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17-03-14, 14:17
http://www.straitstimes.com/archive/tuesday/premium/top-the-news/story/good-move-focus-away-cov-say-experts-20140311
Good to move focus away from COV, say experts
Published on Mar 11, 2014
By Janice Heng
REMOVING cash premiums during the negotiation stage of the buying of a Housing Board resale flat is unlikely to rock the market, experts said yesterday.
The reason is that these cash over valuation (COV) prices are now very low, with median COV hitting zero last month.
Sellers are thus less likely to protest, said SLP International Property Consultants director Nicholas Mak. Also, few buyers are likely to be caught out by low valuations, said Chesterton Suntec International director of research and consultancy Colin Tan.
Previously, a resale flat's valuation was obtained first, and buyers and sellers then negotiated on the premium or COV to pay.
In the new system that took effect yesterday, buyers and sellers agree on a price before getting a valuation from the HDB.
In a strong market, the risk is that the valuation may be much lower than the price, limiting the loan a buyer can get. But, in today's weak market, buyers know this is unlikely, said Mr Tan. "There will be less anxiety."
The exception is when buyers seek units in prime locations, which still fetch high COVs. The median COV for five-room flats in Queenstown, for instance, was $37,000 last month.
"(Such) buyers will become more cautious in their offer price as they enter into a purchase without an indication of how much the property is worth," said PropNex chief executive Mohamed Ismail Gafoor.
Such caution from buyers is what worries sales manager Joe Ng, 45, who is trying to sell his four-room flat in Serangoon.
"If (a buyer) proposes a price, he won't propose a market price, it's likely to be lower," he said.
And deals might not close if buyers are caught out, said ERA property agent J. A. Goh. "I foresee more cases of buyers backing out with this new system."
To avoid this risk, buyers may simply continue to rely on private valuations, such as from property firms, said Mr Ismail.
That is what sales executive Lee Choon Han, 37, plans to do as he searches for a flat in Alexandra, Redhill or Tiong Bahru. "I'll try to observe what the market trends are for valuation," he said.
Still, experts think the move will generally succeed in shifting the focus away from COVs.
"It's a good system. It gets the buyers and sellers back to talking about price," said ERA Realty key executive officer Eugene Lim.
The move could also make for a more stable market, said Mr Mak. In the old system, high COVs could cause buyers and sellers to expect continued high premiums, even as valuations rise.
This reinforces the upward trend and vice versa for low COVs. The new system "could help to stabilise the market away from self-reinforcing upswings or downswings", Mr Mak said.
But experts are divided over whether HDB resale prices themselves will be affected.
While Mr Ismail thinks buyers' caution could depress prices, others believe the current low COVs mean little will change. Prices may well fall in the private resale market instead, said GPS Alliance chief executive Jeffrey Hong.
"If HDB upgraders find it harder to offload their flats, they may be unable to upgrade at all," he said. Lower demand for mass-market private properties would then mean lower prices.
[email protected]
Additional reporting by Rachel Au-Yong, Maryam Mokhtar and Melissa Tan
Good to move focus away from COV, say experts
Published on Mar 11, 2014
By Janice Heng
REMOVING cash premiums during the negotiation stage of the buying of a Housing Board resale flat is unlikely to rock the market, experts said yesterday.
The reason is that these cash over valuation (COV) prices are now very low, with median COV hitting zero last month.
Sellers are thus less likely to protest, said SLP International Property Consultants director Nicholas Mak. Also, few buyers are likely to be caught out by low valuations, said Chesterton Suntec International director of research and consultancy Colin Tan.
Previously, a resale flat's valuation was obtained first, and buyers and sellers then negotiated on the premium or COV to pay.
In the new system that took effect yesterday, buyers and sellers agree on a price before getting a valuation from the HDB.
In a strong market, the risk is that the valuation may be much lower than the price, limiting the loan a buyer can get. But, in today's weak market, buyers know this is unlikely, said Mr Tan. "There will be less anxiety."
The exception is when buyers seek units in prime locations, which still fetch high COVs. The median COV for five-room flats in Queenstown, for instance, was $37,000 last month.
"(Such) buyers will become more cautious in their offer price as they enter into a purchase without an indication of how much the property is worth," said PropNex chief executive Mohamed Ismail Gafoor.
Such caution from buyers is what worries sales manager Joe Ng, 45, who is trying to sell his four-room flat in Serangoon.
"If (a buyer) proposes a price, he won't propose a market price, it's likely to be lower," he said.
And deals might not close if buyers are caught out, said ERA property agent J. A. Goh. "I foresee more cases of buyers backing out with this new system."
To avoid this risk, buyers may simply continue to rely on private valuations, such as from property firms, said Mr Ismail.
That is what sales executive Lee Choon Han, 37, plans to do as he searches for a flat in Alexandra, Redhill or Tiong Bahru. "I'll try to observe what the market trends are for valuation," he said.
Still, experts think the move will generally succeed in shifting the focus away from COVs.
"It's a good system. It gets the buyers and sellers back to talking about price," said ERA Realty key executive officer Eugene Lim.
The move could also make for a more stable market, said Mr Mak. In the old system, high COVs could cause buyers and sellers to expect continued high premiums, even as valuations rise.
This reinforces the upward trend and vice versa for low COVs. The new system "could help to stabilise the market away from self-reinforcing upswings or downswings", Mr Mak said.
But experts are divided over whether HDB resale prices themselves will be affected.
While Mr Ismail thinks buyers' caution could depress prices, others believe the current low COVs mean little will change. Prices may well fall in the private resale market instead, said GPS Alliance chief executive Jeffrey Hong.
"If HDB upgraders find it harder to offload their flats, they may be unable to upgrade at all," he said. Lower demand for mass-market private properties would then mean lower prices.
[email protected]
Additional reporting by Rachel Au-Yong, Maryam Mokhtar and Melissa Tan