Are completed properties bearing brunt of cooling measures?

The latest flash estimates showed private property prices rose by a slower 2.1 per cent in the first quarter from the preceding three months while HDB resale prices increased just 1.6 per cent.

I must admit that I did not think it was possible to rein in HDB resale price rises so soon. This is because the problem here is not so much of dealing with strong demand but the lack of supply. Owners have to occupy their HDB flats for five years before they can be sold on the resale market, so the supply of such flats is almost completely inelastic.

However, there will always be an inelastic core who need their flats urgently. You can close the door to investors and persuade others to apply for BTO (Built-To-Order) flats with more attractive pricing plans. You can clamp down on abuse and get existing owners to think about selling off their HDB investments. Once all of this is done, there is nothing much else left.

I have to take my hat off to the HDB for having achieved this and with lower cash-over-valuation premiums to boot. However, the upward pressure will remain for some time until a greater supply of resale units hits the market.

In hindsight, the release of several iconic HDB projects must have helped persuade some with urgent needs to postpone their purchase for a better deal with these attractive and competitively priced BTO flats.

The most recent cooling measures, announced mid-January, have also succeeded in reining in price growth in the private housing sector. If we include completed properties, the sales volume has been drastically reduced – down to almost half by some estimates.

On the other hand, monthly developers’ sales figures show the decline in purchases for project launches has been less significant.

Indeed, if we juxtapose the official flash estimates with the monthly price index produced by the NUS, it appears that the brunt of the cooling measures is borne by completed apartments outside the central areas and less so with new launches.

The NUS index covers only completed apartments. It has sub-indexes for only two locations – Central and Non-Central. While overall prices softened by 0.4 per cent in February, the sub index for Central rose 1 per cent in February while that for Non-central dipped 1.5 per cent.

The sub index for Central had risen by 3.1 per cent in January while the rise for Non-central was 2.8 per cent. This means the overall slide for Non-central is 4.3 per cent.

Will the slide continue into March?

On the other hand, the URA index covers all properties. It has three location categories – Core Central, Rest of Central and Outside Central. The index for Core Central rose 0.9 per cent, slower than the 2.2 per cent for the previous quarter. However, those for Rest of Central and Outside Central registered higher growth rates.

The index for Rest of Central increased 2.2 per cent in Q1 – a bigger gain than the 1.9 per cent gain in Q4 2010. The index for Outside Central posted a 3.1 per cent rise in the first three months of this year, after rising 2.1 per cent in Q4 2010.

Are we seeing the beginnings of a price divergence between uncompleted and completed apartments? Of course, the differences could be due to price changes for landed properties and I will stand corrected.

Finally, it appears that nothing will be done about the proliferation of shoebox apartments. Latest reports show they are still selling well. If people are prepared to buy them, why should we stop them? But why do we impose a $100 charge on citizens and PRs who visit our casinos? It is because we recognise that there are social costs.

Many in the real estate industry have spoken out against shoebox units because they foresee such costs even if there are no well-documented studies to prove their case. All I can say is that their opinions are based on their combined wealth and length of property experience. Can we afford to ignore this feedback?

Negative comments have also come from outside the industry and cut across diverse occupations. The call is not for a ban but some form of curtailment, such as a cap on the proportion of shoebox units within a project.

The problem comes about when such units totally dominate in projects in far-flung locations. Everything is fine when the market is rising. In a decline, they are abandoned for bigger units. With time, they acquire a stigma which further affects its value. Eventually, they become a focal point for socially undesirable activities.

Unlike other policies which may be easily reversed, mistakes here are literally cast in stone.

By Colin Tan – Head, Research & Consultancy at Chesterton Suntec International

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