Is Singapore’s Property Market on the Verge of a Crash? Understanding the 5 Factors at Play
The Singapore property market has long been an attractive option for both local and international investors. However, as with any...
Read More
TLDR
The blog post discusses the increased demand for HDB resale flats and the impact on prices. It emphasizes the importance of understanding HDB valuation when purchasing a resale flat, affecting CPF savings, loan amount, and Cash Over Valuation (COV). The process of obtaining an HDB valuation report is outlined, along with factors influencing COV payments. It also covers changes in property valuation practices over the years and factors affecting COV amounts. Additionally, it provides insights on how to estimate HDB valuation and reduce COV through research and negotiation strategies.
The increased demand for HDB resale flats has caused prices to climb for the past 29 months in a row, culminating in a 2.6% jump in the HDB Q3 2022 Resale Price Index from Q2 2022.
With construction of several housing projects, including HDB BTO flats, delayed for a few years, many home seekers are turning to the HDB resale market in search of privacy, a larger space, and the perfect home.
When purchasing a resale HDB flat, it is essential to understand how HDB’s valuation will affect you. Obtaining the valuation is imperative, as it will influence both the housing loan and CPF amount you can use.
Before getting the valuation, make sure you agree with the seller on a price and sign the Option to Purchase (OTP). You can also do your own research to make sure you don’t pay too much Cash Over Valuation (COV) or extra cash.
This article will provide you with the insight and other details you should keep in mind about HDB’s valuation.
HDB Resale Valuation: An Overview
- HDB resale valuation what is it? : HDB’s estimation of how much the resale flat is worth.
- What does the HDB valuation affect? : The amount of CPF savings you can use, the loan amount you may take, and COV to pay.
- How to get an HDB valuation report? : After signing the OTP, the buyer can submit a Request for Value.
HDB Resale Valuation: How Does It Work?
When buying a resale HDB flat, the first step is to negotiate a price with the seller and pay the option fee.
To secure your purchase, an HDB resale valuation is then necessary. It is simply an estimation of the flat’s worth and is part of the HDB resale application process.
You will have to submit a Request for Value to HDB if you are using CPF savings or a housing loan from HDB or a bank.
Once you’ve received the OTP from the seller, you can submit your valuation request to HDB.
If HDB deems a valuation is necessary to determine the worth of the property, a valuer will be dispatched to the flat for an inspection.
How Does HDB Property Valuation Affect HDB Resale Buyers?
The decision of how much CPF savings, housing loan, and COV to pay for your resale flat all comes down to the HDB property valuation.
For example, if the agreed selling price of your flat is $725,000, but the HDB valuation is $700,000, then you would need to fork out an additional $25,000 as COV, since the amount of CPF savings and housing loan you can use is determined by the lower value.
The COV has a direct impact on the stamp duty fees you’re liable for, such as Buyer’s Stamp Duty and Seller’s Stamp Duty, as these are calculated on the higher HDB valuation or price.
To put it simply, the COV will likely mean higher BSD and SSD payments.
1. Amount of CPF Savings You Can Use
- If the Remaining lease of the property is at least 20 years and CAN cover the youngest buyer until at least age 95, then Buyer can use CPF to pay for the property up to the HDB Valuation Limit
- If the Remaining lease of the property is at least 20 years and CANNOT cover the youngest buyer until at least age 95, then the Use of CPF will be prorated based on the extent of the remaining lease of the property and can cover the youngest buyer to the age of 95. This will help buyers set aside CPF savings for their housing needs during retirement (e.g. a replacement property).
The amount of CPF savings you can put towards your HDB resale flat purchase will depend on the length of the remaining lease.
For instance, if the remaining lease of the flat is at least 20 years, you could utilise up to $700,000 of your CPF savings.
Check out the CPF Board’s website for their online calculator, to help you determine the exact amount of CPF savings you can use.
2. Loan Amount You Can Get
- HDB Loan : LTV 80%
- Bank Loan : LTV 75%
Taking a loan from HDB or the bank? Your loan amount will be based on the HDB valuation, not the selling price. The LTV ratio of the resale flat will determine the amount you can borrow – the maximum amount allowed!
Following the latest cooling measures announced on 29 September 2022, the Loan-To-Value (LTV) ratio for HDB loans has been decreased to 80%. That translates to a loan of up to $560,000 for a flat valued at $700,000.
However, if the remaining lease of the flat is too short to cover the youngest buyer from age 95 and onwards, the loan limit will be proportionally reduced. On the contrary, bank loans have an LTV ratio of 75%, meaning you can take a loan of up to $525,000 for the HDB flat.
3. COV You Might Have to Pay
The difference between the selling price and the valuation of your HDB flat is referred to as the Cash-Over-Valuation (COV). Unfortunately, your housing loan, either from HDB or a bank, will only cover up to the valuation amount, thus leaving you with the task of coming up with the COV in cash. For example, if the COV was $25,000, then you’d have to have that amount of cash ready!
Before 2014, the high prices of HDB property valuation played a major part in sky-rocketing COV fees.
After the implementation of cooling measures to lower property prices, COV prices decreased, but due to heightened demand for resale flats, the COV has again come to the fore with a solid property market, seeing more buyers shelling out more for their desired HDB flats.
How COV Worked Prior to 2014
Prior to 2014, the seller and the buyer used to decide on the selling price of the flat after considering the HDB’s valuation.
Now, with the HDB’s valuations and COV prices being made available online, they are mostly negotiating the COV amount.
For instance, once the HDB values a flat at $700,000, the buyer and seller work out the COV to be paid on top of this, based on the prevailing COV prices.
The property market saw a significant boom in 2014 due to property owners taking advantage of the situation and raising the selling prices for a greater profit.
This meant property prices skyrocketed, making it less affordable for buyers to purchase a flat – with some new and spacious units in prominent locations commanding an eye-watering $200,000 or more!
In fact, at the end of 2013, a maisonette in Bishan sold for a record $250,000 COV price! In response to this, the Government introduced measures in 2014 to stabilise the property market.
HDB Property Valuation From 2014 Onwards
A major switch made is that the HDB now requires the buyer and seller to first agree on a price before any property valuations can take place. This means that the days of COV-based price hikes are long gone, and instead, the focus is on the resale transaction prices published daily by HDB.
Once the buyer and seller have agreed upon the selling price of the HDB flat – in this example, let’s say it’s $725,000 – they should then proceed to get a property valuation done. This will let them know the amount of COV to be paid, whilst also preventing the seller from attempting to raise the price for higher profits.
Fortunately, the price of HDB resale flats has gone down, making them more affordable for buyers.
What Are Some Factors That Affect the COV?
Several elements impact the amount of COV you’ll be required to pay, but the primary determinants are:
- Location;
- Flat condition; and
- Size of the flat
1. Location of the HDB Flat
Flats that are situated near MRT stations, shopping malls, and schools are valued higher, especially in established neighborhoods where multiple amenities are within easy reach.
This extra convenience and easy access attract buyers, who are willing to pay a higher price for the privilege.
A resale flat in Bishan, due to its advantageous location and surrounding amenities, is more likely to be sold for more than its estimated value, whereas a HDB flat in Woodlands will not fetch such a high price.
Similarly, Tanjong Pagar being near the CBD, a resale flat there will surely be subject to a higher Cash-Over-Valuation.
2. Condition of the HDB Flat
Older resale flats that are well-maintained are often worth more and command a higher price tag; whereas, a run-down resale flat typically comes with a cheaper cost of value (COV). Flats that have undergone extensive renovations and come with stylish furnishings can also be more expensive.
3. Size and HDB Flat Type
If you’re looking to purchase a resale HDB maisonette or jumbo flat, you can expect to pay a higher Cash over Valuation (COV).
These types of flats are especially sought after due to their rarity, and consequently, they typically command a higher selling price.
HDB Valuation Report: Things to Note to Receive One
Before you take the plunge and submit a request to HDB for a valuation on a resale flat, take note of the following administrative matters – they must be considered before you receive your report!
- You’ll need to pay an HDB valuation fee (aka admin fee) of $120 for the HDB valuation request.
- You’ll need to submit the request by the next working day after the Option Date stated in the Option to Purchase.
- Should HDB decide that a valuation is needed, they will assign the valuer for you.
- If you’re happy with the HDB appraisal, you’ll need to take the extra step of submitting an application to purchase the resale flat.
- If you’re pleased with the published value of your HDB flat on the HDB Resale Portal, you should submit your resale application within three months. Otherwise, you’ll need to make another request for HDB valuation.
What You Can Do to Get an Idea of the HDB Valuation and Reduce COV Amount
To gain a better understanding of the value of a HDB resale flat, arm yourself with knowledge!
Do your due diligence and explore the various methods available.
- Gain an idea of the cost of resale flats in the estate by consulting the transacted resale flat prices on HDB!
- Check out Listing Portals for HDB flats of a comparable size to the one that caught your eye – they might be in the same area or even estate!
By using these methods, you can get a general idea of what the selling price of an HDB resale flat should be. With that in mind, you can now use it as a starting point for negotiation with the seller.
Of course, do remember to negotiate, but be careful not to be too pushy with your bargaining, as it might put the seller off.
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 …
Are You Worried About Overpaying On Your Property? Here’s The Secret To Finding Out Its Perfect Purchase Price!
TLDR Understanding property valuations and their impact on mortgage loans is crucial in the Singapore real estate market. By considering...
Read More
Top 5 Vegetarian Restaurants in Singapore
Singapore, a melting pot of cultures and cuisines, offers a diverse range of dining options for food enthusiasts. For vegetarians,...
Read More
A Comprehensive Guide for Buying Landed Real Estate in Singapore
TLDR When it comes to buying landed property in Singapore, there are three main types: terrace houses, semi-detached homes, and...
Read More
5 Singapore Property Investing Myths Debunked
In the world of property investing, misconceptions can lead to poor decisions and financial losses. In Singapore, there are several...
Read More
Property Market: Buyer’s Paradise or Seller’s Dreamland?
TLDR The property market in Singapore post-Covid has seen a surge in HDB and private property prices, with a noticeable...
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
7 Essential Steps to Sell Your House in Singapore
TLDR When preparing to sell your house, research the average prices in your area for a realistic figure. Consider factors...
Read More
Finding the Perfect Match: Top 20 : A Guide to Choosing the Best Property Agent in Singapore
TLDR When it comes to buying or selling real estate in Singapore, having a professional and knowledgeable property agent is...
Read More
5 Tips : How To Choose The Right Property Agent To Help With Your Singapore Property Investment
Choosing the right property agent is crucial to the success of your Singapore property investment. A good agent can provide...
Read More
Discover Affordable Executive Condos in 2024 Starting at $560,000
TLDR The Executive Condos (ECs) offer affordable options compared to private properties in Singapore. Despite price variations, most ECs remain...
Read More
Top 5 Mistakes to Avoid When Investing in Singapore Real Estate
Investing in Singapore's real estate market can be a lucrative venture, given the city-state's status as a global financial hub...
Read More
Top 5 Hawker Centres in Singapore for Local Food
Singapore, a melting pot of diverse cultures and rich culinary heritage, is home to some of the most delectable local...
Read More
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
Are You Ready to Take on the Singapore Property Market in 2023? 12 Reasons to Be Hopeful (Or Wary)!
2022 sure was a rollercoaster ride for the property market, and the world! From war in Europe to skyrocketing interest...
Read More
How Budget 2024 Impacts Singapore Homeowners: Exciting Property Tax Updates and ABSD Benefits
TLDR The 2024 Budget introduces changes to property tax bands, aiming to ensure fair taxation based on Annual Value (AV)...
Read More
Unlock The Secrets To Successfully Selling Your Home In Just 7 Simple Steps!
TLDR When preparing to sell your house in Singapore, research the average prices in your area to set a realistic...
Read More
The Influence of Soaring Land Costs on Singapore’s Real Estate Market: A Look at Land Price Trends Since 1992
TLDR When it comes to understanding the fluctuations in land prices in Singapore, historical patterns reveal significant spikes and dips...
Read More
Here’s How Property Data Can Be Misleading: Navigating Through Common Misunderstandings
TLDR When comparing property prices, discrepancies can arise due to various factors like timing of purchase, scarcity in niche projects,...
Read More
Top 5 Parks and Nature Reserves to Visit in Singapore
Singapore, often referred to as the "Garden City," is a vibrant and diverse nation that has made significant strides in...
Read More
