BUYERS desperate to get into the public housing market are shelling out twice as much in cash top-ups for HDB resale flats as they did just a few months back.
These cash premiums are known as the Cash-over-Valuation (COV), and refer to the amount a buyer has to pay above a flat’s valuation set by a bank.
High demand and tight supply drove the median COV paid to $24,000 in the fourth quarter of last year, according to fresh data from the Housing Board (HDB) yesterday.
That is double the $12,000 median in the previous three months and breaks the COV record of $22,000 achieved in the fourth quarter of 2007.
The buying frenzy seems to have abated a little since the new year. The HDB said yesterday that median COV has come down to $22,000 for the first half of this month.
Analysts say COVs are being pushed to dizzying levels on the back of high demand from cash-rich buyers with immediate housing needs in a market with tight supply.
And there is always a disparity between valuations and sellers’ expectations in a hot market, said ERA Asia Pacific associate director Eugene Lim.
‘Valuation is lower than actual resale prices because it is based on past prices,’ he said. ‘Currently, the market is on the upswing and is therefore forward-looking; this explains the disparity,’ he said.
HDB’s latest data showed resale prices rose 3.9 per cent in the last three months of last year to hit a fresh record, bringing the full year increase to 8.2 per cent.
Private homes got in on the act as well with prices up 7.4 per cent in the same period, according to the Urban Redevelopment Authority (URA) yesterday.
This builds on an increase of 15.8 per cent in the previous quarter and offsets the contraction of 18.8 per cent that occurred in the dismal first half of the year.
The final tally saw private home prices rise 1.8 per cent for the whole of last year.
The HDB’s figures showed that about nine out of 10 sales – or 93 per cent – in the fourth quarter were done above valuation. This is up from 79 per cent in the third quarter.
Ngee Ann Polytechnic real estate lecturer Nicholas Mak said this indicates that HDB resale prices could still rise as an increasing proportion of sales are done above valuation.
‘This could also fuel the HDB upgraders’ demand for HDB flats and private properties in the months ahead,’ he said.
The new HDB figures are evidence of the price rally that began in the middle of last year. It tripled median COV from $3,000 in the second quarter to $12,000 in the third before the fourth’s spectacular leap.
Sales volume for the fourth quarter – a typically quieter period – declined by about 23 per cent to 8,926 transactions.
But last year was still a bumper year compared with 2008, with the total number of resale transactions surging 31 per cent to 37,205. It was also 26 per cent up on 2007’s sales numbers.
PropNex chief executive Mohamed Ismail noted that the larger flat types commanded the largest jumps in COV. Five-room flats were up 150 per cent, while executive units rose 178 per cent in the fourth quarter.
But the number of sales in these categories fell 34 per cent in the fourth quarter compared with those in the third quarter, while sales of smaller flats declined only 18 per cent.
Such steep rises in COVs are not sustainable, say analysts. But given the continued high demand for public housing, they expect prices to rise by about 5 per cent to 10 per cent this year.
With COVs so high, buyers have ‘become resistant and are exploring other options, including buying smaller flats or delaying their purchases’, said Mr Lim.
Permanent resident Liu Li, 29, said she has given up trying to buy a resale flat and is now queuing for a new flat with her Singaporean husband under the HDB’s build-to-order (BTO) scheme.
The HDB said yesterday it will launch 12,000 BTO flats this year, or more if there is demand.
‘In total, the HDB is planning to offer 6,900 flats in (the first half of this year). The projects will have a good geographical spread over areas such as Sengkang, Sembawang, Punggol, Yishun and Jurong West,’ it said in a statement.
Source: Straits Times, 23 Jan 2010