The cash-over-valuation (COV) component in HDB resale transactions is rising and it could hit over S$200,000 soon.
COV refers to the sum of cash that needs to be paid by a buyer over and above the market valuation of a flat.
Real estate agents said the median COV paid for HDB resale flats has risen by about 12 percent to S$30,000 in the third quarter so far.
But for a Bishan unit, the COV has hit a record high of S$200,000. The executive maisonette at Bishan Street 13 was sold for S$980,000 including the S$200,000 COV.
Mr Lee Sze Teck, senior manager of training, research and consultancy at Dennis Wee Group, said: “Our agents actually closed a couple of deals in Bishan, one with about S$200,000 COV, the other S$250,000 COV. Both are for executive maisonettes.”
Once the sale is completed, the S$250,000 COV will surpass the S$200,000 paid for the Bishan unit at Street 13.
“There is another on-going transaction in Queenstown, where an executive maisonette is transacted at S$1 million and the COV is S$195,000. According to the buyer, he has bought into this unit because of the fengshui and also for the unblocked view from the bedroom,” added Mr Lee.
Property agents said those who pay high COVs are typically buyers who are downgrading from private landed properties.
Six-figure COVs are very rare and only for choice units with excellent attributes, they said.
Market watchers said these large price tags are not likely to swing HDB resale prices significantly, because there are not many such cases.
Overall, they said HDB resale prices are inching up because valuation has been climbing. Prices could go up by some 1.5 percent this year, they added.
The COV portion is also likely to trend higher, as more buyers are entering the market, especially for attractive units in mature towns, said property agents.
ERA’s key executive officer, Eugene Lim, said: “We do see significant increases. For example, in towns like Bishan, Queenstown, Toa Payoh, you can see COV increase at a median level of between 30 and 40 percent between the second quarter and third quarter. This is more than double of the norm.”
For the third quarter, analysts expect a total of 6,800 to 7,000 units of HDB resale flats to be sold – similar to the number of deals done in the second quarter.
Real estate agents advise buyers to be prudent and consider the upside potential of any home purchase as it is a long-term commitment.
Another consideration is the large supply of new HDB flats that will come on-stream in the next few years.
ERA’s Mr Lim said: “If you factor in the 3-year construction, 5-year minimum occupation period (before an owner can sell his flat), in about 8 years, you are going to see a lot more flats which will be eligible for resale. So, what impact will that have on resale prices in the years to come?”
Home buyers should also think about whether they will be able to ride out the market cycle if the economy hits a bad patch.
Source : Channel NewsAsia – 7 Sep 2012