THE rate of price increase of Housing and Development Board (HDB) resale flats will further decelerate in the next six to nine months, resulting in a relatively moderate 4-10 per cent growth for the whole of 2008.

Knight Frank director (research and consultancy) Nicholas Mak added: 'If the local economy were to slip into a recession in 2008, overall prices of HDB resale flats could vary between a 2 per cent contraction and a 3 per cent growth for the year.'

Knight Frank's projections are based on HDB's resale price index, which increased in Q1'08 by 3.7 per cent over the previous quarter. But Mr Mak explained that price movements in the resale market are difficult to project because data on average valuations are not available even if median prices, which is likely to include cash-over-valuation (COV), is.

As such, Mr Mak expected that median COV of all resale flats, which fell to $21,000 in Q1'08 from $22,000 in Q4'08, could continue to fall this year.

Another possible cause for lament is that potential HDB upgraders - a significant factor in private mass market housing - could disappear in sync with falling HDB resale transactions.

In Q1'08, transactions fell about 6 per cent to 6,358 units from 6,748 units in Q4'07.

Knight Frank also believed that HDB upgraders have been supporting the private secondary market, which saw 3,521 units transacted in Q4'07.

While it did not have precise numbers of HDB upgraders buying into the secondary market, it noted that in Q4'07, the greatest number of private secondary market transactions occurred in the Outside the Central Region (OCR), and was 'attributable to the HDB upgraders bracket'.

And Knight Frank believed that there could be an emerging resistance to swelling home prices.

In January, Knight Frank noted that City View @ Boon Keng, under HDB's Design, Build and Sell Scheme (DBSS), pushed prices to $727,000 for a five-room unit. While the launch generated a lot of buzz, at end March 2008, 250 of the 714 flats available were still unsold.

'The issue that arises is the validity of the pricing of such DBSS flats. Keeping in mind that there are more of such developments proposed in places like Ang Mo Kio, Bishan, Toa Payoh, Simei and Bedok, and given that they are still bound by public housing rules such as the income ceiling of buyers, one could begin to wonder about the intrinsic affordability of public housing initiatives,' Mr Mak said.

This article was first published in The Business Times on May 29, 2008.

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