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Higher resale prices driven by higher COVs
Singapore Property Market News and Analysis

Latest Property Real Estate News - Published on 23/07/2010
HDB’s Resale Price Index (RPI) set another record high with a 4.1% increase to 161.3. This was driven mainly by the median Cash-Over-Valuation (COV) levels, which rose a massive 20% to an overall $30,000, up from 1Q10’s $25,000.
This increased demand for public housing, as evidenced by the indicative factor of higher median COV prices, can be explained in part by the European sovereign debt crisis which hit Greece in 1Q10 and subsequently impacted the rest of Europe and the world.
“This economic uncertainty and the rising prices of private property,” explains PropNex CEO Mr Mohamed Ismail, “have led to the steadily declining number of private residential units sold in the last two months of 2Q10 coupled with a resulting demand for public housing.”
Mr Ismail offers other reasons for the higher COV prices. “Previous owners of HDB flats who sold their flats with a high COV can now afford to pay high COV for their new flats,” he explains.
“Furthermore, it is currently the market practice for sellers to ask for high COV as they know that they are expected to pay a high COV when they purchase their next HDB flat. Either that or they are looking for more cash to put down the deposit on their new private property purchase.”
To allay public fears that COV will soar out of control, Mr Ismail reminds us that COV is an indication of supply and demand and can actually dip into negative levels, as seen during the SARS period of 2003 to 2004. And despite the current trends, he estimates that COV prices will not exceed an overall threshold of about $40,000.
The number of resale transactions for 2Q10 only increased marginally Q-on-Q, with a perfectly expected 9,114 transactions, a mere 7.4% increase over 1Q10’s 8,484 transactions. This is the lowest 2Q-on-1Q increase in the number of resale transactions seen over the last few years.
“This low number is partly due to the fact that 1Q10 saw a an unusually high number of resale transactions for a year’s first quarter,” reveals Mr Ismail, referring to the fact that the number of resale transactions for the three first quarters prior to 2010 having never exceeded 7,000.
Mr Ismail also attributes the subdued number of resale transactions to the new HDB policies announced in March, mainly: 1) the withholding of $10,000 of the housing subsidies for Singapore Citizen-Singapore Permanent resident households; 2) the reduced quantum of the second concessionary loan; and 3) the revised Minimum Occupation Period (MOP) of three years for HDB dwellers who did not utilize any housing subsidy, regardless of whether they took a loan or not.
“The announcement of all these new policies combined would have caused a general sense of cautiousness amongst the HDB-dwelling population,” says Mr Ismail, “as some of the consumers would have to relook at their finances or MOP before selling their flat.”
Mr Ismail takes this opportunity to laud the Government’s effort to introduce more public housing, with a total of 8,828 new Build-to-Order (BTO) units launched this year so far, as well as the release of Design, Build & Sell Scheme and Executive Condominium sites which have an estimated yield of 4,725 units. However, he says that these would have little impact on the resale market as there is always a demand for immediately available public housing.
Given the latest figures, Mr Ismail revises his forecast for the RPI to move upward altogether for 2010 by about 12%.
For enquiries, please contact:
Mohamed Ismail (CEO)                                                  9487 1414
Adam Tan (Corporate Communications Manager)            9006 8726

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