Sunday, 29 April 2012

Cash premiums for HDB resale flats fall about 30% in the first quarter of 2012

Bumper crop of new flats takes buyers away from resale market
By Rachel Chang, The Straits Times, 28 Apr 2012

THE cash premiums payable to buy resale HDB flats fell significantly in less popular estates like Pasir Ris and Woodlands last quarter, making them more affordable now to buyers.

Known as 'cash over valuation (COV)', the premiums also fell in mature estates like Hougang, Bedok and Clementi, due to the injection of new flats in these areas over the last few months by the Government, said analysts.

The falls in COV come as prices of HDB resale flats inched up 0.6 per cent in the first quarter of the year, the slowest pace of increase since 2009.

While HDB resale prices are still at an all-time high, the latest rise is less than half the 1.7 per cent clocked in the quarter before.

A total of 5,892 resale flats changed hands in the first three months of the year, down 0.5 per cent from 5,921 in the quarter before.

Most of these flats attracted COV, which is the amount a buyer pays over and above the valuation of an HDB resale flat. As it must be paid in cash, it has a significant impact on affordability.

While HDB has stopped providing a nationwide median of COVs, data collated from real estate agencies showed that overall, cash premiums fell about 30 per cent in the first quarter of this year, compared with 10 per cent the quarter before.

This is partly because a bumper crop of new flats has taken buyers away from the resale market, said observers. About 8,000 units have been offered since the year began, with 5,000 more scheduled next month.

A move last month to reserve a higher percentage of new executive condominium units for second-timers also changed buyer behaviour.

'If people can buy Build-to-Order (BTO) flats, they will buy,' said Mr Lee Sze Teck, senior manager of research and consultancy at Dennis Wee Group. 'Resale flats are for those who don't qualify, or who cannot wait.'

'The assurance that there's enough supply for those who want to buy flats has hit home,' noted HSR Property Group special adviser Donald Han. 'The masses have gotten the message.'

The falls were particularly steep in outlying areas like Pasir Ris and Woodlands, according to HDB's quarterly report, which was released yesterday.

COVs have fallen to a median of $20,000 for three-, four- and five-room flats in Woodlands.

And the biggest fall in COVs was for executive flats in Pasir Ris. In the first quarter, the median COV for such a flat was $35,000, down by almost half from the $58,000 it reached in the quarter before.

COVs held up relatively well, however, in popular estates like Queenstown, Bukit Merah and Toa Payoh.

The median COV for a three-room flat in Queenstown fell only $4,500 to $25,500, while the median COV for a four-room flat held steady at $50,000.

'The central locations still collect a premium,' said director of Chris Koh International, Mr Chris Koh. 'But for the rest of the towns in the outskirts, the COV is coming down quite quickly.'

Singapore's small size means that cash premiums across the island will eventually fall or rise in a largely uniform fashion, said agents and analysts. They expect COVs to continue to fall gradually through the next two quarters.

'COVs are still under tremendous pressure,' said C&H Properties key executive officer Albert Lu. 'People will continue to opt for BTO flats.'

Next month, HDB will offer 4,640 BTO flats for sale in six projects spread over the four towns of Choa Chu Kang, Kallang/Whampoa, Punggol and Sengkang.

It has said that it will offer a total of 25,000 new flats altogether this year.

COVs are likely to stabilise soon because buyers who were unwilling or unable to pay high cash premiums will eventually return to the resale market, said ERA Realty key executive officer Eugene Lim.

There are already signs of a pick-up in resale transactions this month, he said.

According to ERA's agents, waiting time for a first appointment with HDB after a deal is made has grown to about five weeks, up from the three weeks it averaged at the start of the year.

Yesterday's data also showed that 41,200 HDB flats were approved for subletting between January and last month, compared with 40,000 in the three months before.

HDB may stop releasing all COV data
Property execs say it has signalled move to stop publishing cash premiums
By Rachel Chang, The Straits Times, 27 Apr 2012

THE Housing Board may be relooking its policy of releasing official cash-over-valuation (COV) figures of resale HDB flats, according to top executives of some property companies.

They say the board has signalled through its actions and in private conversations its intention to stop publishing these figures altogether, a move that would put the final nail in the coffin of a measure that is criticised for pushing up prices in the resale market.

In the past year, the HDB had moved to hold back several types of COV data, such as the nationwide median and the proportion of resale flats sold above valuation.

Last June, the Council for Estate Agencies began penalising agents who, in their advertisements, promise to get a specified amount of COV.

And earlier this month, at a closed- door session with bosses of property companies, a senior HDB executive expressed the inclination to do away with publishing the COV figures, those at the meeting told The Straits Times.

COV is the amount a buyer pays over and above the valuation of an HDB resale flat. As it must be paid in cash, it has a significant impact on affordability.

Currently, the HDB publishes the COV by flat type and the town where it is located.

With COVs stable, realtors like Mr Eugene Lim believe it is 'the best time' to hold back this last measure.

Mr Lim, who is key executive officer at ERA Realty, explained that in a bull market with COVs soaring, not having an official figure to refer to will intensify the escalation of cash premiums, as figures will be tossed around willy-nilly by agents.

COVs have now dropped one-third from their 2011 peak to average around $25,000 to $30,000, said realtors.

The fall is due largely to an aggressive set of measures to cool the property market, and rules being tweaked to let more people buy new flats from HDB.

In fact, calls have grown from realtors over the past few months for the HDB to get rid of its COV figures.

These figures put agents under pressure in a softening market, because sellers tend to take them as a base for the cash premium they desire regardless of the individual peculiarities of their property, said Mr Lee Sze Teck, senior manager of research and consultancy at Dennis Wee Group.

'Publishing COVs makes sellers think it is a benchmark below which they won't sell,' added C&H Properties key executive officer Albert Lu. 'This is not healthy.'

And since realtors can no longer advertise based on the cash premium they can get for sellers, the HDB should similarly de-emphasise COVs in the resale market entirely, Mr Lu added.

PropNex chief executive Mohamed Ismail, however, does not see the concept disappearing overnight, even if HDB ceases to provide the figures.

Buyers and sellers will still seek the information from their agents, he said, adding: 'What HDB is trying to do is break the mental model of sellers asking for minimum COV.'

SLP International Property Consultancy's head of research, Mr Nicholas Mak, said that large property firms would like HDB to stop publishing official figures as this would leave their data as the only source of COV information.

His view is that if HDB 'starts to censor COV information, it will just go underground because the demand is there'.

He added: 'It's like saying let's not have sex education and therefore kids won't be having sex. But what they will do is just learn the wrong things from their friends.'

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