Resale flat COVs fall to zero for first time since 2006

[SINGAPORE] For the first time in nearly a decade, the overall median cash-over-valuation (COV) for resale HDB flats hit ground zero last month, compared with $3,000 in January, as demand for resale public homes softened.

Almost two in five HDB deals closed below valuation, making up 37.3 per cent of HDB resale deals, up from 29.4 per cent in January, based on transaction records from agencies registered with the Singapore Real Estate Exchange (SRX).

Flash estimates by SRX also showed HDB resale prices marking a sharpest month-on-month fall of 1.8 per cent since prices began declining in April 2013, while resale volume dropped 20 per cent from a month ago to 734 deals.

Twelve out of 26 HDB towns saw zero or negative median COV. This is an increase from eight HDB towns in January that saw zero or negative COV.

Bukit Panjang, Punggol, Sembawang, Sengkang and Woodlands led the drop with negative overall median COVs recorded in February. Bedok, Bukit Batok, Choa Chu Kang, Geylang, Jurong West, Tampines and Yishun had zero overall median COV.

With COVs for resale flats falling to zero for the first time since 2006 when SRX began collecting COV records, some analysts are predicting that COVs will slip into negative territory as early as this month.

"Recent policies have shut down the heavy demand for HDB resale flats from foreigners and on top of that, there may be some pressures from those selling their HDB flats to upgrade to their private properties when these are completed," said Alan Cheong, director for research and consultancy at Savills Singapore.

The three-year waiting period for permanent residents (PRs) to buy resale flats has been a major turn-off for many PRs and the tightening of PR renewals has also resulted in fewer people being eligible for HDB resale flats.

If traditionally hot estates such as Bishan, Queenstown and Toa Payoh start seeing zero or negative COVs, that would be a "time of reckoning", Mr Cheong said.

Ong Kah Seng, director of R'ST Research, said he expects zero COV for flats with no more than four rooms in average locations such as Sengkang, Punggol, Hougang and Serangoon.

Larger flats (five-room and executive flats) in average locations and flats in far-flung areas, such as Bukit Batok, Sembawang, Woodlands and Jurong West, are likely to be transacted at slightly below valuation price, Mr Ong predicted.

A negative or zero COV will be a psychological barrier to sellers, he said. "Only sellers in a hurry to dispose of their flat, such as moving into completed BTO flat, or executive condominium, or who really want to sell off their flat after they move into their new completed private condominium, will relent to notable resale price at below valuation price."

Mr Ong believes prices may fall by around 5 per cent for the first half of 2014 before they stabilise. When demand picks up from the middle of 2014, sellers may not raise their prices aggressively in view of the 30 per cent cap for the mortgage servicing ratio (MSR) on buyers.

But analysts note that the weakness in the HDB resale market will not necessarily spill over to the private residential market.

ERA Realty key executive officer Eugene Lim said he does not foresee a spillover effect in private home sales since half of private home buyers already have private addresses.

While there will likely be more deals closed at or below valuation as sellers become more realistic, Mr Lim said he prefers to wait for further clarity in figures for the second quarter of this year as February is traditionally a slow month because of the Chinese New Year.

Mr Ong of R'ST Research noted that loan limit under the total debt servicing ratio (TDSR) framework has a greater bearing on private residential demand.

HDB upgraders generally have the option of renting out their flat to foreigners or go for more affordable executive condominiums, he said.