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More HDB flats sold below valuation

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According to an article by Property Guru, 105 HDB flats were sold below valuation in October. Based on HDB data, this trend is significantly down from the average monthly 0.3% for H1 2013 and reflected the number of flats sold below valuation increased four times in October compared to the first half of 2013. This phenomenon indicated a weakening demand caused by the “twin attacks” of stricter home loan rules and massive new flats construction programme announced by HDB in recent years. So should property investors press the panic items and run for their lives?

As written in my previous article, the cooling measure will not change market sentiment. Throughout history, the best form of cooling measure had always been a recession.

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During recession, there would be widespread retrenchment by companies and it is only when people lost their jobs and lost money in stock investments, then they would be forced to sell their investment properties at cut throat prices. When this occurred, the market will correct itself and bring down property prices.

So I foresee that property prices will stabilize for the next two to three years, baring any form of recession taking place in Singapore. However, I don’t think that premium over valuation, commonly known as “cash over valuation (COV)” will enjoy its heady days. The average COV used to be $30,000 to $50,000 for five-room HDB flats, but nowadays, sellers might find it difficult to command such COV. This is because of the government’s measure to restrict new permanent resident from buying resale HDB flats within three years.

The most affected group of people could be those who speculate in private developments and up-graders who purchased private housing at the peak of the property cycle. This group of people took out massive home loans to purchase properties and there might be a remote possibility that banks might require them to do a on-margin call. This would occur if the market value of the property free fall and banks require home owners to do a cash top up.

Currently, this is not happening as there is no market correction yet. But I suppose those who took out huge property loan must be sweating now. Because if there is any correction in the market, they would have to fork out several hundred of thousands of cash to the bank.

Home up-graders are also crossing their fingers now as many of them would need to get the cash proceeds to off-set the home loans for their new properties. Many of them cannot dispose their HDB flats now because they are waiting to collect their keys to their new homes, which require several years to complete construction. During this period, they face the risk of selling their existing flats at below valuation prices. This would also affect their financial plans.

As I mention before, investing in Singapore properties can be risky because it is illiquid and depends very much on government policies. If you are not careful, poor execution and planning can set you back financially for many years.

Therefore, make sure you factor in additional buffers and plan for rainy days when it comes to investing in property. Ensure that the home loan is manageable even if you or your spouse lost your incomes. Moderate your expectation and purchase and renovate home within your means. And lastly, don’t speculate in property because this industry has a habit of shaking off those flippers seeking to make quick bucks from property investment!

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Updated: April 1, 2017 — 1:54 pm

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