Less cash upfront for flat buyers

HDB resale flats customers tend to require lesser cash upfront to obtain a home, and even some who are seeking for larger flats may not have the need for it.

Based on a data, which the HDB released yesterday, the median levels of cash-over-valuation in Q1 fell to $4,000 from $15,000 in the preceding quarter.

This pertains to the total amount that flat buyers had paid above valuation that was set by private valuers, which the HDB had appointed. Money from Central Provident Fund can be used by buyers up to this certain level.

This substantial fall can be attributed to two factors – the higher levels of valuation and the falling prices of resale flats, after a price run-up last year before the recent plunges.

Resale flats of HDB fell by 0.8 percent in Q1, just over 0.6 percent of the original estimate, after the peak of prices in 2008. However, the resale prices still remained at healthy levels, 2 percent above the peak in 1996, said Nicholas Mak, consultancy and research director of Knight Frank.

Higher valuations of HDB are the reasons why prices slightly decreased despite a lower cash portion, stated Mohamed Ismail, chief executive of PropNex. “It is evident that public housing remains resilient in this gloomy economy, thanks to continued strong demand for resale flats. The alternatives, Build-To-Order and Design, Build and Sell Scheme projects, are still years away from completion.”

However, the trend may change. “Generally, though valuations are still high, banks are becoming more conservative and there have been cases where buyers are offered only 70 per cent loans instead of the usual 80 per cent,” said Eugene Lim, associate director of ERA Asia Pacific. This means that more HDB resale flats with higher value are now to be offered below valuation – in other cases, prices range between $30,000 and $50,000.

“For larger flats, the days of transactions with cash-over-valuation are over,” Mr. Lim Added. The resale deals of ERA in Q1 show 19 percent of flats at valuation and 21 percent below valuation. Most of the sales did not reach above $15,000, Mr. Lim said.

The average sublet rents in Q1 were not changed for smaller flats and the four-room and bigger flats were down by $100 to $200.

In Q1, a lot of people bought smaller flats with three or four rooms. Their prices decreased a little.

A slightly bigger fall in price was experienced by larger flats at 2.8 percent, specifically for executive flats, Mr. Mak said. These bigger flats will still experience strong downward price pressure, said property experts.

They expect for demands in smaller flats to increase as home buyers become prudent. “In the coming quarters, we are likely to see more and more larger flats sold at or below valuation as the harsh economic conditions hit home,” Mr. Lim said.

The bright side is that the plunging of prices of resale flats in HDB are not expected to affect the demand for upgraders of private homes since the rate of the HDB resale prices’ fall is lower than private homes’ rate, said Mr. Mak.