COVs continue to fall, may dip below S$10k by year-end

The impact of property cooling measures continued to be felt in the Housing and Development Board resale market last month, with cash-over-valuation (COV) premiums maintaining their downward spiral to a more-than-four-year low, raising the prospect that they will fall below S$10,000 by the end of the year.

Overall median COVs dropped by another S$3,000 from September to S$12,000 last month, the lowest level since July 2009, according to yesterday’s flash report by the Singapore Real Estate Exchange (SRX).

“By the end of this year I think it might be down to four digits, probably stabilising somewhere between S$5,000 and S$10,000,” said Savills Senior Director of Research and Consultancy Alan Cheong.

“At this point the COV level is close to the bottom, it’s at a level that is drawing buyers,” he added.

According to the flash estimates, 1,318 HDB flats were sold in October’s resale market, a 26.5 per cent increase from the previous month.

With COVs falling, HDB resale prices also declined, dropping 1.6 per cent in October, following a slight gain of 0.2 per cent in the preceding month. This represents a 2.8 per cent drop from the price peak in January this year, the SRX said. The declines in the resale market come after changes in various rules that have had a direct impact on the sector.

The HDB capped the mortgage servicing ratio at 30 per cent of the borrower’s gross monthly income, down from the previous 35 per cent. The maximum loan tenure for mortgages was also reduced to 25 years for HDB loans and 30 years for loans from financial institutions.

And with permanent residents (PRs) now only allowed to purchase flats three years after obtaining their PR status and singles receiving the green light to buy Build-to-Order (BTO) flats, some focus has been drawn away from the resale market.

But analysts said that, while resale prices may continue to moderate, the fundamentals of the market remain sound. “HDB flats in mature estates and with good attributes are still holding their prices, due to scarcity and high demand for them,” ERA Realty Network’s Key Executive Officer Eugene Lim said.

In the private residential market, resale prices were flat in October, declining a marginal 0.1 per cent from the month before.

The slight drop was led by prices in the suburban and central areas, which fell 1.4 and 0.9 per cent, respectively, while the city fringes saw resale prices gaining 0.4 per cent.

An estimated 486 units exchanged hands last month, 13.6 per cent higher than September but a significant drop from the 1,435 units sold in October last year, according to the SRX.

Despite the improvement in volume, analysts said sentiment in the private resale market remained weak due to the total debt servicing ratio (TDSR) framework which limits borrowers’ total debt obligation to 60 per cent of their gross monthly income, as well as the higher additional buyer’s stamp duty (ABSD) rate.

“In the past in a typical agency, out of the deals the agents (handled), 40 per cent were resale transactions. Today, it’s probably just 20 per cent, and 80 per cent are rental deals. The TDSR and ABSD have really demotivated people from buying resale flats,” said Mr Cheong.

Mr Lim said sellers may be more willing to negotiate given the lull in the market, but prices are unlikely to fall drastically, given that most sellers will need to use the proceeds from the sale to fund their next purchase.

Source : Today – 8 Nov 2013

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