Your search results

What Is Cash Over Valuation in HDB (COV)

Posted by Jayson Ang on November 8, 2023

| 0

TLDR

Cash Over Valuation (COV) in HDB resale flats occurs when the purchase price exceeds HDB’s valuation. COV cannot be covered by loans or CPF funds and must be paid in cash. Factors influencing COV include location, amenities, flat condition, and buyer’s urgency. HDB stopped publishing valuations in 2014, leading to a decline in COV cases. COV impacts stamp duty calculations. Buyers and sellers should consider these factors before agreeing on a price.

Cash over valuation (COV) occurs when the price of a resale HDB flat exceeds the valuation set by HDB. The difference between the purchase price and HDB’s valuation is known as the COV amount.

In the past, prospective buyers could easily access HDB’s valuation of resale flats on their website. However, since 2014, HDB has ceased publishing these valuations. Nowadays, buyers and sellers can only view HDB’s valuation after they have agreed upon a purchase price.

This means that there is no foolproof method to determine in advance whether COV will be required. Nevertheless, it is important to consider four key factors that influence the COV amount when purchasing a resale HDB flat. If you are interested in buying an HDB resale flat, continue reading before accepting the seller’s asking price.

What Is Cash Over Valuation (COV): An Example

The buyer’s COV can be determined by subtracting HDB’s valuation of the HDB resale flat from the purchase price, as shown in the example above (i.e. $530,000 – $50,000 = $30,000). This calculation provides the amount of Cash Over Valuation incurred.

Can HDB COV Be Paid With a Home Loan?

Your Loan-to-Value limit (LTV) determines the maximum amount you can borrow as a percentage of the property’s price. This limit is based on the lower value between the purchase price and HDB’s valuation of your HDB resale flat.

It is important to note that when it comes to HDB resale flats with Cash Over Valuation (COV), the purchase price is always higher than HDB’s valuation. As a result, it is not possible to include the COV amount in your HDB loan, bank loan, or even CPF Ordinary Account (OA).

In summary, COV cannot be covered by any form of loan or CPF funds. It must be paid in cash.

How HDB COV Affects Stamp Duty

Even though COV cannot be counted as part of the property’s price for home loans, it is considered when determining the amount of Buyer’s Stamp Duty (BSD) and Seller’s Stamp Duty (SSD) payable by buyers and sellers of HDB resale flats, respectively. This is because stamp duty is based on the higher of the two values: the purchase price and HDB’s valuation of your HDB resale flat.

This means that for an HDB resale flat sold at $530,000 and valued by HDB at $500,000, the BSD payable will be calculated as such (based on the Budget 2023 announcements):

Total BSD amount: $1,800 + $3,600 + $5,100 = $10,500

How to ‘Avoid’ COV for HDB Resale Flats

The exact amount of Cash Over Valuation (COV) for a specific HDB resale flat cannot be determined until both the buyer and seller agree on a purchase price. COV cannot be financed through home loans or CPF, and it is taken into account for stamp duty purposes.

Ultimately, property buyers in Singapore are looking to get the best value for their money. Many would like to avoid situations where they realize they have technically paid more than the HDB’s valuation for their resale flat.

So, what are some clear indications that you might be at risk of incurring COV?

Factors That Influence COV for HDB Resale Flats

1. Highly Sought-After Venue with Excellent Public Transport Connectivity

People are willing to pay a premium for flats located in desirable areas or with convenient access to public transportation. This is particularly true in Singapore, where owning a car is prohibitively expensive.

Flats situated near MRT stations or with multiple bus routes are highly sought after. The same applies to flats that are in proximity to the Central Business District (CBD) or city center.

2. Enhanced Access to Lifestyle Amenities

Convenience is highly sought after by all individuals. A residence situated in an area that offers a multitude of amenities like grocery stores, dining options, and recreational centers can fetch a higher price in the market. Moreover, parents with young kids may be willing to pay extra for homes located near reputable schools. Typically, older HDB resale flats in established neighborhoods tend to be more expensive due to the gradual development of amenities within the vicinity over time.

3. The state and layout of the HDB resale flat

Despite being older, the value of your HDB resale flat may not necessarily be lower. Potential buyers are less likely to offer a high price if the flat is in poor condition, as they would have to spend on renovations or repairs later on. Similarly, if a flat has undergone extensive renovations that the buyer does not like, they may not offer much.

In general, larger HDB resale flats tend to have higher asking prices. Certain types of HDB flats, such as maisonettes, are more expensive due to their limited availability.

If you want to estimate the value of your HDB resale flat, a useful approach is to research the prices of other similar listings in your area on PropertyGuru. Take note of how much they have sold for. This way, you can avoid undervaluing or setting an unrealistic price for your flat.

4. The Time Sensitivity of the Buyer’s Move

Buyers of resale HDB flats are often those who cannot or do not want to wait for around 3.5 years to get a BTO flat. Among this group, there are buyers who want to move into their new home immediately. Whatever the reason, expediting the sales process may result in the buyer accepting a higher price for the transaction.

Are HDB Resale Flats in 2023 Prone to COV?

Since 2014, HDB has ceased publishing their HDB resale flat valuations. As a result, sellers have lost the reference point to determine their asking prices. Consequently, COV prices have experienced a significant decline, with nearly 80% of all resale HDB flat transactions in 2016 being sold without COV.

During the peak of the COVID-19 pandemic, there has been a resurgence of COV in the robust HDB resale market following the circuit breaker period. This can be attributed to construction delays, the postponement of BTO projects, and the increased demand for larger homes. The typical range for COV figures is between $10,000 and $50,000. However, buyers have been willing to pay as high as $200,000 in COV for select flats.

It is important to note that COV can still occur if you make an overly aggressive offer or if you lack sufficient information. Therefore, it is advisable to secure the Option to Purchase (OTP) before obtaining the official valuation from HDB.

If you wish to obtain an estimation of resale flats in a specific estate, you can reach out to me to find out!

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.

You May Also Like …

All Blog Posts Opinion

What Has Been The Most Significant Development In The Real Estate Market In 2022

Jayson Ang – December 24, 2022 –

TLDR In 2022, the real estate market saw significant interest rate hikes affecting home loan rates. Despite concerns, the market...

All Blog Posts Buying Tips

Beware! Spot These Warning Signs Before Making a Home Purchase!

Jayson Ang – December 21, 2022 –

TLDR When purchasing a property in Singapore, it is crucial to thoroughly assess various aspects of the home to avoid...

All Buying Tips Opinion

What Is The Best Location To Purchase A House To Ensure Your Child Has The Highest Probability Of Attending A Well-Renowned Primary School?

Jayson Ang – October 25, 2023 –

TLDR Parents often seek homes within 1km of desired primary schools to increase enrollment chances. Consider oversubscription rates and population...

Mandarin Top 5

5 Things to Know About Singapore’s Public Housing System

Jayson Ang – June 16, 2023 –

5 Things to Know About Singapore's Public Housing System With over 80% of Singaporeans living in public housing, it's important...

Mandarin Top 5

5 Reasons : Why Singapore’s Rental Market Is Still Lucrative For Property Investors

Jayson Ang – June 8, 2024 –

Singapore's property market has always been an attractive investment option due to its stability and potential for high returns. While...

All Buying Tips

Apply Your HDB HFE Letter in 5 Easy Steps: A Simplified Guide for 2023

Jayson Ang – December 18, 2023 –

TLDR The HDB Flat Eligibility (HFE) letter has experienced delays since its introduction alongside the HDB Flat Portal in May...

All Buying Tips

Should Foreign Buyers Be Deterred By the 30% ABSD?

Jayson Ang – December 7, 2022 –

TLDR Foreign buyers interested in private residential properties in Singapore is a common sight due to the country's positive reputation...

All Buying Tips Opinion

Singapore Homes Prices Falling? Is This The Beginning Of A New Trend?”

Jayson Ang – December 30, 2023 –

TLDR The Singapore property market has seen a slight dip in private home prices after a significant increase over the...

Buying Tips Mandarin Top 5

5 Things to Know About Singapore’s Freehold & Leasehold Properties

Jayson Ang – June 10, 2023 –

5 Things to Know About Singapore's Freehold & Leasehold Properties Here are 5 things you need to know about Singapore's...

All Buying Tips

Want To Buy A Property? Read Me First!

Jayson Ang – December 7, 2022 –

TLDR Understanding the key factors involved in buying property in Singapore is crucial for making informed decisions. Consider your investment...

All Blog Posts Buying Tips Opinion

A Executive Summary Guide to the Singapore Real Estate Market 2023 and Beyond …

Jayson Ang – December 10, 2022 –

TLDR The Singapore real estate market is vibrant, driven by a strong economy, stable business climate, and attractive investment opportunities....

Mandarin Top 5

The Secret Strategies of Singapore’s Property Tycoons: Lessons You Can Learn

Jayson Ang – April 26, 2024 –

The Singapore property market has always been a hot topic for both locals and foreign investors. With its stable economy,...

All Blog Posts Buying Tips

An Essential Guide to Buying a Home in Singapore 2023

Jayson Ang – January 17, 2023 –

TLDR When navigating the complexities of purchasing a property in Singapore, ensure you meet eligibility criteria, consider affordability factors, and...

All Blog Posts Opinion

Should You Be Upgrading To A Condo In 2023?

Jayson Ang – April 24, 2023 –

TLDR The 2022/23 property market is experiencing high prices, making it challenging for individuals to decide whether to upgrade their...

Mandarin Top 5

Singapore’s Real Estate Market: Disproving 5 Common Misconceptions

Jayson Ang – February 25, 2024 –

Singapore's real estate market is a complex and dynamic market that can be difficult to navigate for new investors. With...

Mandarin Top 5

5 Most Common Property Investment Scams To Watch Out For In Singapore

Jayson Ang – June 12, 2024 –

Property investment scams are unfortunately prevalent in Singapore, and unsuspecting investors can fall victim to these scams, leading to significant...