TODAY ONLINE : Resale prices still rising

Resale prices still rising

Median COV now $30,000 but observers say a threshold is near

05:55 AM Jul 24, 2010

by Joanne Chan



SINGAPORE - HDB resale flat prices have hit record highs again. Prices rose by 4.1 per cent in the second quarter of this year, compared with the previous quarter, making it the fifth straight quarter of increase.

Analysts say the demand is driven by those who don't qualify for a new flat or want a flat quickly.

High prices in the private property market have also made resale flats an appealing choice, said Dennis Wee Group director Chris Koh.

The high demand also sent the cash-over-valuation (COV) upwards, with 96 per cent of transactions in Q2 closing above valuation.

According to the latest data from HDB, the median COV is now about $30,000 for all resale transactions.

Mr Koh said: "A lot of people who are selling their HDB flats today are cashing out, with $100,000 to $200,000 (in hand).

"So, if you ask them to put down a COV of $50,000, for example, for the next flat they buy, they wouldn't mind."

But market-watchers say the market could be reaching a threshold soon. That's because of a ruling introduced in March, requiring home buyers who want a second HDB loan to plough back half their cash profits from the sale of the first flat.

PropNex CEO Mohamed Ismail said: "Even if (you make) a $100,000 profit, you have to plough back $50,000 into the new flat, and you're left with $50,000 ... If you pay a high COV of $40,000, you are left with nothing."

He added that the market is showing signs of resistance, and expects the COV to hit a threshold of $40,000.

Real Estate Lecturer at Ngee Ann Polytechnic Nicholas Mak agrees the market may be reaching its limit.

He added that the median COV of $30,000 amounts to the annual income of the average Singaporean.

Market watchers noted that many buyers and sellers now treat the COV as part and parcel of any resale transaction.

And this is not healthy for the market in the long term, as a transaction done with COV becomes "a comparable for future valuations that inevitably have to go higher and higher", says Associate Director of ERA Asia Pacific, Eugene Lim.

PropNex's Mr Ismail also noted that home buyers who pay huge amounts of cash upfront may not always be able to recoup their investment, even with home prices expected to continue rising.

The Housing and Development Board says it'll ensure that there's an adequate supply of new flats for first-time buyers.

In the first six months of 2010, HDB launched close to 9,000 Build-To-Order (BTO) flats. With another 7,200 BTO flats to be launched in the second half, this will bring the total BTO flat supply for 2010 to 16,000.

This is an increase of 80 percent over the previous year.

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