HDB Resale Deals At A New Low In 2007

Source : The Business Times, January 26, 2008

Rising resale prices and higher COVs result in last year's total of 29,436

THE number of resale HDB flats which changed hands fell to a new low in 2007 - with just 29,436 transactions recorded - as buyer resistance set in, in the face of escalating resale prices and more sellers asking for large amounts of cash-over-valuation (COV), fresh HDB data shows.










The number was lower than the 29,723 resale transactions seen in 2006, which was itself a new low. Stock-market jitters in the fourth quarter also caused resale transactions in the last three months of 2007 to fall 13 per cent to 6,700.

The fall in transaction volume came despite a 17.5 per cent increase in HDB resale prices last year. In the fourth quarter, HDB resale prices rose 5.7 per cent, lower than the increase of 6.6 per cent seen in the third quarter.

'With escalating resale prices and more and more COV transactions, we saw the resale market hitting resistance level in the fourth quarter as HDB flat buyers do not have or are not willing to part with so much cash,' said Eugene Lim, assistant vice-president of property agency ERA.

The COV is the amount that is paid above the valuation of a flat and cannot be paid with a home loan or monies from the Central Provident Fund (CPF). With high COVs demanded by sellers, buyers are required to fork out more cash.

In the fourth quarter, cases requiring COV constituted 86 per cent of all resale transactions, up from 80 per cent in the third quarter. The median COV amount also increased to $22,000 in the last three months of the year, from $17,000 in the previous quarter.

However, a closer look at some of the traditionally popular estates show that median COVs have actually decreased as buyers resisted forking out large sums of cash. For example, in the third quarter, the median COV for a five-room flat in Queenstown was $110,000. In the fourth quarter, it had fallen to $79,000.

But despite the lower total resale volume, the number of five-room and executive flat transactions actually increased in 2007 over 2006, ERA's Mr Lim pointed out.

The number of five-room resale transactions rose 13.3 per cent to 7,275 in 2007. Similarly, for executive flats, there were 2,627 transactions in 2007 - a jump of 17.9 per cent compared with 2006.

The robust numbers are mainly due to cash-rich buyers from enbloc sales or private property sales downgrading to larger HDB flats in choice locations, experts said. These buyers also account for the robust COVs fetched by larger flats.

'Based on our data, more than 50 per cent of the high COVs of $80,000 or more seen in 2007 are from private property downgraders,' said Mohamed Ismail, chief executive of property firm PropNex.

Sellers of these larger HDB flats are either upgrading to private properties or downgrading to smaller HDB flats, Mr Ismail said. He added that there was little upgrading from smaller to bigger HDB flats.

ERA's Mr Lim said the fact that sellers of larger HDB flats are upgrading is good news for developers of mass market condos as traditionally, the support for their projects comes from buyers living in these HDB flats.