COV for resale flats could continue downward trend: analysts

The HDB resale market may be showing signs of cooling — according to the Singapore Real Estate Exchange (SRX), the overall median cash-over-valuation (COV) for HDB resale flats reached a peak of S$35,000 in January. But it has come down to about S$27,000 in May. This is the lowest since April 2012.

Some analysts said this could be a sign that January’s property cooling measures are biting.

Nicholas Mak, executive director for research and consultancy at SLP International Property Consultant, said: “Limiting the mortgage servicing ratio has actually reduced the purchasing power of some of these HDB upgraders. As a result, the demand for larger HDB flats has fallen. So as some of the owners see that the number of potential buyers has fallen, some of them have also softened the amount of COV they are demanding.”

According to SRX, executive flats registered the largest absolute drop of S$10,000 — from S$55,000 in January to S$45,000 in the first three weeks of May. Percentage-wise, three-room flats saw the largest drop of 32 per cent. The overall median COV for three-room flats fell S$29,500 in January, to about S$20,000 in May.

Some observers, like PropNex CEO Mohamed Ismail, said the downward COV trend could continue for the rest of the year.

He said: “I reckon the COV is likely to hit by the year-end in the region of about S$20,000… What has caused the high COV is purely demand and supply. It is tapering simply because of lesser demand with cooling measures as well as greater supply of BTO. In next two years, we will not even be surprised if COV may well be below S$20,000.”

Mr Mak echoed this view and said COVs may reach about S$20,000 to S$25,000 in one to two years.

This could mean that more might opt to buy from the resale market.

Mr Ismail said: “In the past, most of the newly-married couples find it tough to enter the resale market not because of the ability to secure a loan but more (because) of the COV.

“The choice is for a newly married couple or anybody who wants to buy a resale flat — do they want to wait for a period of three to four years, and limited by choice of location by BTO versus an immediate collection of keys, in three to four months for a resale flat. So I think this would spur more people to consider resale market as an option.”

While COVs may be trending downwards, the overall median resale price of HDB resale flats is still going up. However, some analysts said this increase will not be like the double digit growth of previous years, but instead could moderate to about two to three per cent this year.

The full-year growth for 2012 was 6.6 per cent — the slowest in five years. Double digit growth was recorded in the two years before that at 10.7 per cent in 2011, and 14.1 per cent in 2010.

SRX data also showed that the volume of resale flats transacted could continue to be low in May.

There have been 599 transactions in May so far, but SRX said the final number could reach 1,200 by the end of the month. This would be a 35-40 per cent drop compared to the same period in 2012 — 2,058 resale transactions were recorded in May 2012.

Source : Channel NewsAsia – 25 May 2013

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