Mass market home prices closing in on city homes

The gap in prices between private homes in the mass market and the core central region is narrowing.

Market watchers said the gap is down substantially to just above 60 per cent in the first quarter of this year.

That’s compared to 108 per cent in the second quarter of 2011.

This is because prices of homes in the mass market have been picking up at a much faster pace.

Analysts expect more than 6,000 new private homes to be sold in the first quarter of this year, mostly in the mass market segment.

They said prices of homes outside central region (OCR) have risen rapidly, closing in on those in the core central region (CCR).

In the second quarter of 2011, the median price of homes in the city was about S$1,850 per square foot, while mass market homes went for some S$895 per square foot.

But now, mass market home prices have climbed to about S$1,000 per square foot, with those in the city falling to about S$1,660 per square foot.

Chua Yang Liang, head of research, Jones Lang LaSalle, said: “Long-term sustainable level is about 50-60 per cent gap in the two markets… the price will have to slow down by that time. It will be driven by buyers moving out from the mass market into the high end. At that point in time, buyers will be saying ‘why do I buy in the suburbs when for just a bit more I can buy somewhere downtown?'”

Analysts said the strength of home prices in the mass market segment is largely supported by the healthy growth in resale prices of public housing flats. HDB resale prices have risen by over 80 per cent in the last few years, but analysts expect them to soften in the next two to three quarters.

Donald Han, special advisor, HSR International Realtors, said: “We are going to see a plateauing of HDB resale mainly due to the contraction of your cash-over-valuation… In the first quarter we saw a contraction of about 12 per cent. The mass market cannot continue to move upwards without seeing some stabilisation.”

Experts said mass market home prices could moderate by about two per cent by year-end. And for now, they see no need for further cooling measures.

There are, however, concerns about the growing number of shoebox or small apartments entering the market.

Colin Tan, director, Research & Consultancy, Chesterton Suntec International, said: “We may actually have three years of record sales of small units. I have no problems with small apartments per se, but not when the entire development is consisting of small apartments. It doesn’t reflect the needs of the population.”

One suggestion is for the government to set a cap on the number of units that can be built in a development to curb the proliferation of shoebox apartments.

Last November, the Urban Redevelopment Authority tweaked rules limiting the number of apartment units that can be built in low-density areas to prevent overcrowding.

The areas included Telok Kurau, Kovan and Joo Chiat/Jalan Eunos estates. Market watchers said developers are known to pay higher prices for land because they know they can build more smaller units and sell them at higher per square foot prices.

Source : Channel NewsAsia – 11 Apr 2012

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