COVs continue tumble; S$3,000 is a 5-year low

SINGAPORE — Cash-over-valuation (COV) premiums for Housing and Development Board (HDB) resale flats have fallen to their lowest level since the global financial crisis, as the Government’s cooling measures and loan curbs restore stability to the public housing market.

The median overall COV dipped by another S$2,000 last month to S$3,000, a flash report by the Singapore Real Estate Exchange (SRX) showed yesterday, matching the level in June 2009, when global markets were still recovering from the shock of the Lehman-led crisis.

The number of flats sold below valuation has also been on the rise, a trend that began last September, hitting 173 transactions last month, the SRX data showed. In all, eight out of the 28 HDB towns in the survey recorded zero or negative median COVs.

Sengkang and Punggol were among the worst hit, with more than half of the transactions — 22 out of 36 — done below valuation.

Meanwhile, even choice estates such as Bishan and Marine Parade had deals transacted last month at zero or negative COVs.

Mr Ku Swee Yong, Chief Executive of property agency Century 21, said: “What we can safely say from this is that the Government’s cooling measures have been very effective. If there are more and more negative COVs coming up, the valuation will tend to be revised downwards and when that happens, the cases of negative COV will be reduced. That means the market should be trending towards zero COV.”

“The wider implication is more on sentiment, the feel-good factor, because even though a 10-year-old flat would have doubled in value, there is a higher risk that the owner will take in a smaller profit now. So this may prevent him from investing in another property or lead him to decide not to sell the flat,” said Mr Ku.

He said the mortgage servicing ratio cap of 30 per cent of the borrower’s monthly income and the rule barring permanent residents from buying an HDB flat within the first three years of obtaining PR status “took the wind out of the sails” of the resale market.

Despite the drop in the median COV, overall HDB resale prices rose 0.3 per cent in January from December, halting the monthly downtrend since last April. But analysts did not read too much into that, calling it a statistical blip occurring amid low transaction volumes that did not alter the wider trend.

The continued fall in COVs has turned the market in favour of buyers at a time when the Government has decided to scale back the supply of three-, four- and five-room Build-To-Order (BTO) flats in the coming years, said ERA’s Key Executive Officer Eugene Lim. “There are fewer larger flats being put into the BTO market, and COVs coming down will encourage some to consider buying resale flats,” he said.

One such buyer is Ms K T Tan, who bought a four-room flat in Jurong West at zero COV.

“I have friends who have been unsuccessful in their BTO applications, and when the time came for my fiancé and I to hunt for a flat, we decided to just go for a resale flat since the market is down. We just started working not long ago, so we don’t have that much cash savings to pay those sky-high COVs,” said Ms Tan, who declined to disclose her age and occupation.

Total resale volume is estimated to have fallen last month to 893 units, down from the 910 transactions in December, according to the SRX. Analysts said this was partly because of the traditional Chinese New Year lull period, adding that the lower volume may have exaggerated the drop in COVs in certain estates.

“In the case of Bishan, the number of transactions used to derive the median COV number in January is fewer than 10, which is not statistically robust enough. It can be zero in January and fluctuate to big numbers in the next few months,” said Mr Nicholas Mak, SLP International’s Executive Director for Research and Consultancy.

But with the cooling measures in place, cases of resale flats being sold at or below valuation will become increasingly common, and this may cause overall prices of HDB resale flats to fall by 5 to 8 per cent this year, Mr Lim said.