The cash premium, or Cash-Over-Valuation (COV), for Housing and Development Board (HDB) resale flats has reached a four-year low.
According to the Singapore Real Estate Exchange (SRX) monthly flash report, overall COV dropped to S$18,000 in August, the lowest level since July 2009.
For the first time since 2006, SRX said HDB resale flat prices have fallen for the fourth straight month. Overall HDB resale prices slipped 0.7 per cent in August.
This can be partly attributed to the decline of cash premiums being paid for HDB resale flats.
The overall COV was S$20,000 in July. This fell by S$2,000 or 10 per cent to reach S$18,000 in August.
Some property analysts attributed this to the ramped up supply of new flats being launched by the HDB and the introduction of various loan restrictions like the Total Debt Servicing Ratio which was announced in June where only 60 per cent of one’s income can go towards servicing a loan.
International Property Advisor’s chief executive officer, Ku Swee Yong, said: “The downward trend of COVs is partly influenced by the new measures at the end of June called the Total Debt Service Ratio (TDSR).
“Many home buyers find that they are unable to borrow as much as expected, so it has affected the larger size resale HDBs a little bit more than the three-room and four-room HDB (flats).
“In fact, more young couples are probably shifting their sights down one notch — instead of stretching themselves for a five-room resale or an executive resale, they’re going after a four-room HDB.”
According to SRX, executive flats in Punggol registered the lowest median COV of negative S$13,000, which means they are sold at S$13,000 below valuation.
Out of three transactions recorded, two were sold below valuation.
On the flip side, executive flats in Bishan saw the highest premium. The median COV was S$120,000.
Nicholas Mak, executive director of research and consultancy at SLP International Property Consultants, said: “There has been a huge supply of BTO flats offered in the Punggol area in the last two to three years.
“Because of that, it has drawn away potential buyers from the resale market to the BTO market. The BTO flats are all priced lower than the resale flat prices.
“While in Bishan area, it’s still quite a popular area… there are a few very popular primary and secondary schools in the area. Furthermore, there is a very thin supply of new flats. As a result, it’s still a seller’s market in that town.”
With tighter loan measures and home buyers being more cash strapped as a result, property analysts expect COVs to continue to trend downwards. They also expect more HDB resale flats to be sold without a cash premium, or at below valuation.
This is already starting to show. Zero-COV transactions made up just one per cent of all HDB resale transactions in January. This went up to 5.3 per cent in August.
As for resale transaction volume, flash estimates showed that while the numbers remained roughly the same in July (1,286) and August (1,280), this was a 29 per cent drop year-on-year.
Property analysts said this is likely due to more home owners choosing to rent out their HDB flats.
Source : Channel NewsAsia – 6 Sep 2013