Singapore’s property market witnessed an unexpected recovery, driving up resale prices and leading to a comeback of cash over valuation (COV).
Despite the pandemic, Singapore’s property market witnessed an unexpected recovery, driving up resale prices and leading to a comeback of cash over valuation (COV), reported TODAY.
The COV refers to the difference between a resale flat’s sale price and its actual valuation by HDB. If the property’s valuation is lower, the buyer has to pay the difference in cash.
Declining to provide his full name, Ng, for instance, forked out around $160,000 in COV for a resale HDB flat in Pasir Ris. The 5-room flat is located on the highest floor of its block and had a price tag of about $650,000.
The 66-year old retiree considers himself fortunate to have money available from the sale of his private property in late 2019. He pointed that not every home buyer would be similarly situated, especially with COV prices increasing over the last few months.
Anecdotally, property experts shared that recent COV figures typically range from $10,000 to $50,000. It is not, however, unheard of for someone to pay $100,000 to $200,000 for choice flats, said TODAY.
ERA Realty Head of Research and Consultancy Nicholas Mak said the growing demand within the HDB resale market was driven by construction delays as well as Build-to-Order (BTO) project launches being deferred because of the pandemic.
And with more buyers entering the market over the past year, each property listing received multiple bids, driving up resale prices, said Huttons Singapore Head of Research, Lee Sze Teck.
“COVs went up as well, and it takes valuations some time to catch up,” noted Lee as quoted by TODAY.
Paying the COV was a normal occurrence for a time up until 2014. In fact, the government regularly published COV statistics for resale flats during those times, including the median COV prices for every quarter.
This means buyers know upfront how much cash they had to set aside and sellers are armed with a valuation report for their flat when they come to the negotiation table.
However, this also resulted in buyers and sellers using the property’s valuation as the flat’s “base price”, so the price agreed upon is usually higher, said property experts.
Median COVs for first-time home buyers increased from $23,000 in Q4 2007 to $38,000 in Q4 2012. Private property owners who acquired a resale flat saw the amount surge from $33,000 in Q4 2007 to $52,000 in 2012.
Then-Minister for National Development Khaw Boon Wan described the practice of bargaining based on COV instead of the total price as “an anomaly unique to the HDB resale market in Singapore”.
Sometime after 2011, the government sought to curb the tendency to negotiate based on the COV that the buyer was willing to pay as well as the sellers’ ability to secure a valuation report prior to meeting prospective buyers, said Mak.
After the 2011 General Election, the construction of new BTO flats was ramped up by the government, keeping prices within the public housing market competitive as more people started buying directly from HDB.
The government also imposed several property cooling measures during the same period, including increased cash down payment for mortgages, lower loan-to-value financing quantum and higher Buyer’s Stamp Duty (BSD).
By 2014, COV values turned negative as many transactions settled below market valuations, said Khaw during that year’s debate on his ministry’s budget.
“One evidence that the resale market is turning the corner is the declining trend in the COV. Nearly 40% of resale transactions last month were priced below valuation, a negative COV. In fact, the market has coined a new term – CUV, or cash-under-valuation,” he said as quoted by TODAY.
Thereafter, the publishing of COV figures was stopped by the government, and buyers and sellers would have to agree first on the transaction price. The buyer can obtain a valuation report after the OTP is signed.
“(This change of rules) seemed to work a bit, and at the same time, the resale market was also cooling down due to several rounds of the property cooling,” said Mak as quoted by TODAY.
Talk about COVs disappeared post-2014 as a result of the negative COV and the tepid property market at the time.
Meanwhile, the policy change to reveal the COV figures following the completion of OTP has become a bugbear for some first-time home buyers.
Cheow Xin Yi, who acquired a resale HDB flat in Kallang Bahru in 2020, said it had affected her ability to make a good decision.
The 37-year-old non-governmental organisation employee found out that she had to fork out $20,000 in COV, although it was later reduced by half.
“If I had known it was going to be $20,000 upfront, I wouldn’t have agreed to buy the house,” said the first-time home owner as quoted by TODAY.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this story, email: firstname.lastname@example.org