URA released 2Q11 private residential data, with private residential price increase continuing to moderate. With lower sequential price increase and lower sub-sales activity, we believe this reflects the policy overhang on the private residential market. However indicators reflect firm underlying demand for housing as take up rebound mainly in the mass market segment in 2Q11, supported by rising HDB prices and a sharp rise in COV for HDB resale transactions. We believe any further upside in private residential prices would risk further tightening as the government reins in on the housing affordability issue.
7th consecutive sequential decline in price increase. The URA private housing price index, PPI was up +2% QoQ in 2Q11 versus +2.2% in 1Q11. Year to date, the PPI edged up +4.2% and continue to edge to +11.9% past the 2Q96 peak. Based on sales data, we believe the tepid growth in private residential prices this time round is driven by the mass market with 65% of residential take-up in 2Q11 outside the central region. In line with the moderation in prices, subsales activity also shows signs of policy impact at 7.4% share for 2Q11 from 8.3% in 1Q11. Residential vacancy rate increased marginally to 5.1% in 2Q11.
Residential yields stagnant. As for rents, the URA private housing rental index was up +1.3% QoQ versus +1.2% in 1Q11. As a fundamental cross check, rental yields for prime properties remain stagnant at 3.4% (CBRE data) vs 1Q11, while islandwide condo segment also remain stagnant at 4%, converging to average levels since 1Q01. On a relative basis, the mass market segment appears to have more room for yield compression and capital values to edge up should underlying demand for housing persist. Absorption remains firm, recovering from 83% in 1Q11 to 90.1% in 2Q11 since the cooling measure in Jan 11. However we note any upside in residential prices would risk further policy measures to cool the residential market as the government continues to tackle the housing affordability issue.
Home buyers’ pockets continue to stretch. The median condo price as of 2Q11 is S$11,682 per sqm, which translates to 2.50x the mean nominal earnings of Singapore employees based on S$4,677/month as of 1Q11 (rate for 2Q11 not yet published), continuing to edge up on a YoY basis versus 2.43x in 1Q10.
Heartland house seekers feeling the heat. On the public housing front, HDB resale prices continue to strengthen at +3.1% QoQ in 2Q11, up from 1.6% in 1Q11. Excluding areas with less than 20 resale transactions, the average cash-over-valuation (COV) has risen to S$35,861 in 2Q11 based on our estimates, compared to S$24,594 in 1Q11 which further affects affordability for public housing purchases. There are 6,228 HDB resale applications in 2Q11, down -24% YoY which we believe is due to potential upgraders staying on the sidelines given the uncertainty surrounding the private residential market. With BTO flats mainly to cater for firsttimer applicants, we believe resale prices will continue to remain firm as latest figures reflect underlying demand for housing.
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