Planning for Retirement: Considerations for Downsizing Your Property
TLDR Downsizing your home for retirement can bring financial security, closer family ties, and new adventures. Consider the benefits of...
Read More
TLDR
Understanding Cash Over Valuation (COV) is crucial when buying a resale HDB flat in Singapore. COV is the additional amount paid above the property’s official valuation. Factors influencing COV include location, flat size, floor level, age, estate type, and unique features. To minimize COV, research HDB resale flat prices, secure the Option to Purchase (OTP) before valuation, or consider applying for a Built-To-Order (BTO) flat. Ensure financial readiness by keeping Total Debt Servicing Ratio (TDSR) below 55% and mortgage payments under 30% of gross income.
Buying a HDB Resale Flat : How to Minimise Cash over Valuation COV
Navigating the resale HDB flat market can be costly, particularly when the asking price ends up being higher than the appraised value – commonly referred to as Cash Over Valuation.
Despite the economic turbulence caused by COVID-19, the property market has demonstrated tremendous resilience. In June 2021, 19 resale million-dollar flats were sold and the proportion of HDB buyers who paid Cash Over Valuation rose from 1 in 5 in 2020 to 1 in 3 this year. To top it off, a recent buyer paid an astounding S$158,000 in COV for a four-room HDB flat in Tiong Bahru!
It’s time to face facts: when you’re shopping for a resale property, you’ll be at the mercy of market forces (aka fluctuations in daily pricing). Taking into account all the factors is important, but let’s not forget Cash Over Valuation (COV). The bad news is that it can make a big dent in your budget.
What is Cash Over Valuation?
If you plan to purchase a property and the amount exceeds its official valuation, this additional amount is known as the Cash-Over-Valuation (COV).
Bear in mind that the COV must be paid in cash without the assistance of CPF, grants or a home loan, resulting in an increased cash outlay – but the amount of the COV could depend on the characteristics of the property.
How Do I Calculate A Flat’s COV?
Let’s suppose a HDB-appointed valuer appraises a seller’s property to be worth $540,000 – however, due to its desirable location, you and the seller have mutually agreed to a transaction price of $550,000.
Cash Over Valuation = $550,000 – $540,000 = $10,000
This means that you would have to pay $10,000 in COV.
Buying a resale flat may not always result in COV; you could even haggle a price that turns out to be Cash At Valuation (C.A.V), meaning that the final price equals the HDB valuation.
However, if you’re lucky, it could even end up as Cash Under Valuation (C.U.V.), i.e., the flat is sold at a bargain lower than its actual value.
Despite The Rise In Cash Outlay, Why Do Buyers Persist In Paying COV?
If potential buyers believe the flat is worth the investment, they may decide to pay out-of-pocket for the COV. In the resale market, some houses are more attractive and sought after than others, and can therefore command a higher price – a price that is determined by a range of factors.
What Elements Play A Role In Determining The Levels of COV?
#1 Location, Location, Location
Potential buyers may be willing to invest in a property simply due to its attractive location – something that most BTOs can’t offer. Consider its proximity to renowned schools or how close it is to an MRT station, making the daily travel time a breeze!
#2 Flat Size, Age And Floor
The size, floor level, and age of a flat all factor into how it fares in the resale market. It’s widely known that larger flats tend to command higher prices, and the same goes for those situated on higher floors, offering spectacular vistas. Additionally, newly-MOP flats are highly sought after, allowing the new owner to enjoy a prolonged lease.
#3 Mature Estate
Living in a mature estate comes with a hefty price tag, but it’s worth it! After all, you get to be surrounded by a vibrant neighbourhood, plentiful cheap eats, and all your loved ones. Not to mention that, unlike BTOs, mature estates are already well established, so no more feeling like you’re in the middle of nowhere!
#4 Exceptional Features
The news is often abuzz with reports of million-dollar HDB transactions, and certain flats such as maisonettes, executive apartments and jumbo flats, which are increasingly hard to come by, are driving up the price to astronomical levels.
#5 Lack Of Supply
As demand for resale flats surpasses supply, buyers become more willing to pay premium prices to get their hands on a home swiftly, thus giving sellers the chance to benefit from higher prices and ultimately, more profit.
Ways To Minimise COV
Do Your Research
Doing your due diligence is essential in any transaction, especially when it comes to real estate. Nowadays, the prices of homes are far more transparent – you can easily check the daily HDB transactions to get an idea of how much properties are going for in your desired neighbourhood, be it Hougang, Yishun or Jurong, or the type of flat, such as a 4-room or 5-room unit.
We are fortunate to have an abundance of free tools at our fingertips. Get started by looking into HDB’s Resale Flat Prices webpage, updated daily. With the help of this, you can review the transacted prices of resale flats over the past two years. Just filter your search according to your needs, including the ideal price range for you.
Secure The Otp Before Receiving The HDB’s Official Valuation
Once the Option to Purchase (OTP) has been secured, the transaction price is typically fixed, even when the apartment’s valuation comes in at a much greater value.
To address the worrying trend of rapidly increasing Cash-Over-Valuations (COV), from March 10th, 2014, all valuation requests have to be made following the acquisition of an OTP.
Alternatively, You Can Consider Going For A BTO Instead
If you wish to stay clear of the volatile COV market, then applying for a flat directly from the government may be your best bet. Such flats tend to be much more affordable, and unfortunately, it may be difficult to get chosen for one of the more sought-after projects.
However, if you’re fortunate enough to be selected, you may find yourself in a great position when the flat reaches its MOP – although you may have to wait a couple of years before moving in!
In Conclusion
It’s thrilling to find a property that meets all of our needs, but be aware that it likely won’t come cheap. As buyers, it’s critical that we don’t find ourselves in a situation where the home loan repayments are too much for us to handle in the long run.
To avoid this, ensure that your Total Debt Servicing Ratio (TDSR) is no more than 55% of your gross monthly income and that your mortgage payments don’t exceed 30% of your gross income each month.
Final Thoughts
- Carry out an in-depth financial analysis to guarantee you are making wise decisions for the near future and can confidently stand behind your decisions.
- Also take your timeline and family wishes into account, plan ahead and provide your family with a sense of security so that you can proceed with peace of mind.
If you’re curious about the prospect of relocating to private property and would like expert advice, I’m just a message away!
You May Also Like …
The Advantages and Disadvantages of Purchasing an Auction Property in Singapore
TLDR When considering purchasing a property through auction in Singapore, remember that you can potentially get a great deal below...
Read More
5 Key Insights to Take Away from the Latest 2022 Cooling Measures
TLDR Affordability of HDB Market: Government is focused on ensuring affordable public housing and may increase supply if needed. Long-term...
Read More
HDB Loan Vs Bank Loan: Pros & Cons
TLDR When deciding between an HDB loan or a bank loan for purchasing a property in Singapore, consider key factors...
Read More
Find Your Dream Home: Top 5 Property Investments for Families in Singapore
As one of the most prosperous countries in the world, Singapore is an attractive destination for families looking to invest...
Read More
What Role Does Property Valuation Play In The Real Estate Industry, And Why Is It Important?
TLDR When it comes to property valuation, understanding the process is crucial for both buyers and sellers. Property valuations can...
Read More
When Is The Best Time To Buy A New Launch?
TLDR When it comes to new property launches, timing is crucial. Early buyers often secure the best prices due to...
Read More
5 Cons of Buying a New Development
Luxury properties in Districts 9 and 10 of Singapore are highly coveted, and for good reason. From stunning views and...
Read More
6 Essential Tips for Singaporean New Homebuyers
TLDR Best practices for first-time homebuyers, the key points include setting clear and detailed goals, planning a realistic housing budget,...
Read More
Singapore Property Price Set to Explode Upwards in 2024?
TLDR Understanding the factors influencing property prices in Singapore for 2024 can help in making informed decisions. Despite high rental...
Read More
5 Proven Strategies for Increasing the Value of Your Singapore Property
In Singapore's competitive real estate market, adding value to your property can be the key to making a profitable investment....
Read More
My 6 Factors to Consider When Buying a Property in 2023
As the housing market shows no signs of slowing down, many of us may feel left behind, questioning whether it...
Read More
Apply Your HDB HFE Letter in 5 Easy Steps: A Simplified Guide for 2023
TLDR The HDB Flat Eligibility (HFE) letter has experienced delays since its introduction alongside the HDB Flat Portal in May...
Read More
Singapore’s Real Estate Market: The 5 Most Important Documents to Review Before Buying a Property
Singapore's real estate market is highly regulated and can be complex for those unfamiliar with the process. As a prospective...
Read More
Decoding the HDB Classification: The New Prime, Plus & Standard – What It Means for Singaporeans
TLDR The National Day Rally 2023 introduced a new classification for HDB flats, replacing the old 'mature versus non-mature estates'...
Read More
What’s Next for HDB Owners?
Buying a home always seems daunting especially such it is a big-ticket item and the prices for private homes can easily...
Read More
Freehold Properties vs Leasehold Properties: Which is Better?
TLDR When it comes to property investments in Singapore, understanding the differences between leasehold and freehold properties is crucial. This...
Read More
When will En-Bloc set to Become Reality Beyond 2023?
TLDR The real estate market is experiencing a lull in en-bloc activities due to various factors. Higher Additional Buyer’s Stamp...
Read More
Top 5 Bakeries in Singapore for Fresh Bread and Pastries
Singapore, a melting pot of cultures and flavors, is well-known for its diverse culinary scene. Among the many gastronomic delights...
Read More
5 Insider Tips From Real Estate Experts On How To Get The Best Deal On Property In Singapore
Investing in property can be a great way to build wealth and secure your financial future. However, with Singapore's highly...
Read More
