Lower COVs draw buyers back to HDB resale market

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With all this money swirling around, I guess everyone can only be raking in the cash right? No one is supposed to lose money.....

The Straits Times
Jul 7, 2012
Lower COVs draw buyers back to HDB resale market

Rising demand from second-timers, PRs, private property downgraders

By Daryl Chin , Rachel Chang

THE number of Housing Board resale flats changing hands is creeping back up, according to estimates from property firms.

They said buyers are returning to the resale market now that cash premiums, known as 'cash over valuation' or COV, have fallen and stabilised.

There is also rising demand from second-time flat buyers, permanent residents and a burgeoning number of private property downgraders.

At Dennis Wee Group (DWG), one of the biggest agencies in the HDB resale market, 6,100 resale transactions have been logged in the second quarter of this year, with four-roomers garnering the most interest.

This is a 3.5 per cent increase over the previous quarter.

'The steep plunge in COVs in the past two quarters has enticed buyers back into the resale

market,' said DWG's senior manager of research and consultancy Lee Sze Teck.

According to agency data culled from several firms, overall median COVs are now about $26,000, compared to $35,000 in the fourth quarter of last year.

ERA Realty's key executive officer, Mr Eugene Lim, said this was because valuations, which are based on previously transacted prices, were catching up with selling prices.

COV is the difference between the selling price of a flat and its valuation. It is payable entirely in cash, making high COVs an impediment for HDB resale flat buyers.

Mr Lim also noted that lower COVs were enticing more second-timers back to the resale market, in spite of recently tweaked rules spelling higher chances for this group to purchase a new HDB flat.

In March, the quota for second-timers, or those who have already enjoyed a housing subsidy, went up from 5 per cent to 15 per cent for new flats in non-mature estates.

'Softening COVs mean that they have become comparable to the resale levy they fork out if they want a new flat,' he said.

Depending on flat type, the resale levy for a second-timer ranges between $15,000 and $50,000.

The steady rise of suburban condominium prices, including that of executive condominiums, has been another factor.

With three-bedroom units in far-flung areas like Sengkang and Pasir Ris crossing the $1 million mark, buyers are turning back to HDB resale flats which offer better value for money in terms of space.

Marketing manager Marcus Wong and his wife have been looking for a resale flat since 2009. His need has grown more urgent with a newborn daughter.

'Private property is too expensive, and we need a home now to house the family,' he said.

The 31-year-old almost bought a four-room resale flat in Clementi this year but backed out due to costly renovation works.

He is currently still on the lookout.

The rise of private property prices has also led to another phenomenon: downgraders who cashed in the profits on their condominium units and now want to move back into HDB units.

ERA's Mr Lim said the proportion of HDB resale flat buyers with private property address has risen to 30 per cent now, from 25per cent last year.

In all, property experts say the market is calmer now, having digested the various government measures to ease the public housing crunch.

These include tightening the rules for purchasing resale HDB flats, releasing a bumper crop of new HDB flats and allowing a wider spectrum of first-time buyers to apply for them.

'The changes had given buyers pause,' said PropNex's chief executive Mohamed Ismail, 'but things are returning to normalcy because there is still genuine demand.'

darylc@sph.com.sg

rchang@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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