HDB moves to reduce focus on COV

To reduce the focus on Cash-Over-Valuation (COV) in negotiations during the sale of a flat, the Housing and Development Board (HDB) will only accept valuation requests from resale flat buyers after they have been granted an Option to Purchase by flat sellers.

National Development Minister Khaw Boon Wan, who announced this change in Parliament on Monday, said this will restore the original intention of valuation, which is to help buyers obtain a housing loan. This change took effect from 5pm on March 10.

Mr Khaw said: “HDB will rationalise the process of price negotiations and restore the original intention of valuation, which is to help buyers get a housing loan.

“Negotiating based on price rather than COV will take some getting used to. However, it is a useful move for long-term market stability.”

The HDB will also publish daily prices of resale transactions as soon as they are registered, aimed at getting negotiations to focus on recent transaction prices and reduce the focus on COVs. Currently, resale prices are published twice a month.

The change is timely, with many HDB resale flats being sold at or below valuation, said the government.

More than a third (36%) of resale transactions last month were priced below valuation.

Prices in the public housing resale market have seen a period of high growth in recent years.

But prices declined in the third quarter of last year, a first in four years, after a slew of property-cooling measures were introduced.

Some property analysts say changes in the behaviour of buyers and sellers will take time.

PropNex CEO, Mohamed Ismail, said: “This immediate implementation of such a rule will likely create a more conscious effort in the minds of buyers in particular – ‘Am I paying the right price? Will I be affected by any of these valuation that did not match up to the price that I’ve agreed?’

“And in that instance, probably we will also see many of the options being not exercised when there is a gap in the expectation of the buyer’s valuation and the actual valuation.”

If the buyer does not exercise his option, he will lose his deposit of up to a thousand dollars.

So buyers have to plan ahead.

ERA Realty Network’s key executive officer, Eugene Lim, said: “Before the buyer goes house hunting, he should actually clear the part about how much loan he is able to get – applying for the HLE (Loan Eligibility) letter from HDB, if you’re taking a loan from HDB. Or, if you’re taking a bank loan, you should speak to a banker to have an in-principle approval on an approximate loan amount you can get.

“So with the approved amount, it basically gives you an idea of the price of the property that you are looking at.”

Mr Mohd Ismail also noted that COV could continue to be a point of reference in estates where resale flats are still being transacted with a cash premium.

“Even though we say you can’t do a valuation, that doesn’t stop sellers from taking reference from the COVs of the neighbouring flats. And I’m sure that the private organisations and portals are still feeding this information. As I said, old habits die hard and it will take some time,” he said.

On the government’s property-cooling measures, Mr Khaw said it would still be premature to withdraw them as prices are still rising albeit at a slower rate.

He added the government will continue to monitor the market closely.

To further protect property buyers, the Council for Estate Agencies (CEA) will launch an online guide to provide general tips to consumers who are thinking of buying a foreign property.

The CEA will also step up its effort to regulate estate agents marketing overseas property developments in Singapore. Mr Khaw advised members of the public to report to the CEA any marketing activities by unlicensed foreign estate agents so that the CEA can investigate and take appropriate actions.

Addressing some MPs’ concerns about more Singaporeans turning to property investments overseas, Mr Khaw said the government does not interfere with such investment decisions. But he warned that it is a case of buyer beware.

Mr Khaw said: “But I share the concerns of Mr Seah Kian Peng and Mr Liang Eng Hwa. I echo their words of caution. Property markets move in cycles. For foreign properties, there are added risks and complexities, because their legal and regulatory frameworks governing the purchase and financing agreements are different from ours.

“And they may change suddenly when domestic politics pushes for a change in policies. Do go in with your eyes open.”

Source : Channel NewsAsia – 10 Mar 2014

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