As supply of new flats is ramped up …

Analysts expect COVs and private home prices to fall gradually

The flurry of housing announcements in recent days has increased optimism among home-seekers, especially those who have been unsuccessful in their house-hunting efforts.

Property analysts who spoke to Today noted, however, that the additional supply and a review of the income ceiling for buyers of new Build-to-Order (BTO) flats will be “no big shake-up”. The impact – including on prices – will instead be gradual, kicking in only when the first of the 25,000 new units pledged by the Government come onstream in two years.

For a start, the gap in prices between new and resale units will likely narrow, said SLP International executive director of research and consultancy Nicholas Mak.

While the market value of resale flats is likely to remain stable over the next few years, experts expect cash-over-valuation (COV) prices to shrink – as the combined effect of the new measures temper demand for these flats – leading to a 15-per-cent drop in resale prices.

Cushman & Wakefield vice-chairman Donald Han believes the COV could even become a thing of the past: “With an increased supply and the adjustment to the income ceiling, it will become a buyer’s market and the COVs may no longer be a component of negotiations.”

At the same time, the prices of new BTO flats would likely be unaffected despite the influx. Under the HDB’s current pricing model, the prices of BTO flats are pegged to market prices less Government subsidies.

Young couples looking to buy new flats, therefore have no need to hold out on their purchases, said ERA Realty key executive officer Eugene Lim.

“It doesn’t mean that if you wait, the prices will come down or the flats will be in better locations. So you should go ahead with your purchase if everything works for you,” he said.

Wild cards: Construction costs and interest rate

Analysts estimate prices in the private residential market to fall by about 10 per cent in about three years.

Said SLP International’s Mr Mak: “A review of the income ceiling will take off a chunk of demand from mass market private properties – those that cost below S$1 million.”

If more public housing in the form of executive condominiums and flats under the Design, Build and Sell Scheme are rolled out, demand for mass market private homes may also be affected, said ERA’s Mr Lim.

As the prices of resale flats fall, there may also be fewer HDB-dwellers looking to cash in on their homes and upgrade to private properties, analysts noted.

The Republic’s economic performance is also a factor as the private market is largely “liquidity-driven”, they added.

Chesterton Suntec International’s director and head of research and consultancy Colin Tan said: “Many private property buyers are investors; as we have seen, even the harshest cooling measures imposed by the Government have seen prices continue to climb.”

There are two wild cards in the equation though: The higher tempo and sheer number of new flats the Government is seeking to build could create a bottleneck within the construction sector – a point National Development Minister Khaw Boon Wan noted when he revealed a ramp-up in the number of rental flats last Sunday.

Shortage of raw materials, for example, could drive up construction costs.

The other is the movement of interest rates.

Singapore’s record-low interest rates now has allowed some home buyers to pay less than one per cent in the first year of their loans, but that could well change depending on external factors.

At a recent real estate conference organised by the National University of Singapore, DTZ head of South-east Asia research Chua Chor Hoon warned of a worst-case scenario: A potential “perfect storm” unfolding in two to three years’ time, should interest rates spike while demand plunges in an abundant market – over 32,000 units will be completed over 2013 and 2014, according to the Urban Redevelopment Authority.

Mr Tan noted that it is “not impossible that interest rates remain low” as the United States continue to struggle economically. If that happens, it could also create “ghost towns” – in the event where supply outstrips demand – where people hold on to vacant units because the cost of doing so is low.

Source : Today – 1 Jun 2011

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