HDB flat buyers pay less cash upfront

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April 27, 2008

HDB flat buyers pay less cash upfront

Cash over valuation falls as units are more accurately valued to reflect market prices

By Jessica Cheam

House-hunting for soon-to-be-married Jolyn Toh used to be a discouraging affair as prices were out of her reach.

But things are looking up for the engineer.

Just six months ago, home-owners in Bukit Batok, where she is looking to buy an HDB flat, used to demand nothing less than $50,000 cash upfront.

In the last month, however, this has dipped to about $20,000 to $30,000. 'This difference means my fiance and I can now afford a home before our wedding in July,' said Ms Toh, 25.

New government figures released last Friday will bring cheer to those hunting for their dream Housing Board flat as they reveal that median cash-over-valuation (COV) prices in many popular estates like Marine Parade, Queenstown and Clementi are falling.

COV is the cash that buyers must pay a seller over and above a flat's market valuation to secure the sale. For example, if a unit is valued at $250,000 and the seller will only part with it for $300,000, the COV will be $50,000.

It cannot be paid for by a bank loan or by money from a Central Provident Fund account.

Market watchers explained that the drop in COV was due largely to valuations of HDB homes rising sharply to reflect more accurately prevailing market prices.

Valuations of flats are made by a panel of HDB-appointed private valuers.

Agency boss Albert Lu of C&H Realty said valuers have started taking into account recent resale transactions, which have enjoyed robust growth, in their valuations.

This has led to the narrowing of the gap between valuations and COV prices, even as home prices continue to rise.

Take, for example, a five-room flat in Bukit Batok. In the fourth quarter of last year, its median price was $430,000, and the median COV was $41,000. Accordingly, valuation was $389,000, that is $430,000 minus $41,000.

In the most recent quarter, the median price went up to $450,000. However, the COV fell to $30,000, which meant that the valuer had valued the flat higher at $420,000.

A lower COV will help newlyweds, especially, get on the housing ladder. They now have to fork out less cash upfront and can take out HDB or bank loans to service the rest of the purchase.

Although HDB prices continued to rise 3.7 per cent in the first quarter this year, housing experts say the market could get a boost in coming months due to lower COVs.

'With valuations going up, the COV is coming down and this makes it more affordable,' said Mr Lu.

HDB prices rose 17.4 per cent last year, the highest in a decade. At the peak of last year's spectacular property bull run - which saw record prices such as $890,000 for an executive flat in Queenstown - home-owners were asking for COV sums of more than $150,000 in some mature estates.

This, in turn, priced many newly-weds out of the resale market, who then turned out in droves to queue for new HDB flats.

In Clementi, for example, the median COV for July to September last year was a sky-high $155,000 for an executive flat. This had dropped to $75,000 in the fourth quarter last year, and is now a more reasonable $40,000 this quarter.

For a very 'cash sensitive HDB market', even a small difference in COV makes an impact and could see more people returning to the resale market, said Mr Colin Tan, Chesterton International's head (research and consultancy).

PropNex chief executive Mohamed Ismail said that another reason for the decrease in COV could be that sellers' expectations have moderated due to the recent softening of the property sector here, coupled with volatile global markets.

Mr Tan pointed out that HDB prices remained high and are daunting for lower-income families whose incomes have been stagnant. This makes new HDB flats, which are subsidised, the more attractive proposition.

But for couples like teacher Lynne Ng, 26, and her fiance, the dip in COV could not have come at a better time. 'We were going to rent or live with our parents, but now it's possible we'll get a dream home of our own when we get married,' she said.

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