Price index of private residential property and HDB

1Q flash estimates for property prices. The URA released the flash estimates of the price index of private residential property for the first quarter (1Q) of 2009 on 1 April 2009. Prices dropped sharply by 13.8% in 1Q 2009, which was much larger than the fall of 6.1% in 4Q 2008. The drop was worse than our expectations. We believe that property prices will continue to decline for the rest of 2009.

URA also provided the details for the various geographical regions. Prices of nonlanded private residential properties decreased by 15.2% in Core Central Region (CCR), 17.2% in Rest of Central Region (RCR) and 7.5% in Outside Central Region (OCR). The decreases for Core Central Region and Rest of Central Region were worse than our expectations while the fall for Outside Central Region came in within expectations. We note that buyers have been reluctant in buying high-end and mid-end homes, which are mainly located in Core Central Region and Rest of Central Region respectively. This is because prices have been high and are expected to decline further. Property prices in Rest of Central Region or the suburbs have fallen less due to demand from HDB upgraders who have found the mass-market homes to be more affordable.

Pdf source of index, Pdf source by area.

On the same day, HDB released the flash estimate for the public housing resale price index for 1Q 2009. The index is 138.6, which is a fall of 0.6% from 4Q 2008. This is the first decrease after prices have risen by more than 30% since 2006. We feel that the HDB resale market is relatively stable with demand from permanent residents and young married couples. At the same time, there is limited supply from HDB for new housing flats. Most of the new flats offered are Build-To-Order (BTO) flats, which continue to attract applications of up to three times.

Support from HDB upgraders. The developers mention that most of the buyers of mass-market properties have HDB addresses. We feel that these HDB upgraders have delayed their purchases of private apartments in 2007 and 2008 due to escalating prices of private properties. With the fall in private property prices, massmarket properties have become affordable. This is not surprising given that HDB flats prices have increased rapidly between 2006 and 2008, and resulted in the narrowing of the price gap between HDB flats and low-end private properties.

Interest Absorption Scheme (IAS). The government had scrapped the Deferred Payment Scheme (DPS) to curb property speculation and prevent defaults as the property market slows down. As a result, developers have introduced the Interest Absorption Scheme (IAS) that is similar to the DPS. Under the IAS, buyers sign up for loans and make the 20 percent downpayment when they book property units. They will not have to make progressive payments until the project obtains the Temporary Occupation Permit (TOP). However, they have to pay a premium of about 3 percent for the IAS.

Due to the slowdown in the global economy and increase in unemployment, we are revising our estimates for high-end and mid-end property prices to decrease by 25% to 30% and 20% to 25% from 20% to 25% and 15% to 20% respectively for 2009. The estimates for mass-market home prices remain unchanged for a fall of 10% to 15% for 2009.


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