Plunge in premium for resale flats

Buyers are very reluctant to pay premium for flats from the HDB, going by fast falling figures of cash-over-valuation or COV from HDB. This year the average COV of resale transactions plunged by 73 percent to $4,000 in the first quarter of 2009 from $15,000 in the fourth quarter of 2008.

The average COV for executive and five-room flats in the first quarter of 2009 were both at zero dollars. In the last quarter, buyers paid $12,000 and $11,000 of median cash amounts above valuation for executive and five-room flats respectively.

“The sharp drop in COVs is due to increasing public resistance to paying above what are already higher valuations,” said Mohamed Ismail, CEO of PropNex.

The HBD said the flats’ proportion that changed hands on top of valuation fell to 62 percent in the first quarter of 2009 from eight percent in the fourth quarter of 2008 for all its resale transactions.

ERA Asia-Pacific stated that more resale flats of HDB with higher value are being offered below valuation, with prices ranging from $30,000–$50,000. “In coming quarters, we are likely to see more and more larger flats sold at or below valuation as the harsh economic conditions hit home,” said Eugene Lim, ERA’s associate director.

Stricter ratios of loan-to-value could have added to the drift. “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 Mr. Lim.

On its cooling down, the economy diverted home-seekers from five-room flats to four-rooms, he noted. As a result, the prices of bigger flats may experience downward pressure.

To sum things up, the resale price index of HDB dived 0.8 percent in the first quarter of 2009 from the fourth quarter of 2008, decreasing more than -0.6 percent of flash estimate released earlier this month. After nine consecutive quarters of growth for more than 30 percent, it is the first time that the index had experience a decline.

According to property consultants, prices of HDB resale flats are expected to drop by 5–10 percent this year, which will mostly be accounted by larger flats.

However, “We do not expect the decrease in HDB resale prices to dent upgrader demand for private property, because the rate of price fall of HDB resale flats is still smaller than that of private homes,” said Nicholas Mak, Knight Frank's consultancy and research director.

Consultants reckoned that flats with three and four bedrooms should have greater demands. According to Mr. Mohamed, buyers still want to pay for these flats at COV.

A data of HDB showed an increasing proportion of applications in resale flats involving those smaller flats.

Flats with three and four rooms covered 69.8 percent of these applications in the first quarter of 2009, compared to 67 percent in the fourth quarter of 2008.

Over 6,446 resale transactions were made in the first quarter of this year, 4.2 percent more than last year. “HDB resale transactions typically increase when times are bad,” Mr. Lim said. However, with more flats being built by HBD, some demands may change, he added.