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Business Times - 02 Oct 2010

Property cooling shows up in one hot number

In an early sign, HDB estimates September's resale transaction volume to have fallen by 25% from August


IT wasn't easy to pin-point the effect of the property cooling measures in the government flash estimates released yesterday. But one early tell-tale sign stood out. The Housing & Development Board yesterday mentioned a big drop in resale deals in September. This follows the cooling measues announced on Aug 30. 'It is estimated that the monthly resale transaction volume in September declined by 25 per cent compared to August 2010,' said HDB.

That was the only clear sign of the impact of the measures. Other signals were somewhat muddied, even though transactions handled by firms like ERA and PropNex hinted at a major effect on HDB deals.

The Urban Redevelopment Authority's private home price index rose 3.1 per cent quarter on quarter in the third quarter, slower than the 5.3 per cent Q-on-Q gain seen in Q2.

Price indices of non-landed private homes in all three regions tracked by URA appreciated at a slower clip in Q3 than they did in Q2. These indices showed a quarter-on-quarter gain of 1.6 per cent in Core Central Region in Q3, against a 5.4 per cent rise in Q2, and a 2.4 per cent pick-up in Rest of Central Region in Q3, following a 4.6 per cent rise in Q2.

In Outside Central Region (where suburban mass market condos are located), the increase slowed from 5.7 per cent in Q2 to 2.4 per cent in Q3.

In the public housing segment HDB's Q3 flash estimate for its resale price index reflected a 4 per cent quarter-on-quarter increase, just marginally below the 4.1 per cent Q-on-Q gain in Q2. However, HDB revealed that the estimated number of resale applications it received for Q3 is about 8,200 - or 10 per cent less than the previous quarter.

'As most of the transactions for third quarter 2010 were submitted to HDB before the announcement of the property measures on Aug 30, 2010, the impact of the measures is not fully reflected in the data yet. 'Nevertheless it is estimated that the monthly resale transaction volume in September declined by 25 per cent compared to August 2010,' HDB said.

HDB will provide more infomation including the widely-watched cash-over-valuation (COV) numbers when it releases the full Q3 resale flats transaction data on Oct 22.

However, ERA and PropNex shared some early indicators based on the transactions they have handled.

ERA Asia Pacific associate director Eugene Lim said: 'For August, our transactions show that overall median COV reached $35,000, up almost 17 per cent from HDB's overall median COV of $30,000 in Q2.' In September, it slipped 20 per cent to $28,000.

PropNex said that based on the HDB resale flat transactions it has handled in September, COV levels are down 20-30 per cent (depending on flat types) from the respective HDB median COV levels for Q2. However, supported by stronger COVs in July and August before the Government announced cooling measures, COVs for deals handled by PropNex for the whole of Q3 are about 4-15 per cent higher than HDB's Q2 COV figures.

PropNex CEO Mohamed Ismail reckons that HDB's overall median COV for Q3 could come in close to the Q2 figure of $30,000 - although this figure is likely to fall to around $22,000 in Q4.

ERA's Mr Lim predicts HDB's overall median COV will likely ease to about $10,000-15,000 in Q4, which he reckons 'will help to normalise the market'.

The firm also illustrated a dramatic change in its HDB resale volumes. 'ERA's resale HDB transactions clocked their monthly highest for 2010 in August. But September became our slowest month for HDB resale deals this year,' Mr Lim said.

As for the HDB resale flat price index, Mr Ismail is predicting zero or negligible growth for Q4 as the market goes through a consolidation phase before seeing more sustainable growth in 2011 of about 2 per cent per quarter.

Based on HDB's numbers released yesterday, close to 25,800 flats changed hands in the resale market in the first nine months of this year. ERA expects the total for the year to be around 30,000 to 32,000 - down from last year's figure of 37,205.

Speaking of the cooling measures, Mr Lim said: 'These policies are targeted at normalising the HDB resale market, which went out of whack because of the presence of non-genuine demand, such as private property owners buying HDB flats for investment or speculation, and even some permanent residents riding the wave of the HDB market.'

While the measures will remove the froth from the market, he reckons that HDB resale prices are unlikely to crash. 'Yes, the Government is increasing supply of new flats but this is primarily targeted at first-time home buyers. Demand for housing is not weak as Singapore's economy is doing well and we're at near full employment,' Mr Lim added.

As for URA's flash estimates, analysts said it is hard for the numbers to capture the impact of the cooling measures as the estimates are based on transaction prices listed in caveats lodged in the first 10 weeks of the quarter, upto the early September period.

As there's usually a three- to five-week gap between the time when an option is issued and when the buyer lodges a caveat, prices of transactions in September may not have been captured yet in caveats - or at least not in significant numbers to have made an impact on the latest URA indices.

'The Q3 flash estimate index would still have been influenced more significantly by prices of transactions in July and August,' suggests Credo Real Estate executive director (research and consultancy) Ong Teck Hui.

Instead he interprets the slower growth in the Q3 flash estimate to the current stage of the property upcycle which had started to mature even before the cooling measures were unveiled. 'Typically in property upcycles you see a very strong price pick-up in the initial quarters; but this tends to taper off in subsequent quarters as pent-up demand is satisfied and price resistance creeps in,' Mr Ong said.

Jones Lang LaSalle's Southeast Asia research head Chua Yang Liang estimates the final Q3 index (which will be released later this month) is likely to reflect a slower increase of around 2.5 to 3 per cent.

With the index already up 14.7 per cent year to date, CB Richard Ellis is predicting a flattish performance in the fourth quarter.

The direction of private home prices will hinge on several factors - including who blinks first in the staring match between buyers and sellers, developers' launch strategies and the next Government Land Sales Programme.