Sunday, March 25, 2012

COV of resale flats falling and effecting mass market private property market

Cash-over-valuation (COV) requested by resale HDB flat sellers is falling as resale HDB market is weakening in 2012. According to The Business Times report based on PropNex Realty data, median COV across all flat types fell by between $3,000 and $6,000. The median COV across all flats now is around $25,000, $10,000 less from $35,000 of the last quarter of 2011.

The decline in the COV requested for resale flat reflects the demand and supply side factors reining in the HDB resale prices:
  1. HDB has increased the new BTO flat release rate from 8,000 units per year of 2002 - 2010 period to 25,000 units per year in 2011 and 2012. Before this, many first timers were going to resale HDB market after repeated failures to grap a new flat from HDB.

  2. HDB has increased the minimum household income treshold for BTO flats to 10,000 SGD per month from 8,000 SGD per month and for Executive Condominium flats to 10,000 SGD per month to 12,000 SGD per month. Before this increase, families earning between 8,000 to 12,000 were forced out to resale HDB market. Now they can also buy directly from HDB.

  3. HDB has recently increased the quote reserved for second timers, who create a long waiting list to buy directly from HDB. Now number of second timers turning to resale HDB market will also go down.

  4. Another demand source for resale HDB flats, Singapore PR intake is also significantly reduced since 2009. In 2008, 79,000 PR applications were approved; in 2010 the number was 29,000.

  5. The popularity of executive condominiums have recently increased and this popularity is probably stealing demand from resale HDB market. Although EC's are more expensive then resale HDB flats, the price difference is quite narrow and EC's have full condo facilities and better finishing than HDB flats.

  6. Enbloc sale or collective sale of Singapore properties is slowing. This is important since many cash rich resale HDB flat buyers are from this segment. Many buy another private flat but many of these lucky people who sell their private property in a collective sale with a very high price, called en bloc millionaire, also buy resale HDB flats and do not mind to pay high COV with the amount of money in their pocket. As enbloc sales slow, there are less of these type of demand.
HDB resale prices has doubled in the last 5 years thanks to a record low supply of new BTO flats completed by HDB between 2002 and 2010. In 2011, the HDB resale prices has increased 10.7 per cent to a record high and severely unaffordable region. 2011 was 5 years ahead of 2006, the year when least number of new BTO flats were completed (5 years is the minimum occupancy period for new flats) so supply of new flats for resale market was lowest in 2011.

Declining COV prices of resale HDB flats have an interesting effect for private property market. Lower COV means less cash for resale flat owners, one of the main source of demand for mass market residential private property, to buy private flats:
"The lower COV made it hard for people upgrading to private property since they will have less cash on hand, noted Chua Char Hoon, head of Asia Pacific Research at DTZ. HDB upgraders constitute an important source of demand for mass market private projects." 
Source: The Business Times, HDB upgraders between a rock and a hard place, March 26th 2012

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