http://www.straitstimes.com/PrimeNew...ry_767093.html

COVs for HDB flats fall by up to 30%

Record number of new flats, upcoming policy changes hit resale deals

Published on Feb 16, 2012

By Jessica Cheam, Housing Correspondent


CASH premiums demanded by those selling their Housing Board flats are falling across the island, and by some 20 to 30 per cent in most flat types.

Property agencies told The Straits Times that this is the result of the record number of new flats released by the HDB, as well as upcoming policy changes, which are putting the brakes on both supply and demand in the resale market.

According to fresh figures compiled by The Straits Times, the overall median cash-over-valuation (COV) amount for all flat types based on last month's deals has dropped in the range of $4,700 to $8,000.

It has fallen more sharply for bigger flat types - as much as $10,000 for five-room flats and $17,000 for executive units. (see table)

COV is the sum that the buyer of a HDB resale flat pays above the flat's valuation. Under HDB rules, this has to be paid in cash, making COV a key factor in the affordability of HDB resale flats.

The latest COV data was provided to The Straits Times by three agencies - PropNex, ERA Realty and Dennis Wee Group (DWG) - which together account for the majority share of the HDB resale market.

The HDB stopped providing nationwide median COV figures in July last year as it said the figures could be misleading. But it still reveals median COV data by towns and flat types that have more than 20 deals in any quarter.

Mr Lee Sze Teck, senior manager of research and consultancy at DWG, said the lower COV figures are due to sellers and buyers 'sitting on the sidelines' to see what the changes are in the HDB market.

For example, HDB has hinted it may change rules to its build-to-order (BTO) scheme to allow more flats to be sold to second-time home buyers.

ERA Realty key executive officer Eugene Lim noted that this is significant because second-timers make up about 45 per cent of resale flat buyers - the largest buyer segment. Many are putting off either buying or selling homes until the policy becomes clearer.

HDB also rolled out a record 28,000 BTO flats last year, and will be offering another 25,000 this year. These new flats are cheaper and have lured many buyers away from their resale counterparts, said Mr Lim.

The falling COV premiums indicate that the HDB resale market could finally be taking a breather after a spectacular bull run in the past five years which has seen prices rise 84 per cent.

Some agency bosses are already predicting that HDB resale flat prices could dip 3 to 5 per cent this year, or up to 10 per cent if the global economic situation worsens.

Mr Lee Han Sing, vice-president at C&H Properties, who specialises in HDB sales, said flats in good locations used to sell at a COV of $50,000 over the flat's valuation price.

'Now, that's more in the region of $35,000, as sellers are more open to negotiation,' he said.

But sellers themselves are also more reluctant now to sell their flats, he added.

One such home owner, Ms Rebecca Foo, 32, said she is putting off selling her executive apartment in Hougang.

'The lower COVs transacted means there is less reason to sell now,' she said.

Also, HDB upgraders who decide to buy new BTO flats only need to sell their existing flats in two or three years' time, when their new homes are ready.

As a result, the HDB resale market is the quietest it has been for a while.

Advertisements for the flats Mr Lee is marketing used to attract 10 to 15 calls a day in last year's busy months, but this has fallen to half that number in January, he said.

But for some home buyers, such as writer Yu-Mei Balasingamchow, 37, COVs have not fallen enough.

'What matters is still the total price of the flat and the bank loan you need to get. Prices of HDB flats are still high, whichever way you look at it,' she said.

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