RESALE flat prices have risen partly because of a falling supply, experts told The Straits Times yesterday.
The prices jumped by 2.9 per cent over the past three months - compared with an increase of only 1.6 per cent in the quarter before, Housing Board figures showed.
Analysts put this down to a significant drop in the number of resale flats on the market.
They gave several reasons for the supply crunch. First, some HDB flat owners are hanging on to their units because rising private property prices mean it is too expensive for them to upgrade.
ERA Realty's key executive officer Eugene Lim said: 'Many HDB upgraders have found private property prices, especially those of mass market condos, out of reach, so they postpone upgrading plans.'
Another possible factor behind the supply crunch is the rule issued in August last year that requires those buying HDB units to sell their private property within six months.
Mr Lim said the rule could deter those who have upgraded to a private apartment from putting their HDB flat on the market.
This is because they would be unable to buy another HDB flat without getting rid of their private apartment. 'Were upgraders to want to buy a flat again, they would have to sell off their private property,' he said.
Those in this situation who decide to sell their private apartment to get an HDB flat will subsequently have to wait five years before they are eligible to buy another private property because of the increase in the minimum occupancy period (MOP) for HDB flats in August last year.
'HDB dwellers who are able to upgrade after the MOP is up might choose to sublet their whole units instead and collect rent to defray other costs,' said Mr Lim.
SLP International's head of research Nicholas Mak said those with existing home loans could be being put off upgrading because of a change in the law in January which means they cannot borrow more than 60 per cent of the value of the property they want to buy.
'Most flat owners with existing mortgages are unable to cough up the 40 per cent cash, even more than that when legal fees and stamp duties are included,' he said. 'This means they would have to sell before getting another loan and have nowhere to stay in between.'
PropNex chief executive Mohamed Ismail said high demand could be another factor behind the rising flat prices.
Buyers who held back to assess the impact of cooling measures brought in earlier this year could now be coming back into the resale market. 'However, there are still many HDB owners who are reluctant to sell, resulting in a supply crunch,' he said.
Mr Mak added that he is seeing fewer HDB upgraders based on his data gathered from government figures.
Mr Lim said because of the limited supply, many transactions are being negotiated not on the flat's actual price, but on its cash-over-valuation (COV) - the amount the buyer is willing to pay over and above the official value.
Fresh data from ERA Realty puts the median COV at $37,000 for last month, while PropNex's median COV last quarter stands at $32,000, up from $22,000 in the previous quarter.
According to an earlier report sourced from real estate firms, median COVs rose by almost 50 per cent to about $30,000 between April and last month.
Calling the current trend of COVs unsustainable, Mr Ismail said the figure will likely hit $35,000 for this quarter, before settling to $32,000 by the year end. It will also dip further should the Government continue to provide new public housing at the current brisk clip.
Mr Ismail also estimates the HDB resale price index to increase by up to 9 per cent for the full year.