The number of Housing Board flats being sold below valuation has rocketed, as tighter mortgage rules eat into demand.
According to HDB's latest figures, 105 units were sold in October for less than their appraisal. This accounted for 7 per cent of the total resale volume, a marked increase on the average 0.3 per cent for each month of the first half of the year.
This means around four times as many flats were sold below valuation in October alone than over the whole of January to June, when there was an average of five such transactions every month.
This has forced sellers, such as assistant manager Raymond Koh, 37, to adjust expectations.
After asking for a cash-over- valuation (COV) of $20,000 for his $526,000 five-roomer in Punggol earlier this year and finding no buyers, he cut his price. "I lowered my COV to $10,000, then $5,000, then zero," he said. "Then I started going negative."
Today, his second-floor, nine-year-old flat is on sale for $20,000 below valuation.
The lower mortgage servicing ratio, shorter loan tenure and three-year wait before new permanent residents can buy public flats - announced in quick succession since August - have cooled interest. Median COV, the cash amount which buyers typically pay on top of valuation of a resale unit, fell from $35,000 in January to $12,000 in October.
Some sellers are no longer asking for COVs, and some are pricing flats even below valuation. OrangeTee research head Christine Li thinks the main COV killer is the stricter mortgage rules.
In August, the Housing Board announced that resale buyers can use up to only 30 per cent of their gross monthly income to repay loans with HDB, down from 35 per cent. This is in line with the mortgage servicing ratio announced in January for loans from private banks.
"Because buyers, especially young couples, can now take out only smaller loans, the additional portion has to be fronted by cash, which eats into their ability to pay COVs," she said.
Some flats will be hit worse than others, said analysts.
In Punggol and Sengkang, or larger estates in outlying areas such as Choa Chu Kang, the ramping up of new Build-To-Order flats has come at the same time as owners of neighbouring blocks being allowed to sell after a typical five-year minimum occupation period, said PropNex chief executive Mohamed Ismail.
"And if you live on the second floor, facing the rubbish chute - it's a triple whammy," he said. "Your COV will, of course, fall."
Owners such as divorcing couples or those who have purchased a new flat may have little choice but to sell.
Mr Koh has not bought a flat yet, but wants to upgrade to an executive apartment or a condominium in Sengkang, near the school of his choice for his five-year-old son. But he is adamant that $20,000 below valuation is as low as he is willing to go. "Any lower and I might as well continue living here."