HDB Resale Median COV in Q4 2009 doubles
Source: Today Online
Many of those who sold their HDB flats in the fourth quarter of last year had plenty to cheer about: Not only were they able to sell their flats at even higher prices; the owners also received more cash upfront from their buyers.
Prices of resale HDB flats rose 3.9 per cent between October and December, bringing the full year increase to 8.2 per cent. The latest statistics from the Housing Board show that 93 per cent of resale transactions in the fourth quarter were above valuation. And the median cash-over-valuation (COV) paid by home buyers jumped by 100 per cent – from $12,000 in Q3 to $24,000 in Q4.
Real Estate lecturer at Ngee Ann Polytechnic, Mr Nicholas Mak, said the increase may be due to more sales involving larger flats.
“There seems to be more families that are going in to buy larger flats — your four-room and five-room flats. As a result, these larger flats also come with higher cash-over-valuation amount which, in a way, pulls up that median cash-over-valuation.”
But this increase is unlikely to continue indefinitely. The HDB noted that the median COV amount had stabilised in recent months. The cash premium for the first half of this month (subs: Jan) has come down slightly to $22,000.
Some analysts believe this may indicate that the market is approaching a limit. Mr Mak said: “Our salary is still not catching up at such a high rate, there will be a certain time when the affordability issue will come into play. “As the sellers start to demand higher and higher COV … there may come a stage when there will be some buyer resistance.”
Efforts by the Government to raise the supply of new homes will also gradually help to cool the market once the flats are completed, said Mr Colin Tan, head of Research for Chesterton Suntec International.
“The Government’s efforts at pushing out the BTOs (build-to-order) and DBSS (Design, Build and Sell Scheme), and all the executive condos, that may have helped to allay some of the panic buying. And this probably resulted in some people actually shifting the demand from the resale market to the new flats,” Mr Tan added.
To meet demand, the HDB said that it will be offering nearly 7,000 new flats in the first half of this year. The flats will be built in areas such as Sengkang, Sembawang, Punggol, Yishun and Jurong West.
Although, unlike young couples, I am unaffected by the spike in flat prices, Saturday’s report, ‘Cash premiums for HDB flats hit a high’, with its slew of price-spiking catchphrases – ‘buyers desperate’, ‘high demand’ and ‘tight supply’ – begs this question: After 40 years of public housing, how did it come to this? The Housing Board should stop insisting that enough flats are being built. The over-subscription by many times at each launch of public flats clearly shows that there are not enough new flats, thus pushing buyers towards the resale market, which in turn pushes prices and cash-over-valuation (COV) up; it’s a vicious price circle. The irony is that on the one hand, young couples are urged to marry and have children early to help increase the procreation rate; and on the other hand, they are indirectly told to wait five years to get a flat and start a family.
Source: ST Forum
Mr Chua appears to allude to the fact that the procreation rate has not risen because of higher prices of public housing, and ‘mixed signals’ in which young couples are urged to marry and have children early to help increase the procreation rate but then told indirectly to wait five years to buy a flat and start a family.
Without doubt, there have been calls to stop the practice of high cash over valuation (COV) and lower HDB resale prices. My take is that things should remain as they are and be dictated by market forces.
My paternal grandparents bought their first HDB flat in Bedok in the 1970s for about $7,000 – a sum that was paid in full in cash. Today, that three-room flat in a mature estate could be sold for $200,000 or more.
I believe elderly Singaporeans who bought such flats would be thankful they can cash out and unlock the value of their fully paid-up flats to see them through their remaining years.
Other Singaporeans who bought their flats later, say in the 1980s, would also be exuberant as they can capitalise on the capital appreciation of their HDB flats to downgrade to smaller units and use the savings for retirement and other needs.
A case in point is the Lease Buyback Scheme, where Singaporeans living in three-room flats can unlock the value of their homes and live on regular monthly payments from the authorities. This mechanism shows how the housing system can enrich Singaporeans when they reach retirement age and that citizens have a stake in the country and their well-being is not forgotten.
Another group who would have benefited from high HDB resale prices and COV prices is those who were caught in the property craze of 1996-1997. Some Singaporeans bought their HDB flat at a peak, and the value of their home tumbled. In negative equity then, these owners must now be relieved and thankful for the system, plus other external factors that steered them back to positive territory.
In essence, these factors play a part in stimulating economic activity where sellers of HDB resale flats with excess cash and housing agents with their sales commission contribute to gross domestic product figures with their spending. When this happens, the economy is buoyant, jobs are created, people are employed and confidence is restored.
Again, my take is that we are fortunate to have a system to help citizens secure an HDB flat tailored to suit their household income, have a stake in the country and ensure capital appreciation of their assets which will come in handy for future needs.
Source: ST Forum
Why is there so much focus on premium over valuation when valuations by property agencies have no fundamental basis?
Such valuations are based simply on comparable recent transactions and are virtually meaningless to the long-term buyer.
For example, in the landed housing segment, valuations were severely depressed during the economic downturn from November 2008 until March last year, and property agencies used valuations based on transactions of similar properties.
So, if a desperate seller needed to sell his property at virtually any price (which was the only price available at that time), that absurdly became the ‘valuation’ for the next seller.
Many so-called valuations were even less than government land auction prices 12 to 15 years ago, even though the replacement cost of these properties was far higher.
Ultimately, the fundamental value of properties depends on future rental yields, replacement cost of the property and more subjective ‘growth catalysts’ such as higher incomes and population, and new developments.
Based on these factors, the public market valuation reflected in cash premiums is a more reliable indicator than superficial valuations by property agencies, which is nothing more than a fee generator for them.
Source: ST Forum