What Is Cash Over Valuation in HDB (COV)
TLDR Cash Over Valuation (COV) in HDB resale flats occurs when the purchase price exceeds HDB's valuation. COV cannot be...
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TLDR
When it comes to property ownership, Charles learned valuable lessons through his journey as a youthful homeowner. From opting for private property over an HDB flat to facing common pitfalls such as accumulating possessions and underestimating financial implications, Charles highlights the importance of a solid investment plan. Facing challenges during the Covid pandemic, he realized the need for a comprehensive exit strategy and the impact of financial responsibilities on early homebuyers. His experience emphasizes the significance of thorough planning and assessment before embarking on homeownership, offering insights and advice for young homebuyers to consider.
Charles would be deemed a “go-getter” by the folks in Singapore. He had both a car and a condo under his name while still in his mid-twenties, had a stellar employment record, and achieved all this prior to obtaining his degree. However, Charles’ journey as a youthful homeowner, who bypassed the typical route of public housing, was not without its challenges. He has witnessed firsthand the benefits and drawbacks of stepping into the world of private home ownership at such a tender age. Here’s an insight into his journey:
Opting for a Private Property Instead of an HDB Flat
In 2014, Charles made his entry into property ownership with a compact one-bedroom unit spanning over 500 sq. ft. Several reasons influenced his choice.
Being part of a large family, Charles shared a condominium with his parents, both sets of grandparents, and three siblings. The four-bedroom condo offered little in terms of personal space, prompting his desire to establish an independent living arrangement before marriage or reaching the age of 35.
Meanwhile, conversations at work also played a role in shaping his home-ownership aspirations. His manager’s lamentations about the inadequate retirement value of HDB properties left a deep impression on him, pushing him towards private properties that promised higher resale values.
Additionally, Charles was aware of his unique position. If circumstances took a turn for the worse, he had the safety net of moving back in with his family and leasing his property. This realization further encouraged him to explore private condominiums.
Notably, Charles’s manager was referring to a slump in HDB resale prices initiated around 2013. During this period, the government implemented the Mortgage Servicing Ratio (MSR) and stopped publishing Cash Over Valuation (COV) rates, leading to a gradual fall in prices. However, the pandemic-induced situation caused a surprising rebound in these figures.
Charles also shares that he initially had second thoughts about investing in a property. First, he considered Highline Residences, a property he admired but eventually backed out of due to financial concerns. Next, he contemplated purchasing a unit at The Crest, but its geographical placement didn’t appeal to him.
Finally, Charles found his ideal one-bedroom unit in the Farrer Drive vicinity, without revealing the exact location. This property not only matched his expectations but also enabled him to stay close to his family.
Common Pitfalls to Avoid When Purchasing Real Estate
Charles reminisces about his younger years in his 20s, when he had a naive expectation of living a minimalist life. Much to his chagrin, his possessions piled up at an alarming rate within just two short years, cluttering his small living space:
“I was under the impression that my solo status would naturally limit the amount of stuff I could gather. So, the size of my place didn’t bother me much. However, my youthful enthusiasm led me to explore a myriad of interests and hobbies. Anything from snorkelling gear, pool cues to books ended up scattered on the floor. I truly underestimated the ease with which things can pile up, despite being young and single.”
Charles also admits to overlooking the financial implications of maintaining his own place in the long run:
“Back then, a few hundred dollars per month seemed manageable given my limited responsibilities.
But now, with the added expenses of supporting my parents, caring for my dog, and saving for my upcoming wedding, the financial strain is real. There have been moments over the past few years when I’ve seriously questioned my decision to move out of my family home.”
He currently shells out nearly $300 monthly for his one-bedroom unit.
Looking back, Charles believes his lack of a solid investment plan was his most significant oversight. Despite having an investment mindset, his understanding of property investment was quite rudimentary – “buy now, sell later for a hefty profit.”
“I overlooked critical aspects such as cash-on-cash returns, holding periods, rental yields, and the likes. My perspective was quite simplistic, resulting in a purchase without any concrete exit strategy.”
Discovering the Wisdom of Life: Lessons Learned Through Sacrifice
The most challenging period for Charles was during the Covid pandemic, when his source of income was nearly extinguished.
“Working on a commission basis posed severe challenges during the pandemic as my industry was paralyzed. The inability to engage with new clients and the necessity to finalize deals over Zoom – a platform I struggled with – coupled with the economic downturn, made it virtually impossible to achieve sales.”
Charles calculated that his earnings had more than halved during this time, leading him to confront a harsh reality:
“I always held the belief that if things ever went south, I could liquidate my property. Given my age, I have the safety net of my still-employed parents and their home to fall back on in case of emergencies. I assumed this gave me a greater sense of security compared to the typical homeowner. However, the thought hadn’t crossed my mind that selling property during an economic crisis like Covid would be challenging, and the financial returns might not meet my expectations.”
He also contemplated resorting to his previous backup plan of leasing his unit and relocating to his parent’s home; however, the widespread shift to remote work rendered his parent’s crowded home inadequate for professional tasks.
The following two years saw Charles living from one paycheck to another, with condo maintenance expenses exacerbating his financial stress. Adding insult to injury, Charles did not qualify for government assistance during the Circuit Breaker due to his condominium address:
“My peers residing in HDB apartments received a monthly allowance of $1,000 for being self-employed. Since my residence was listed as a condominium, I was ineligible for such aid. Although I view this as unjust, it’s simply how events unfolded. This period of darkness intensified my regret of purchasing a condo.”
After enduring these hardships, Charles discarded his previous notion that youth and singleness somehow make it “safer” to venture into homeownership early.
“Societal notions of being more flexible or adaptable are misleading. Despite having the option to move back in with your parents, the financial repercussions persist.”
He calculated that if he had been compelled to sell his unit during the pandemic, his losses would have amounted to nearly $75,000.
Charles’s final lament pertains to lost opportunities from his younger years:
“Reflecting on the substantial monthly expenses on my home, I could have indulged in overseas trips possibly twice a year. I could have savored better cuisine, partaken in more snorkeling adventures, and spent quality time with friends. However, owing to my decision to take on larger loan repayments earlier, I had to exercise greater
Future Property Plans and Tips for Young Homebuyers
Charles has plans to put his property up for sale and temporarily reside with his in-laws after his wedding. The need for a larger living space will arise eventually, as his current one-bedroom home won’t suffice.
He anticipates that his next home could likely be another private estate, albeit he’s open to the possibility of opting for a resale flat. This could be a point where he capitalizes on his one-bedroom property, using the proceeds from its sale to finance a more spacious flat.
Offering his perspective to budding homeowners, Charles underscores the importance of factoring in future fiscal responsibilities:
“During your early to late 20s, there’s a phase when your parents are self-reliant, not requiring your financial support and you’re unattached. You have more financial leeway for personal expenses. However, prior to binding yourself to a home purchase, it’s crucial to assess whether you’ll be capable of managing the expenses when, down the line, you have to financially assist your parents, raise a family, among other things. Suddenly, the condominium might not seem as budget-friendly as it once did.”
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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