Overall COV for resale flats hits lowest figure since July 2012

The overall median cash-over-valuation (COV) for resale HDB flats last month was the lowest in 10 months, with analysts saying it could drop further.

The overall median COV dropped by S$4,000 to reach S$26,000 in May, the lowest level since last July.

Resale prices also showed signs of stabilising and were down 0.1 per cent, according to data from major property agencies compiled by the Singapore Real Estate Exchange.

Property analysts said it is likely buyers will stay away and COV will fall as the government’s cooling measures continue to dampen the HDB resale market.

Propnex CEO Mohd Ismail said the curb imposed on loans for HDB flats is a major factor.

He said: “One of the key reasons why the COV started to dip was… the MSR – mortgage servicing ratio. With the new implementation, the ability for a buyer to take loans has been very much reduced.

“From the usual 40 per cent of someone’s income, it’s been reduced to 35 per cent if someone is buying public housing from HDB loan.

“For example, PRs and private property owners, or those who don’t qualify for a HDB loan, will be subjected to financial institutions – banks.

“In the past, prior to the cooling measures, one could utilise 50 per cent of their income toward servicing their mortgage. But ever since the January cooling measures, it’s been reduced from 50 per cent to 30 per cent – and that’s a huge cut.”

Mr Ismail added: “A lot of buyers are finding it difficult to get enough loans to purchase resale flats. And obviously when people are finding it difficult to even get enough loans, it will be ridiculous for them to pay high cash-above-value.

“Probably by the year-end, I’ll not be surprised to see a COV in the region of S$20,000 – which would well be close to a 50-per cent dip from the beginning of the year of about S$35,000 to about S$20,000.”

HDB resale transactions also registered a slight decline, with an estimated 1,300 units sold last month, down 10 per cent from April’s 1,453 transactions and 35-per cent from last May’s 2,058 HDB resale flats.

The drop in demand could be due to a bumper crop of 8,000 units released last month under the Build-To-Order and Sales of Balance Flats schemes, said experts.

Christine Li, head of research and consultancy at OrangeTee, said: “First of all, Sales of Balance flats is only held every six months and this is also the first time Parenthood Priority Scheme has been applied to Sales of Balance flats exercise.

“So there has been quite a lot of anticipation in the market and as a result people are waiting for this exercise and attention has been diverted from the resale market last month. I think the resale market last month was effectively just serving the second-timers and the PRs.”

For the first time in a year, overall HDB median rents dropped by S$50 to end at S$2,350 in May 2013, after remaining constant at S$2,400 since June 2012.

It was not just the HDB market that took a hit last month.

Resale prices for private homes also softened with prices for non-landed private residential units dipping 0.5 per cent in May compared to the month before.

Source : Channel NewsAsia – 10 June 2013

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