COV down 9% in Q1

HDB resale prices went up in the first quarter of this year, but Cash-Over-Valuation (COV) premiums fell during the same period.

COV premiums for HDB resale flats dropped 9 per cent, or a S$2,000 decrease, to S$21,000 for the first quarter of this year, according to data from the Housing and Development Board.

Observers attributed the decrease to the Government’s cooling measures but were divided on whether COV premiums have bottomed out or will continue to drop.

“Currently, the COVs have come to a point where it is not going any much lower,” said PropNex chief executive Mohamed Ismail. “Based on our PropNex data, the COV for the month of April has already gone up to a median at S$23,000, which is where we were starting prior to the first quarter.”

However, Cushman & Wakefield vice-chairman Donald Han reckons COV premiums will continue to fall.

“I think the fact that there’s going to be 22,000 new HDB dwellings going up in the marketplace, and the Government’s ramping up … its development mission to develop more HDB properties … will mean vendors cannot hold on to their COV asking prices,” he said.

The Resale Price Index increased 1.6 per cent in the first quarter, compared with 2.5 per cent in the previous quarter.

While the total number of resale transactions fell by about 4 per cent to 6,228 cases, the proportion of resale cases transacting above valuation remained at 96 per cent.

Meanwhile, median sublet rents during this period remained relatively stable with increases for one-room and five-room flats and decreases for two-room flats.

Subletting transactions rose by 8 per cent to 6,365 cases.

The total number of HDB flats approved for subletting rose to about 36,400 units in the first quarter, compared to about 35,000 units in the previous quarter.

In a separate announcement yesterday, HDB said that it will launch another 3,185 flats for sale under the Build-to-Order (BTO) exercise for this month.

HDB said it will offer 22,000 new BTO flats this year if demand is sustained. Last year, a total of 16,000 BTO flats were offered.

Despite the supply of new flats coming onto the market, Mr Han thinks that there could be a 1- to 2-per-cent uptake in HDB resale prices over the next one or two quarters.

Mr Ismail also thinks that the resale prices will trend up, as the new supply of BTO flats is not a perfect substitute for the resale units.

“Even though there are 22,000 (new) flats, there are many people who will still choose to buy resale because they can’t afford to wait three years to get the keys,” said Mr Ismail. “On that basis, I will see it as two different markets.”

Source : Today – 26 Apr 2011

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