They paid $130,000 COV for Yishun flat 14 years ago

Source : AsiaOne – 31 Jul 2010

With the current property market and HDB prices at its peak, potential second-hand flat buyers should not dive in recklessly when purchasing a flat, but will have to be mindful of the potential pitfalls, warns real estate agents.

Citing an example of a family who paid S$645,000 for their executive maisonette in Yishun 14 years ago, Mr Mohamed Ismail, CEO of PropNex real estate agency, says the family has yet to make a profit on their purchase.

That is because they paid a cash-over-valuation (COV) amount of $130,000 then, during the property boom in 1996.

While prices of HDB flats are currently at its highest historically, the median price of a similar unit in Yishun now is still only $460,000.

Cash-over-Valuation is the difference between the bank’s valuation and the actual price paid.

According to the latest data released by the Housing Development Board (HDB), resale prices for HDB flats rose for the eighth straight quarter between April and last month.

The median cash over valuation (COV) hit a record $30,000, which is a 20 per cent jump over the $25,000 median COV amount in the first quarter of this year.

Almost all, or 96 per cent, of resale cases transacted above valuation.

Singaporeans seem undeterred by the jump in prices, as resale transactions rose by about 7 per cent this quarter, from 8,484 cases.

The example of the family in Yishun serves as a warning to others hoping to purchase a HDB flat now, when prices of flats and COV prices are at their peak, says Mr Iswan.

“It is a vicious cycle,” says Mr Iswan.

With the property market at its peak, sellers making a tidy profit from selling their unit would be willing to purchase a flat, despite a high COV.

Conversely, the seller would want to sell their unit at the highest price possible, to ensure that they will be able to afford another housing option.

Highest COVs for flats in Quenstown, Bukit Merah and Bishan

Flats in central Singapore are still fetching the highest prices, according to the latest statistics released by the Housing Development Board (HDB).

The resale price index for flats in the second quarter of this reached 161.3 points, with a percentage increase of 4.1 per cent from the previous quarter.

Units in Queenstown, Bukit Merah and Bishan fetched the highest amounts, with four-room flats in Queenstown and Bukit Merah transacting at a median price of $550,000 and $500,000 respectively.

The median price transacted for a similar unit in Bishan was $452,500.

As for executive units, a Queenstown unit fetched the highest amount, with a median price of $781,500, and Bishan was second at $685,500.

Mr Chris Koh, Corporate Director and Senior President of local realtor Dennis Wee Group advises potential buyers when choosing a flat, to focus on important factors such as the location, as well as the amenities that can be found in the neighbourhood.

“After all,” he says, “these are what will affect the price of your flat.”