In the middle of the economic decline, the housing market landscape has varied as developers reduced the unit size and give steeper discounts to attract conservative buyers while several banks reduced credit.
The segment of mass market has showed to be less unstable than residences situated in the prime district 9, 10, and 11. While luxury home prices on average rose 66% in the property force run in 2007, average costs of three-bedroom homes for lease located outside the prime district rose 27%.
The average home prices outside the prime districts as at end of 2008 are 33% higher than the narrow prices in 1998, and 27% higher than the depressed prices in year 2003. Nevertheless, they are 25% lower than the highest in 1996 and 11% lower than the highest in year 2000.
The level of price decrease also depends on the supply in the private property estate market. According to Urban Redevelopment Authority (URA), 11,626 private residential units every year are programmed for completion from 2009 to 2013. This is 34% more than the yearly average of 8,671 housing units 10 years ago (1999 to 2008).
Almost 31,600 public residential flats ended each year between 1996 and 2000 compared with approximately 5,000 units finished yearly five years ago. To prevent over-building of housing flats, the Housing Development Board (HDB) introduced a build-to-order (BTO) system last 2001 to render the primary supply of flats.
Under the system of the BTO, construction will resume when a large number of units were booked and purchasers will wait 3 to 4 years for the completion of the flats. The unsold inventory stock of HDB is now figured to be at a record low of below 1,000 units. Therefore, the supply of new HDB flats will be limited and it will give support to the public residential resale market. This should help delay of the mass market prices of private homes.
The private residential price premium over HDB flats sharply increased in 2007 to unsustainable stages and will reduce the declines of the private estate market more sharply than the public residential market HDB resale prices are expected to go down as the economy tightens further. The average increase rate in the HDB resale price index and diminishing demand in the fourth quarter of 2008 are manifestations of a declining HDB resale market. Several HDB flats for resale have transacted under valuation in this present year. In this pessimistic scenario, prices of private properties would be more depressed. In the first quarter of 2009, developers have reduced the prices of new projects for lease by 5 to 10%.
The previous recession lasted two to five years, while the property market had a sharp recovery after the Asian financial crisis in 1998, but the recovery became slow after the Internet bubble burst in 2001, being combined by a great deal of adversities – the terrorist attacks in Sept 11, 2001, the war in Iraq last 2003 and the Sars outbreak in 2003. The present downturn experienced by the private housing market began four quarters ago and is suspected to decline more this year as the outlook of the economy continue to deteriorate. As to the market’s speedy recovery, it will hinge on the improvement of the several major developed countries.