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The beginning of the end? Tongue

Jun 11, 2011
Private-HDB home price gap hits record

More cooling measures may be needed to curb unabating demand, say some analysts
By Esther Teo, Property Reporter

THE price gap between mass market private homes and HDB flats has widened to a new record - making it harder than ever for aspiring HDB upgraders to buy a private home.

This is according to a new report by Goldman Sachs, which said that the price difference between 99-year leasehold homes in the suburban areas and five-room HDB flats grew to about $490 per sq ft (psf) in the first quarter of the year.

Translated into overall prices, this means a 1,200 sq ft five-room flat would cost almost $600,000 less than a mass market leasehold flat.

The last time the price gap hit near this level was during the spectacular property boom in late 2007, according to the report released on Thursday.

After that, the gap narrowed to about $300 psf in early 2009, before rising steadily again. In the 10 years before 2007, the price difference largely hovered between $100 and $300 psf.

The growing price chasm between HDB flats and private homes is turning into an 'insurmountable hurdle to upgrading aspirations', said the report's authors, Goldman analysts Paul Lian and June Zhu.

It also suggests the Government has 'little choice but to ensure more affordable housing for all through the HDB and also moderate prices of private mass-end homes'.

Mr Lian and Ms Zhu suggested that new cooling measures could include lower loans for home buyers with existing mortgages. Such buyers can now borrow 60 per cent of a home's price, but this might be cut to 50 per cent.

Foreigners, who are now purchasing across all housing segments, may also face restrictions on the number of mortgages they can take, they added.

Other analysts agreed that more cooling measures are possible, although they expect these only after the property price index for the second quarter is released next month.

The Government also needs time to assess the impact of its most recent release of new land sites on Thursday, said Mr Tan Kok Keong, property firm OrangeTee's head of research and consultancy. He believes any possible new measures are at least three months away, as the Government observes the market's response.

Already, the Government has hinted that the monthly income ceiling to buy new HDB flats may be lifted from the longstanding $8,000 to $10,000, making these cheaper properties accessible to more buyers.

But OCBC Investment Research property analyst Eli Lee said this move is likely to have a limited and delayed effect on the private property market.

'We believe the Government would likely have to implement more cooling measures (in the private market), especially if there is continued strength in mass segment prices,' he said.

Some, however, say more measures are unlikely.

Property consultancy Cushman & Wakefield Singapore vice-chairman Donald Han said early signs suggest developers' demand for land is moderating, with fewer bids in recent tenders. He said a 1 per cent to 2 per cent rise in quarterly prices is acceptable, given the healthy economy.

The Urban Redevelopment Authority is monitoring the situation, its group director of land sales and administration Marc Boey said on Thursday.

Commenting on the likelihood of further curbs to demand, Mr Boey said that while there was a slight slowdown in demand for new homes after the January measures, demand has picked up again.

'But monthly developers sales figures do have a bit of volatility due to seasonality... and depending on what developers launch, so we have to observe the trend a little closer. But in terms of price, it has continued to moderate in terms of pace of growth.'

April's private home sales rose 29 per cent from March to a five-month high of 1,788 units. First quarter prices are up 2.2 per cent, the sixth straight quarter in which the rate of increase has eased.

National Development Minister Khaw Boon Wan has also fanned fears of more cooling measures by saying on his blog that 'sharp property price increases cannot go on forever'.