Resale flat COV hits low reached in 2009 crisis

[SINGAPORE] Median cash-over-valuation (COV) premiums for Housing and Development Board resale units dived from $5,000 in December to $3,000 last month - similar to the previous low in June 2009 during the Global Financial Crisis - as eight out of the 28 HDB towns saw zero or negative median COV.

While the data does suggest that HDB resale prices are stabilising - given that transactions are being done at valuation prices - it needs to be read in light of the low transaction volumes in December 2013 and January 2014 which in turn can translate to a wide range of COV figures, said Nicholas Mak, executive director at SLP International.

Sengkang and Punggol led the drop in COV with negative overall COVs recorded in January, while Bishan, Geylang, Jurong West, Sembawang, Woodlands, and Yishun recorded zero overall median COV, according to the flash report by the Singapore Real Estate Exchange (SRX).

"In the case of Bishan, the number of transactions used to derive the COV number in January 2014 is less than 10, which is not statistically robust enough. It can be zero in January and change to big numbers in the next few months," he said.

The report also showed that resale prices gained a marginal 0.3 per cent in January, thwarting the general decline in monthly prices since April 2013. This was based off an estimated 893 transactions in January, a 34.6 per cent year-on-year drop.

Despite the reversal in price trends, it might be too hasty to assume that prices are bottoming out given that the prices are based on a limited number of transactions and are thus susceptible to wild swings, said Ong Kah Seng, director at R'ST Research. Indeed, Mr Ong expects that there is still potential for prices to fall by about 5 per cent in the first half of this year before starting to stabilise.

"This monthly volatility is exacerbated by uncertainty in the HDB resale market following the implementation of the mortgage servicing ratio (MSR) in August, compounded by the different types of flats transacted between months," said Mr Ong.

For instance, the rise in average prices could be due to increased interest in smaller sized flats due to the MSR cap limiting large loans, he suggested.

Separately, the report also showed that almost three in 10 HDB deals closed below valuation.

Based on transaction records from SRX member agencies, 28.5 per cent of HDB resale deals were closed below valuation in January, compared with 20.4 per cent in December. January's number is also higher than the previous high of 26.0 per cent in April 2009.

Looking ahead, Eugene Lim, key executive officer at ERA Singapore said he expects to see more deals closed below valuation as sellers become more realistic. That being said, flats with good attributes, such as being located close to an MRT station, should be able to hold their prices reasonably well, he qualified.

There should also be a pick-up in transaction volume after the Chinese New Year festivities.

"Transaction volume in March, April, and May are likely to set the pace for the rest of the year," said Mr Lim.

On the rental front, an estimated 1,319 HDB flats were rented in January, 6.8 per cent less than December's 1,415 transactions. Rents stayed constant at $2,300 in January after two consecutive monthly drops in November and December.