HDB advices caution as resale flats require more COV

Several housing analysts have said it is a seller’s market right now and resale flats are becoming a hot commodity.

However, the Housing and Development Board (HDB) urged buyers to be cautious when paying high cash premiums and determine if a house is truly worth its price.

Recently, a four-room flat in Bishan was put up for sale. The flat was valued at $460,000 by one of HDB’s independent valuers, but the owner is asking for a cash-over-valuation (COV) worth S$100,000.

The owners, who declined to be identified, claimed to have received three offers for the flat, but all were rejected.

"The COV is too low. There are those who are asking for S$50,000 to S$60,000. There was one offer which was close, about S$95,000. We are not in urgent need to sell. In a way, it's to test the market. If we sell, we sell. If we don't sell, we will just continue to stay," said the flat owner.

Analysts noted that with continued high demand for resale flats, owners are taking advantage of the situation by demanding for higher prices.

Based on HDB’s latest figure, about 78 percent of home transactions in Q3 of last year were above valuation, a 22 percent increase from the 57 percent in Q3 of 2009.

The average COV also rose, climbing from S$3,000 in Q2 to S$12,000 in Q3.

With the HDB resale market hitting an all-time high, many housing agents said most units now command at least a S$20,000 to S$30,000 cash-over-valuation.

Units situated at good locations, near the MRT stations and with good renovation can see a COV worth between S$50,000 and S$70,000. But still, there is a limit as to how much a buyer is willing to pay.

"If it's not to my liking, then I'd have to do up, (renovate) it again. So how much (am I willing to pay)? About S$50,000 to S$60,000," said one local citizen.

"It's too high for me. Because of my income, I don't think I can afford it," said another.

HDB said that only four of the 13,000 four-room units sold last year had premiums higher than S$70,000.

Analysts also warned against getting into deals that need high cash premiums.

"COV is a premium. Five years down the line, the renovation will deteriorate. And there's no guarantee that you can sell at S$100,000 above the then value. Therefore, buyers should exercise discretion as far as how high you want to pay," said PropNex CEO Mohamed Ismail.

HDB does not control the prices of resale flats, as it is a result of negotiations between buyers and sellers, and intervening in COV means forcing to buy and sell flats at a fixed price.

However, it urged buyers to have the appropriate information before jumping into negotiations, and buy a flat that is within their means.