Is the Dream of Homeownership Becoming a Steeper Climb?
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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.
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