The return of upgrader demand

If there is anything remarkable about the recently-released developer sales for last month, it has to be the spectacular return of HDB upgraders to the housing market.

In all, 1,597 units were sold during the month, of which about a third or 529 were executive condominiums (ECs). They helped propel developer sales to a dazzling 74 per cent gain over the previous month.

The release of new ECs for the first time in about five years helped relieve some of the growing pent-up demand from upgraders, as well as absorb some of the liquidity pressures in the lower tiers of the housing market.

For many months now, upgraders have been sidelined by investor buyers in the private housing market. While liquidity levels are also at much higher levels at the lower end of the housing market, they cannot match the funds in the hands of investors.

Much of the upgrader demand has no place to turn to as prices of even the mass market segment rise beyond the affordability of most of these buyers. The limited options available to this sandwiched class are to upgrade to ECs and, to a lesser extent, Design, Build and Sell Scheme (DBSS) units.

I expect sales from the upgrader segment to continue to grow from strength to strength in the coming months as more EC and DBSS projects are launched.

Some have suggested that ECs are siphoning off some of the demand for the lower-priced mass market private housing apartments. They note that mass market condos in suburban areas had suffered a drop of about 25 per cent in sales volume, compared with the figure in September.

I would think not. The markets are quite distinct by now, polarised by the jump in prices over the past several months. Upgrader buyers in the private housing market are now in the small minority.

If there was a sharp drop in sales of mass market condos, it was because fewer such projects were launched.

It was also reported that the number of private homes sold in the $2,000 to $2,500 per sq ft price band last month was 207 units, or about eight times the 26 units developers sold in September.

If there were more units sold in the higher price bands, it was because more of such projects were launched during the month. This statistic in itself does not mean prices have risen much higher.

If we analyse price trends without regard to the launches, it will be very confusing. Prices will be shooting up one month and down sharply in another.

Some have commented that the buoyant sales last month may soon lead to another round of cooling measures. Without a proper analysis of prices, I think it is a little premature to talk about a new set of measures.

Have the cooling measures worked?

Industry observers have not helped with their comments. This is partly because they themselves are not clear about the objectives of the cooling measures. If anything, the calibrated approach in the introduction of the cooling measures is meant to restrain prices rather than curtail sales.

And the measures are not targeted at any one housing segment. While they may appear to affect the mass market segment more than others, I am pretty sure that was not the primary objective of policymakers.

The measures are meant to safeguard the system, not punish developers or investors. If sales soared while prices stayed flat, I do not think they will put the system at further risk. The problem is rapid price increases without corresponding growth in fundamentals.

Has that happened again? Maybe yes, maybe no. The test will be when the flash estimate of the property price index is released at the end of this year.

Finally, there has been much debate about housing affordability as well as statistics put out to show if housing is still affordable or otherwise.

At the end of the day, it boils down to the individual household. Even as household incomes rise, they may have less to spend for housing after setting aside money for necessaries.

Many people tell me that children’s tuition, music and ballet lessons and holidays are necessary expenditure these days. So are mobile phones, flat screen TVs, broadband and housemaids. With a growing list of necessaries, housing affordability will always be an issue with some households.

Perceptions of affordability also depend on the threshold of the household. Are they conservative spenders or risk takers? A conservative household will always need to set aside more before spending on a home.

By Colin Tan, head, research and consultancy at Chesterton Suntec International.

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