Tag Archives: Cash-over-valuation

Striking a precious housing balance

FEWER applicants for new flats and five consecutive quarters of resale price falls have seen the Housing Board market going off the boil. The operative word is “going”, denoting an incomplete market correction. National Development Minister Khaw Boon Wan’s view that control measures for the sector as a whole should remain is the clearest word yet that real estate retains a capacity to cause an unwelcome wobble in the economy. Relative to the cumulative price run-up in the boom years, the considered judgment is that such cooling as has occurred has some way to go.

A planned 25 per cent reduction in the supply of build-to-order HDB flats next year, on top of a smaller trim this year, is a measured response in the sense that most people who currently need a flat have got one, although prices are only slowly coming off their peak. Young married couples and families wanting to live close together will continue to enjoy preference. This is pitching close to the golden mean.

But mindful of the last bout of frothiness, when cash over valuation became a burden to buyers, one could not be certain that the supply contraction will produce the desired price stability within a reasonable period. (In new and resale private housing, industry expectations of 10-15 per cent falls to more sensible price levels have not eventuated.)

Things are never that simple in real estate, especially in public housing planning. The HDB works to a gestation of four to five years, beginning with the number crunching of existing stock, marriage rates, foreigners granted residency and, yes, even emigration outflow to an extent. Anything could happen in the interim to necessitate a review.

Preserving a balance between holding fair value for existing owners and keeping prices reasonable enough for intending buyers and upgraders is part logic, part intuition. Singapore has seen extremes, sometimes unavoidably.

In the booming 1990s, HDB applicants had to contend with long queues despite strong supply. Finicky buyers undecided about location and flat-type waited for up to seven years. The Asian currency crisis that struck shortly after caused the market to seize up, leaving what became a dead stock of 30,000 flats. It took years to clear the surplus.

Disruptions can occur at any time. Unease about the current global growth slowdown is a reminder that asset volatility can be managed up to a point only. Imponderables include terrorist strikes and spikes in interest rates.

The HDB maintains a small buffer stock to act as a stabiliser, but even this is subject to variables. Hence, it would be a tall order to expect planners to always strike a perfect balance between supply and demand, and between affordability and eroding asset values.

Forget COV, welcome to CUV

The days of COV (cash-over-valuation) are already coming to an end as incidents of CUV – cash-under-valuation transactions – become more common in all sectors of Singapore’s property resale market.

Examples of property buyers having to pay as much as S$100,000 above valuation were fairly common until recently. Now the balance is shifting and there are increasing numbers of transactions involving sellers accepting offers below, and in some cases significantly below, the valuation price of their property.

One Singapore real estate agent cited recent examples where sellers were willing to accept offers significantly less than the valuation price. One private property, valued at S$1.42 million, is likely to be transacted at S$1.25 million, the agent told PropertyGuru on condition of anonymity.

Evan Chung, Vice President of the Resale Division of real estate agency DTZ, said: “CUV transactions have already been transacted and are on the increase.”

Citing recent HDB data, Chung said that 28.5 percent of HDB resale deals during January 2014 were closed below valuation.

“Areas such as Sengkang and Jurong West are now seeing about half their transactions clocking in negative COVs, and I believe the percentage of CUV transactions will continue to rise over the year and likewise, we’ll see HDB valuations come down accordingly.”

Public data analysed by PropertyGuru this morning focusing solely on Jurong West showed average per sq ft prices for resale HDB properties in January 2014 stood at S$406. This was unchanged from the previous month but down from the S$426 per sqft one year earlier – a decline of 4.47 percent year-on-year.

Chung said that units in mature estates, and in good locations near MRT stations or a shopping mall, will still continue to see demand and command a certain COV.

“This is especially for units that are nicely renovated,” he added.

“For home buyers, the current trend is highly welcomed and I can say the cooling measures and increase in BTO supply have achieved their desired effect.

“However, I believe the authorities will be wise enough to ease off some of the measures in the near future, otherwise the displeasure that buyers have faced over the last few years will eventually be transferred to home owners when they see their property value erode too fast and by too much,” he concluded.

The flip side, of course, is that there are potential bargains on offer for serious buyers with finances in place.

Lucas Tan recently purchased a four-room HDB resale property in Tampines.

He said: “There were four almost identical properties on the market, but three of the four sellers were unwilling to negotiate. They were still living in last year in terms of prices.

“I eventually did a deal with the only seller who was being realistic and was willing to negotiate.”

Tan confirmed he paid under the valuation price for his property.

Andrew also contacted PropertyGuru to explain his situation.

He said: “I sold my 19-year-old 151 sqm freehold apartment in District 15 in November for S$1.43 million – about S$885 per sq ft. I was hoping for S$1,000 per sq ft but with more than 20 viewings in five weeks it was finally sold to a neighbour.”

He added: “To me this was a little low considering the newer though smaller-sized units were going at S$1,300 for resale.  However I decided to sell as I had lost my job, and I expect prices to drift lower by about 20 percent in the next few years, and will not recover unless the controls are significantly eased.”

Source : Property Guru 13 Feb 2014