Some analysts have put further price declines for resale Housing and Development Board (HDB) flats on the table, after the resale price index (RPI) fell for the first time in more than four years in the third quarter of the year - PHOTO: SPH

[SINGAPORE] Some analysts have put further price declines for resale Housing and Development Board (HDB) flats on the table, after the resale price index (RPI) fell for the first time in more than four years in the third quarter of the year.

Flash estimates from HDB yesterday put the index at 205.1 in Q3, a 0.7 per cent drop from the previous quarter. This is the first time that the RPI has fallen since the first quarter of 2009, at the outset of the global financial crisis, when it lost 0.8 per cent.

Consultants were not surprised by the drop, as a combination of cooling measures, and new or tweaked government regulations over the year took their toll.

"The decline was to happen sooner or later," said Eugene Lim, key executive officer at ERA Realty, as the resale market continues to show signs of stabilising.

Said Nicholas Mak, executive director for research and consultancy at SLP International: "This contraction is partly contributed by the government's efforts to cool the public housing market, which resulted in the decline of ... cash-over-valuation (COV) in recent transactions, especially for larger HDB flats."

The COV cash premium took a hard dive in the third quarter, figures from estate agencies show. On a quarter-on-quarter basis, ERA said overall median COVs fell 33.3 per cent to $18,000, with the biggest absolute falls in terms of quantum coming from executive flats.

The $18,000 figure overall tallies with PropNex Realty's data, which noted this was a 40 per cent drop from the $32,000 median COV at the start of the year.

Resale volumes did not fare any better. ERA data showed that the number of transactions fell 36.7 per cent quarter-on-quarter to 3,193 units in Q3, with the largest decline of 41.9 per cent coming from the executive flat segment.

Demand in Q3 was hit by factors such as a tighter Mortgage Servicing Ratio (MSR) on HDB housing loans and a Total Debt Servicing Ratio (TDSR) framework introduced in June.

"Due to a cut off in access to large loans and hence 'easy money', there are very few buyers looking at investing in large or well-located flats," said Ong Kah Seng, director at R'ST Research.

A recently-introduced three-year wait for new Permanent Residents (PRs) before they can buy a resale flat and the loosening of regulations for singles to buy BTO flats has also diverted demand away from the secondary market.

On the supply side, the pipeline remains ample, with HDB on track to launch 25,000 Build-to-Order (BTO) flats this year. Next month, it will offer close to 8,000 units under BTO and Sale of Balance Flats exercises.

Mohd Ismail, CEO of PropNex Realty, said the abundant supply may have created a "re-balancing effect" in the resale market, gradually softening price growth to a more sustainable level.

Sellers are now also less willing to cash out without a sufficiently attractive offer, as they may not have enough to buy another flat with similar attributes due to the tighter MSR terms, said ERA's Mr Lim.

He expects resale transactions to hit a historical low at below 20,000 units this year, and that COVs will fall to around $10,000 by the end of the year.

"With lower COVs, lower resale transaction prices are expected. As we see more lower priced transactions, flat valuations will also come down."

Analysts generally did not see price trends picking up in Q4, as sales are traditionally slower over the festive period, and as new property measures introduced in late August work their way through.

For the year, resale flat price growth could be anywhere from minus 1 per cent to 2 per cent, they predicted. PropNex's Mr Ismail believes resale prices could fall as much as 3 to 5 per cent next year.

R'ST's Mr Ong feels buying interest could pick up in the second half of 2014, when an "equilibrium point" is reached where prices and COVs come down to the point of being more affordable.

"Even (if) demand stabilises or slightly recovers from H2 2014, sellers cannot easily raise prices, since the MSR cap essentially restricts buyers from borrowing excessively to finance the flat," he said.