Vicious circle of high COVs
by admin , July 23, 2010, 1650hrs

SINGAPORE (July 23, 2010) – HDB homes' resale prices have hit another high, with the median cash-over-valuation (COV) jumping by S$5,000 to S$30,000 in the second quarter.

Data released on Friday by the HDB showed that its resale price index in the second quarter this year rose 4.1 per cent over the previous quarter - the fifth consecutive quarter of price increase. This is higher than the initial flash estimate of 3.8 per cent.

The proportion of resale cases transacted above valuation also increased to 96 per cent.

HDB reiterated it will ensure that there is an adequate supply of new flats to meet housing demand.

ERA Asia Pacific associate director Eugene Lim told ChannelNewsAsia that going forward, HDB prices are expected to continue edging upwards due to the positive economic outlook. However, he expects buyer resistance to set in.

PropNex CEO Mohamed Ismail likened the high COVs to a vicious circle.

“Previous owners of HDB flats who sold their flats with a high COV can now afford to pay high COV for their new flats,” he said, “Furthermore, it is currently the market practice for sellers to ask for high COV as they know that they are expected to pay a high COV when they purchase their next HDB flat," said . Either that or they are looking for more cash to put down the deposit on their new private property purchase.”


RESPITE FOR PRIVATE HOME PRICES?

Meanwhile, private home prices in Singapore continued to increase, albeit at a slower pace.

Data released by the Urban Redevelopment Authority showed that overall prices rose by 5.3 per cent in the second quarter of 2010, compared to 5.6 per cent in the first three months of the year.

This was marginally higher than the initial forecast of a 5.2 per cent climb for Q2 reported earlier this month.

The increase pushed the residential property price index to an all-time high, surpassing the market peak of 181.4 points in Q2 of 1996.

PropNex's Mr Ismail noted that investor confidence "has definitely been affected by the shaky global economy". The economic uncertainty, coupled with the rising prices of private property, have led to the steadily declining number of private residential units sold in May and June, said Mr Ismail.

Mr Ismail added: “The shift in focus to the mass market, as well as the overall slower growth can be attributed in part to the European sovereign debt crisis which hit Greece in (the first quarter) and subsequently impacted the rest of Europe and the world."

Still, CBRE Research executive director Li Hiaw Ho said that private home prices would continue to be supported by positive sentiment generated by the bouyant Singapore economy - although prices were likely to have already peaked.

Said Mr Li: "The surprisingly strong economic growth in the second quarter will help keep market sentiment positive. However, as the government is also anticipating a slowdown in the growth momentum for the rest of the year, the residential market is likely to move at a more moderate pace."

URA says prices of private residential, office, shop and industrial properties all increased by between 3.9 and 5.7 per cent in the second quarter.

Rentals of private residential properties, office, shop and industrial properties, meanwhile, were higher by between 0.5 and 5.9 per cent.