COV for resale flats could continue downward trend

The HDB resale market may be showing signs of cooling, according to the Singapore Real Estate Exchange (SRX). The overall median cash-over-valuation (COV) for HDB resale flats reached a peak of S$35,000 in January but that figure has come down to about S$27,000 in May, the lowest since April last year.

According to some analysts, this could be a sign that January’s property cooling measures are biting.

Mr Nicholas Mak, executive director for research and consultancy at SLP International Property Consultant, said: “Limiting the mortgage servicing ratio has actually reduced the purchasing power of some of these HDB upgraders. As a result, the demand for larger HDB flats has fallen. So as some of the owners see that the number of potential buyers has fallen, some of them have also softened the amount of COV they are demanding.”

According to SRX, executive flats registered the largest absolute drop of S$10,000 – from S$55,000 in January to S$45,000 in the first three weeks of May. Percentage-wise, three-room flats saw the largest drop of 32 per cent. The overall median COV for three-room flats fell S$29,500 in January, to about S$20,000 in May.

Some observers, like PropNex CEO Mohamed Ismail, said the downward COV trend could continue for the rest of the year.

He said: “I reckon the COV is likely to hit by the year-end in the region of about S$20,000… What has caused the high COV is purely demand and supply. It is tapering simply because of lesser demand with cooling measures as well as greater supply of BTO. In next two years, we will not even be surprised if COV may well be below S$20,000.”

While COVs may be trending downwards, the overall median resale price of HDB resale flats is still going up. However, some analysts said this increase will not be like the double digit growth of previous years, but instead could moderate to about two to three per cent this year.

SRX data also showed that the volume of resale flats transacted could continue to be low in May.

There have been 599 transactions in May so far, but SRX said the final number could reach 1,200 by the end of the month. This would be a 35 to 40 per cent drop compared to the same period last year.

Source : CNA – 26 May 2013

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