COVs take a dip as housing transactions drop

[Musicwhiz]

The Straits Times
www.straitstimes.com
Published on Apr 08, 2013
COVs take a dip as housing transactions drop

By Daryl Chin Property Correspondent

CASH premiums that buyers pay for Housing Board flats have fallen in the first three months of this year, on the back of a lower volume of transactions.

The largest drop came from areas such as Punggol, Tampines and Pasir Ris, where the premiums went down by 21 per cent, 13 per cent and 12 per cent respectively.

According to data from Singapore Real Estate Exchange (SRX), the median overall cash-over-valuation (COV) for the first quarter of this year was $33,000, down from $34,000 in the preceding three months.

However, overall median prices still rose from $455,000 to $457,000 during the same period.

SRX also recorded just 3,186 HDB resale transactions in the first quarter of this year, the lowest quarterly figure since 2009.

Property analysts say these numbers are a result of a slowdown in the market, as buyers come to grips with cooling measures that restrict their purchases, and take stock of the new flats on offer.

Since January, mortgage payments to banks have been capped at 30 per cent of a borrower's monthly household income. There were no restrictions for such loans before, allowing some home buyers to spend up to half their wages on their mortgages.

"The new rules mean buyers on the borderline, who would have gone for the larger flats, would need to settle for smaller units instead," said ERA Realty key executive officer Eugene Lim.

Some 70 per cent of HDB transactions for the first quarter of this year involved three- and four-room flats, while five-room units and executive apartments made up the rest.

"There were new flats launched in areas like Punggol, for instance, so that served to draw away some demand," added Mr Lim. The median cash premium paid for Punggol flats has fallen from $45,000 to $35,500, said SRX.

The 470 Punggol Build-To-Order units launched by HDB last month pulled in around four applicants per flat.

In Tampines and Pasir Ris, demand for homes seems to have slackened, said PropNex chief executive Mohamed Ismail. One reason, he said, could be the new rules affecting permanent residents, who typically represent about 20 per cent of the HDB resale market. Since January, they need to pay 5 per cent stamp duty for their first residential home, up from zero before.

Another reason, he noted, could be that buyers are adopting a wait-and-see approach.

One example is marketing manager Lawrence Wong, 29, who is waiting for 3,000 balance flats to be launched by HDB next month.

These unsold flats are in greater demand, as they are either already being constructed, or are already built. "Balance flats are basically like getting a brand new resale flat at a subsidised cost and with zero COV," he said.

But not all towns saw weakening cash premiums.

Popular spots Ang Mo Kio and Kallang/Whampoa both saw a rise in overall COV of about 8 per cent.

International Property Advisor chief executive Ku Swee Yong said demand is typically strong for such areas, which do not often see new launches.

darylc@sph.com.sg

[mulyc]

the oversupply is coming. just wait for all the TOPs from this year and next year. i dont think the gahmen needs to do anything else to make the property market fall.

[thefarside]

In my opinion HDB COVs are broadly a reflection of two types of premiums.

For estates such as Punggol, the COVs are mainly a time premium for 3-6 months availability as opposed to 3-4 years on HDB BTO treadmill.

For estates such as a Queenstown, Bishan, Kallang, Bt Merah, Toa Payoh, there is added locational premium due to limited new supply in these areas, and possibly a space premium if you look for larger flats in these older, plus central estatates.

As HDB adds new HDB supply in outlying estates, the resale market in those estates will weaken once those new flats reach MOP. Unfortunately that is at least five years away, even for the big load of HDB flats hitting the market from KBW's ramp in 2011-2012. For central areas, pool of resale remain limited to old stock and a small amount of new builds in the market.

My advice is those who are going the HDB route esp new flats, should just work out a budget and stay where they can afford, without trying to time the market any more as the lag is too long.

For those will need a place a couple of years down the road, if price and out-of-pocket cash are the main consideration, and you can wait 3-4 years while you build your career and income, you will be better served going through the BTO route. Prices are ok and not likely to go up any more as govt has indicated that they will hold BTO prices constant till they figure out that the resale market has finally stopped rising.

For those who want to buy HBD flat soon to have your own place and start a family etc soon, and don't mind picking the dregs of earlier offerings, you can try the SOBF (Sale of Balance Flats exercise) and try to pick the best of the lot that is available, do a modest reno to save cash, and trade out of it into another resale / new flat / condo between 5-10 years down the road if you have better income. Choose an area with access to primary schools. Dont fret over a potential 10% loss in value - seriously if you could reach for a pte property on your own merit at that time you will not need that extra 10% from your current flat value.

Those who want to try the HDB TOTO route - can wait for the occasional mature estate BTO that will be like 10x oversubscribed, and hope you jackpot. Net gain now is likely between 100k-200k, depending on area and pricing. But if does not work after 18 months and 6 cycles, don't cow peh cow bu that you try so many times mature estate balloting but never kana. After all, you chose your own poison.

[cfa]

If the flood gate remains open widely for ""FTs "", it will still be undersupplied.