Fresh data from the Housing Board (HDB) showed that the median cash over valuation (COV) for HDB resale units rose to $24,000 in the fourth quarter of 2009. That is double the $12,000 median in the previous three months and breaks the COV record of $22,000 achieved in the fourth quarter of 2007.
There was even a 5 room resale HDB unit sold for $730,000 with a whopping COV of $85,000.
For those who did not study statistics, median is defined as the numerical value separating the higher half of a sample from the lower half.
Say, if there were a total of 7 transactions with COV of $10k, 15k, 17k, 19k, 22k, 25k and 30k, the median would be the 4th value or $19k. This is different from the average which will take the total of all transactions divided by seven.
The ever rising COV is driven by a mismatch of the number of families with immediate housing needs compared to the number of sellers and new units. The problem is accelerated by the fact that only 11,000 HDB units were built over the last three years.
History has shown time and again that asset prices cannot go up indefinitely. Yet, human tendency is always very much inclined towards following trends – more so when the trend is very strong. This behavior is a common factor towards the formation of asset bubbles.
If prices are rising, people will believe they will continue to rise and rush to buy.
At the end of the day, it is always prudent to buy something that is affordable than to overstretch the budget. After all, a HDB unit is just a 99 lease – you do not even own the unit and technically, the price should depreciate back to zero at the end of the 99-years lease!