HDB prices hit record high

IN WHAT appears to be confidence that the green shoots of the economic recovery are slowly bearing fruit, prices of resale Housing and Development Board (HDB) flats have hit a record high in the second quarter, and property agents say this is leading to a renewed climb in the cash-over-valuation (COV) for the secondary market transactions.

The HDB reported on Friday that its resale price index rose 1.4 per cent to 140.2, beating the earlier flash estimate of a 1.2 per cent increase and reversing the 0.8 per cent dip in Q1.

The rebound followed news earlier this month that Singapore had emerged from a technical recession as the 20.4 per cent sequential growth in the second quarter snapped four straight quarterly contractions.

The recovery in the COV started as recently as this month as market confidence continued improving over the last quarter, property agents told Today.

The COV refers to the amount that is paid above the valuation of a resale flat. A higher COV means that the buyer has to fork out more cash, as banks will only lend up to a certain percentage of the valuation.

The Q2 HDB data showed that COV for five-room and executive condominiums was almost non-existent for transactions in most estates. Yishun flats enjoyed the highest median COV of $8,000.

The COV has been dipping over the last year after surging to a high during the boom in 2007. In Q2 this year, average COV was $3,000 – down from $22,000 in Q4 of 2007.

With confidence returning to the market, the trend of higher COVs will be sustained if the recovery remains on track, but with higher and stable valuations, the COVs are unlikely to touch the levels seen in 2007, property watchers told Today.

“COV is pretty much a reflection of the way things are in the economy,” said Mr Eugene Lim, an associate director at ERA Asia Pacific. He expects the average COV to hit $5,000 to $15,000 in Q3.

At PropNex, sellers who have engaged the real estate agency have been asking for COVs of $10,000 or more on average in the last few weeks, said its chief executive Mohamed Ismail.

The rebound in HDB prices was accompanied by a 58-per-cent surge in transaction volume in Q2, when 10,184 applications were made, up from 6,446 in Q1.

Industry veteran Nicholas Mak noted that most of the increase was among the larger flats.

“(It) is a reflection of strong demand from HDB upgraders who sold their HDB flats to purchase private homes,” he said.

Indeed, HDB upgraders have been the focus of market watchers since they thronged private housing projects such as the Caspian and Alexis condominium showflats in February and stirred the property sector to life. Last month, developer sales recorded a high of 1,825 units.

Data from the Urban Redevelopment Authority (URA), also released on Friday, showed that prices of private homes fell by 4.7 per cent in Q2 – a more moderate decline than the flash estimate of 5.9 per cent released three weeks ago, and much better than the 14.1 per cent decline in Q1.

But amid all the euphoria, Chesterton Suntec’s research and consultancy director Colin Tan sounded a warning.

“If people see this as a recovery, they must recognise that it’s liquidity-driven (as buyers are using cash savings and earnings from the stock market rally) and based on something fragile called sentiment,” said Mr Tan.

Source : Today – 25 Jul 2009

“When it’s sentiment-driven, then everything can go wrong when sentiments fall.”

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