HDB flats' cash premiums hit a fresh record

Home buyers who are desperate to get into the public housing market are paying out twice as much as they did for resale HDB flats a few months back.

Known as the Cash-over-Valuation (COV), these cash premiums refer to the amount that a buyer has to pay above the valuation of flats set by a bank.

According to fresh data from HDB yesterday, the median COV of $24,000 in the fourth quarter of 2009 was driven by tight supply and high demand.

This is twice the median COV of $12,000 in the last three months and breaks the $22,000 COV record achieved in Q4 2007.

It seems that the buying frenzy has moderated since the New Year. According to HDB, the median COV has come down to $22,000 for the first half of January.

COVs are being pushed to dizzying levels on the back of high demand from cash-rich buyers with immediate housing needs in a tight-supply market, said analysts.

Eugene Lim, associate director of ERA Asia Pacific said that there is always a disparity between sellers' expectations and valuation in a hot market.

“Valuation is lower than actual resale prices because it is based on past prices,” he said. “Currently, the market is on the upswing and is therefore forward-looking; this explains the disparity.”

The latest data released by HDB showed that resale prices rose 3.9 percent in the last three months of 2009, which brought the full year increase to 8.2 percent, hitting a fresh record.

HDB's figures also showed that around nine out of 10 sales - or 93 percent - in Q4 were done above valuation, up from 79 percent in Q3.

According to Nicholas Mak, a property lecturer from Ngee Ann Polytechnic, this is an indication that prices of resale flats could still rise, as an increasing sales proportion is done above valuation.

“This could also fuel the HDB upgraders' demand for HDB flats and private properties in the months ahead,” said Mr. Mak.