Friday, August 10, 2012

HDB resale policy has weeded out speculators


Straits Times: Fri, Aug 10

AS RECENTLY as five years ago, private-property owners were snapping up resale Housing Board flats at market rates, making up 10 per cent of yearly resale transactions.

But tightened policies have cut the number of such transactions to just 3per cent in the first six months of this year, going by fresh data from the Housing Board.

This means those going after resale units are now genuine downgraders who have either cashed out amid a property boom, or want to move to live closer their children, analysts said.

They added, however, that the trend has had little impact on resale prices because of their small numbers.

The turnaround was sparked by a change on Aug30, 2010. Before that, private property owners could buy a non-subsidised resale flat at any time, even while hanging on to their private property.

The policy that kicked in on that date required private property owners to sell off their property within six months of buying a resale Housing Board flat. This was to reinforce the principle that Housing Board flats are meant for long-term owner occupation, not for rental income or to make a quick buck.

The change effectively cut back on speculation in public housing among those well-off enough to own a private property and buy a Housing Board flat as investment.

ERA Realty key executive officer Eugene Lim said: "A substantial number of people bought flats in the past for investment and never lived in them."

The attraction for them was that Housing Board flats offer up to twice the yearly rental yield, at 6 to 8 per cent.

SLP International head of research Nicholas Mak said as more people cottoned on to this, the numbers showed the trend, which likely prompted the rule change.

The number of private property owners going into the HDB resale market jumped from an average of 245 transactions a month in 2008 to 348 in the first eight months of 2010.

After the change, the number dipped to 155 a month for the rest of 2010. The trend has held. The monthly average was 127 last year, falling to 72 a month between January and June this year.

PropNex chief executive Mohamed Ismail said: "Only genuine downgraders are entering the resale market, as they are saddled with a minimum-occupancy period of five years before they can sell the flat. It will be a constraint on their investments thereafter."

Mr Carl Tan, 50, is among these downgraders. Last year, he sold his Novena terrace house for $1.6million - twice what he paid for it nine years ago. The hotel manager now lives in a $450,000 Clementi four-room flat, a stone's throw from his son's.

He said: "Downgrading is an increasingly attractive option as one gets older - and it brings me closer to my grandchildren."

Teacher-turned-artist Felicia Low, 36, sees the wisdom in giving up her studio apartment at Bedok's Clearwater condominium, for which she paid $460,000 five years ago.

She sold it this year for $700,000, and bought a five-room flat in Pasir Ris, gaining twice the space for $530,000.

She said: "Going into a new career, I want to cut my mortgage for better cash flow. This flat lets me slash it in half."

Mr Colin Tan, research head at Chesterton Suntec International, said those who have profited from private collective sales form another group of downgraders.

"Given the current fluidity of the market, anything can happen. But expect more downgraders if resale HDB flat prices dip, and private residential properties continue their upward trend," he said.

Prices for both segments hit record highs in the second quarter of this year, spurred on in part by swelling resale transactions.

  
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