

If high resale prices are indeed here to stay, what alternatives are there? Personally, if I can afford to wait, I'll prefer the more reasonably priced BTO in the suburbs. Anyway, I'm living in Sengkang but my parents live in Queenstown and my in-laws in Toa Payoh, though my wife and I do hope to live near them.

But for those who value location above everything else, they can either get the resale flat they wanted and pay the hefty cash overvaluation or the DBSS. The latter does not come cheap either. The recent launches, Park Central @ Ang Mo Kio, Natura Loft @ Bishan and The Peak @ Toa Payoh averaged above $500 per square feet.

I had a chat with my colleague and he brought my attention to 'competitively' priced resale condominiums in the suburbs. To my surprise, the price difference over HDB resale flats is really very small. Projects such as The Warren near Choa Chu Kang MRT, Astoria Park near Kembangan MRT and Compass Heights beside Sengkang MRT averaged about $600 to $700 per square feet.

As the DBSS prices get higher with each new launch, buyers should really think hard whether they are really getting value for their hard earned money. Staying in Bishan, Ang Mo Kio or Toa Payoh does not make much difference compared to Kembangan or Choa Chu Kang if the morning gridlock are there to stay. Taking the trains nearer town just means more crowded trains or not able to get on the first arriving train. But at least you got a pool to cool your heads in the condominium.


Other then the rich and wealthy, a property to normal working class couples should be just a decent roof over their heads, a place they retire to after long hours of hard work each day. Taking into account the hefty debt one must take on, it pays to be prudent in selecting ones' cave in this modern age when income security is always a challenge.

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Blogger dsea said...


A few random thoughts....

a) Those type of property fluctation seen in HK not likely to be "allowed" here. Too much systemic risk. CPF, Banks cannot handle too much negative equity as compared to HK where lassise faire rules! MKT value can plunge 50%! can a general Singaporean stomach such a 50% plunge in their property value. My personal tolerance is 25%. (I am fortunate not to experience any negative equity)

The truth is, negative equity only affects home owners who trade up or down their property. SO, is the gov going to curb property trading by home owners? No way IMHO, as the industry is feeding many mouth (think property agent, renovation contractors, legal services) and contribute to stamp duty. And commercial property transactions attracts GST too!

b) HDB resale price is determined by sales price of new HDB flats. (Incidentally new HDB prices are also set in reference to re-sales prices; so, we have a curious case where feedback loop continues and HDB prices and re-sale prices affect each other)

Developers of sub-urban mass mkt condo determine their launch price by referencing their floor price HDB sale and re-sale prices. (D9, 10, 11 and luxury condos are in their own playing field. Landed property are also another topic.)

Prices are also sticky downwards as resale prices are referenced to HDB new sales price. By "decelerating" at a slower pace than the resale market to halt the slide in resale market.

c) On a policy front, high property prices "forces" people to work hard! I know for a fact that AMK 3 room flat circa 1974 was SGD9500. A typical blue collar worker salary was abt 180-250 pm. "Simplistically", the payback ratio is abt 44 months of pay. Compare that to today.....a 4 room (no 3 room was built until a change in policy last year) cost easily sgd180-240k at Woodlands, SK or Jurong West. A typical blue collar worker pay is 1300-1700, thus the ratio is 140 months.

d) As part of a team that set retail prices, one usual market practise that we employ was to set high retail price, then start providing various discount at different stage of the product life cycle. We never reduce the retail price. Period. Its a form of price discrimination. We could have set 1 price clearing level and all consumer pay that same price.

Look at the various grants given by HDB now. I rest my case.

e) Which leads to next to intervene to continue stable long term uptrend of property prices?
Our city is just too "small", hence the truth is, we will still continue to have very liberal employment visa laws. If we are not reproducing sufficiently, what do we do? import people! I am even seeing PRs couples only having 1 kid or none at all.

In conclusion....yes, price is definitely sticky downwards.

18 July 2009 at 11:08  
Blogger Market Uncle said...

Hi Dsea,
I fully agree with the retail prices and resale prices chasing each another. There'll always be a tipping point where the price spark off a runaway trend in one direction. It have been upwards since 2003/04 and many are assuming this trend will not stop. Wish them luck.

Anyway, I do not believe any intervention will have long lasting impact. It'll just delay the inevitable and sometimes even make the eventual consequence more painful.

So even though logic points to a correction, the correction might take a long time to occur. Just like those exiting the equity market too early when all signs point to overvaluation, people waiting for correction might have a long wait indeed. But the consequence of early exit of equity market is lost 'profit', but 'wrong' wait on property could mean delayed marriage (and babies).

18 July 2009 at 15:16  

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