BT : HDB cash premiums still on the rise

Business Times - 24 Jul 2010

HDB cash premiums still on the rise

Median cash over valuation across all resale transactions in Q2 is $30,000, up 20% from $25,000 in Q1

By EMILYN YAP

FRESH data from the Housing & Development Board (HDB) yesterday painted a picture of bullishness in the resale flat market. Cash premiums continued to rise in the second quarter, with some in popular estates breaching $70,000.

Higher cash premiums helped push overall prices up to another record high. The HDB resale price index climbed 4.1 per cent in Q2 from Q1, exceeding earlier estimates of a 3.8 per cent increase.

Resale flat prices had been tamer in Q1, rising by a smaller 2.8 per cent quarter on quarter.

Resale activity also grew in Q2, with the number of transactions rising 7 per cent from the previous quarter to 9,114.

It would have been a good time for some owners to sell their flats for cash in Q2. The median cash over valuation (COV) across all resale transactions was $30,000, up 20 per cent from $25,000 in Q1.

COVs were particularly high in some towns. In the central area, five-room flats achieved a median cash premium of $89,000 - the largest across all flat types and towns. Bukit Timah followed with five-room flats changing hands at a median COV of $80,000.

It is worth noting, however, that there were less than 20 resale transactions for these towns and flat types. As a result, the figures 'may not be representative', HDB said.

In Bishan, the median COV for executive flats and five-roomers was $70,500 and $52,500 respectively.

There have been 'exceptional cases' of buyers paying COVs of $80,000 to $100,000 for resale flats, said ERA Asia-Pacific associate director Eugene Lim.

And he is concerned - COVs drive up flat valuations, and future sellers are likely to ask for COVs on top of these increased valuations. 'This results in a somewhat unnatural escalation of resale prices over time,' he said.

PropNex CEO Mohamed Ismail also observes that it has become market practice for sellers to demand high COVs. 'They know that they are expected to pay a high COV when they purchase their next HDB flat. Either that or they are looking for more cash to put down the deposit on their new private property purchase,' he said.

In Q2, 96 per cent of resale transactions involved flats changing hands above valuation. This is slightly higher than Q1's 93 per cent.

But HSR executive director (agency) Jeffrey Hong is not too overwhelmed by the COV increases, pointing out that cash premiums have been higher in the years of 1996 and 1999. According to HDB, the highest median COV in its books was $42,000 in Q3 1996.

Market views are divided as to whether the median COV will rise further in Q3. ERA's Mr Lim believes that it might stabilise at around $30,000 while HSR's Hong expects it to reach $33,000 to $35,000.

There is more of a consensus when it comes to resale flat prices - both foresee prices rising by up to 3 per cent in Q3. PropNex's Mr Ismail believes that prices could gain some 12 per cent this year.

'We may begin to see resistance as buyers come to realise that they are actually buying pre-owned flats at peak prices,' Mr Lim said. 'Also, HDB's continued release of new Build-To-Order (BTO) flats for first-timers, and Design, Build and Sell Scheme (DBSS) flats and executive condominiums (ECs) for higher income earners may take some of the pressure off the resale market.'

HDB will be releasing 16,000 BTO flats this year, up 80 per cent from the previous year. There will also be a potential 4,700 DBSS and EC units coming up.

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TOWERING VIEW
COVs were particularly high in some towns. In the central area, five-room flats achieved a median cash premium of $89,000 - the largest across all flat types