Lower COV spurs resale flat demand

RESALE HDB flats are fast regaining interest among buyers, following several months of declining cash-over-valuation (COV) figures.

Notably, after falling more than 20 per cent in the first quarter, COV paid for HDB resale flats are starting to show signs of stabilising, enticing buyers back into the market, say consultants.

Prices for flats were higher during the second quarter with HDB's flash estimate of the resale price index (RPI) up 1.3 per cent quarter-on-quarter at a high of 194, from 191.6 in the period before.

Said Eugene Lim, key executive officer of ERA Realty Network: "The stronger price growth exhibited could be a result of decreasing COVs and increasing valuations in the market. Valuations are catching up with selling prices and median COVs have been reduced to $25,000 in June 2012. Reduction in COVs encourages buyers to commit to flat purchases resulting in rising resale prices."

Aside from prices, transaction volumes also clawed higher during the quarter, rising 8 per cent from 5,126 in Q1 to 5,549 in Q2, according to data from ERA and SRX.

Industry watchers attribute the jump to a growing number of second-timers opting for a resale unit as opposed to waiting for a BTO (build-to-order) flat as COVs have softened and become comparable to the resale levy that second-timers have to pay when purchasing the latter.

In particular, estates such as Woodlands (median resale price $415,000), Jurong West (median resale price $449,000) and Yishun estate (median resale price $377,000) saw the greatest number of resale transactions during the period, according to ERA research.

Still, some consultants have argued that the current escalation of prices is not sustainable and that prices of resale flats are close to a peak with little room left to grow in coming quarters.

Source: Business Times – 3 July 2012