Lower COVs signify weaker HDB resale market

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As consultants anticipate a further softening in the HDB resale market, lower cash-over-valuation (COV) figures were recorded in Q4 2011, giving future home buyers much needed relief.

COV, which refers to the cash premium paid by home buyers over the market value of an HDB flat, has showed signs of stabilisation, as the majority of flats across the island saw a decline in COVs during last year’s final quarter.

“The median COVs have generally fallen across the island in Q4 2011 compared to Q3 2011, except for five-room and executive flats in a handful of towns. This is a harbinger of a weaker HDB resale market in 2012 as it shows buyers have become less aggressive in offering high COVs,” said Chua Chor Hoon, Head of Asia Pacific Research at DTZ.

She added that lower COVs will also impact prices and demand in the private residential market’s HDB upgrader segment.

According to Ong Kah Seng, Director at R'ST Research, the slight moderation in COV prices “could also be due to the cost conscious buyer who increasingly recognises that in a challenging economic context, a resale HDB flat tends to require more additional after-purchase costs such as for renovations, compared to a new property.”

In addition, the government's large pipeline of BTO flats also appears to stabilising HDB resale prices. During Q4 2011, the HDB resale price index stood at 190.4, following a slower growth rate of 1.7 percent quarter-on-quarter against the third quarter’s 3.8 percent.

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