Singapore is unique in that it has two property markets in one: HDB and private.
While these two markets can influence each other, they are quite separate and distinct as a result of regulation. As such, they operate differently.
For example, the HDB resale market has seen a greater decline in price than that of the private, non-landed resale market.
According to SRX Property, prices in the HDB market are down 8.6% since their peak in April 2013. Meanwhile, the private resale market has dropped 5.3% since its monthly peak in January 2014.
However, in terms of sales activity, SRX Property reported earlier this month that the HDB market is down about 64% since its peak in May 2010; whereas, sales in the private, non-landed market are down about 80% since the peak of April 2010.
The Cooling Measures have impacted both markets, but in slightly different ways.
In terms of the private market, the measures have curtailed activity significantly, but prices have remained relatively stubborn.
The reason is that the stamp duties and TDSR are very effective in discouraging investment. A 15% surcharge on a home is daunting and drives prospective investors away.
Taxes and debt restrictions are less effective against price. The reason is price depends on both supply and demand. Unless the market introduces new supply that causes owners to readjust their expectations for price, they will sit out until the Cooling Measures go away.
The Cooling Measures have not changed the fundamental value of a home because they have not changed the supply side of the equation.
As a result, the total private market has essentially stalled at a bit more than 2,000 units for third quarter 2014, according to SRX Property. We can assume that many people buying and selling in today’s private market are those who are exempt from the constraints of the Cooling Measures.
In contrast, by introducing a record number of Built-to-Orders (BTO) has fundamentally changed the supply and demand equation of the HDB market.
SRX Property estimates that about 6,000 households will take the keys to a BTO. Those who own regular HDB flats must sell them within six months of getting their BTO keys. The net result is that there is more supply in the HDB market.
More supply puts downward pressure on prices.
There is a second way BTOs impact prices of HDBs. The government prices BTOs at a lower price than the market value of normal HDBs.
As such, the BTO policy accomplishes two things. It introduces more units at below market price. This causes the price decline in the HDB market to outpace that of the private market.
posted on 03 Oct 2014
Source: SRX (03 Oct 2014)