The Singapore Institute of Surveyors and Valuers (SISV) said it supported National Development Minister Khaw Boon Wan’s decision to cease the release of COVs and urged flat buyers instead to “use market valuations as the basis for making home-buying decisions”.

The COV is the amount a buyer pays over and above the valuation of an HDB resale flat. As it must be paid in cash, it has a significant impact on affordability. In its latest official quarterly statistics in July, the HDB stopped publishing figures on the overall COV paid for resale flats but continued to provide median COV data by HDB towns and flat types, as it found that a simple average number can be very misleading.

Mr Lim Lan Yuan, SISV president of valuation and general practice, noted that when the Government first published COV data in 2007, its aim was to reassure buyers that the high COVs reported in the news were not the norm. But today, such figures are being used by sellers as a basis for asking for cash as a right in resale transactions, he said.

He added that professional valuers would have taken market conditions into consideration when determining the value of a flat – the COV should thus not be included in the price of a home.

I am not sure who invented the term COV. It probably came up during market negotiations between buyers and sellers and their agents; and for want of a better term, it soon became part of the established market lingo.

You may abolish the use of the term but I am not sure if you can make the ban stick. Because it is such an important component of the deal, it will surely re-emerge in the guise of a new word or term, or as Mr Khaw puts it, lead to illegal, undeclared cash payments.

At this point, you may be wondering why there is no such equivalent term for deals transacted in the private housing market. Is it any less important in a private housing deal? Actually, the COV equivalent for the private housing market occurs far less frequently simply because the actual valuation of the property is mostly done after the sale price has been agreed upon.

The buyer then sources for a loan with various lenders who will usually require that a valuation be done to protect its own interests and for determining the amount of the loan it is prepared to disburse.

Under current HDB resale market rules, however, the seller needs a valuation to be done first on his property before he can sell his flat. In most cases, the seller submits an application for a valuation even before he starts his marketing.

If a similar practice for the private sector is adopted for the HDB resale market, there is a good chance that both buyer and seller will be forced to focus on the price in their negotiations, as it should be.

However, as a safeguard to protect buyers from committing to a purchase which they cannot afford in terms of cash availability, the HDB may stipulate that buyers are allowed the option to pull out of the deal if the market valuation is more than, say, 10 per cent lower than the agreed price.

The adoption of private sector practice may cause some inconvenience and some administrative hassle for both the HDB and private valuers, but it may be the only way to focus the attention of buyers and sellers on the selling price.

Because buyers may be negotiating “blind” in the sense that they do not how much cash they will eventually have to fork out, it will instil a little bit more discipline in their negotiations. However, we have to recognise that in coming up with a solution to the COV issue, we are only treating the symptoms and not the root of the problem. The problem with COVs may go away by itself if there is less imbalance between demand and supply.

By Colin Tan – head of research and consultancy at Chesterton Suntec International.

The post Out with COVs, there’s a better way appeared first on LushHomeMedia.

The Singapore Institute of Surveyors and Valuers (SISV) cautioned yesterday – in a statement from its president (valuation and general practice) Lim Lan Yuan – that the practice will lead to a rapid rise in housing prices, encouraged by “exuberant sentiments ahead of economic fundamentals”.

The SISV added: “As ‘cash over valuations’ arise from specific individual buying decisions and are not necessarily paid in all transactions, they should not be recognised as such in the market. We should discourage the practice of ‘cash over valuations’.

The SISV reiterated that buyers and sellers should use market valuations or actual prices of recent transactions when negotiating the price of a HDB resale flat.

While median COV data – which had been published by the HDB until recently – is now used by sellers as the basis for the right to ask for a cash amount in any resale transaction, the SISV said COVs should only be paid in isolated cases where the buyer is “overly-anxious” and feels pressured to pay a cash premium. The HDB stopped releasing such data in its most recent official quarterly statistics in July.

Professional valuations already take into account market conditions but if COVs are consistently paid it will be subsequently incorporated into market value of the flat pushing up prices, said the SISV.

It also noted that as housing loans are made on the basis of the market valuation of a property – without taking into account the COV – COVs may affect affordability for buyers as more cash will be required for the purchase.

Last month, Mr Khaw had noted on his Facebook page that abolishing COV and relying on a professional valuer to set the price of resale flats was tried “years ago”. “COV then went underground as ‘under counter cash payment’,” he had noted.

Source : Today –  1 Sep 2011

The post Discourage practice of COV, SISV urges appeared first on LushHomeMedia.

However, with the raising of the income ceiling for HDB flats and executive condominiums (ECs), he hopes high prices taper off.

On 14 August, Prime Minister Lee Hsien Loong announced during his National day Rally speech that the HDB income ceiling will be increased to S$10,000 from S$8,000, while the income ceiling for ECs will be raised to S$12,000 from S$10,000. This move is expected to affect mass market condos.

“As for (the) HDB market, the demand has outstripped the supply. HDB owners with private properties are not selling their flats and this has led to a supply crunch (and) resulting in the sky-high COV. Hopefully the new measures can help put a lid on the COV and bring them down to realistic levels,” said Eric Tng, Senior District Director at ECG.

“I feel the impact on BTO should not be high. Most first-timers for BTO flats are the younger newly-weds and their household income would be around the S$8000 level. But for ECs, it should take off some demand for newly launch mass market condos. And HDB resale buyers with household income of S$8,000 to S$12,000 will consider buying an EC instead of a resale flat,” he added.

In addition, Tng believes the new policies will not affect the private market.

“I dont think these measures will affect the private market as the measures are targetted at first-time houseowners competing in the HDB resale market. I feel its also a reaction to the recent loss of votes in the GE,” he quipped.

Source : PropertyGuru – 17 Aug 2011

The post Government policy could put a lid on COV appeared first on LushHomeMedia.

But the way to deal with the situation “is not to manage or fix COVs”, he feels, as “the underlying cause is high demand, caused by excess liquidity and market sentiments, and low supply”.

Latest statistics from HDB showed that 93 per cent of resale transactions in the last quarter were above valuation, and the median COV paid by home buyers jumped 100 per cent – from $12,000 in Q3 to $24,000 in Q4.

But positive COVs, Mr Mah said, is not something permanent. The median COV was zero in 2005 when the property market was down, and “minimal” at $2,000 and below, a year later.

He urged flat buyers to be cautious about over-paying for their flats.

“Do your homework and remember also that not all COVs that buyers ask for are realistic,” he said. “In the free market, buyers and sellers must be free to ask and offer as they choose. But neither party is forced to accept what the other party wants.”

Mr Mah made these remarks in a wide-ranging interview with People’s Action Party Policy Forum chairman Satwant Singh and touched on topics such as the Build-To-Order system, the rationale for keeping to the current income ceiling and the pricing of HDB flats.

“My biggest challenge is to provide affordable housing that meets the rising expectations of a new generation of Singaporeans, while keeping within my housing budget,” said Mr Mah in the interview, which was published on the party’s website.

Currently, the percentage of households with arrears in mortgage instalments is about 7.4 per cent.

Source : Today – 13 Feb 2010

The post Fixing COV not the solution: Minister appeared first on LushHomeMedia.

Statistics from HDB also showed that the median cash premium paid by home buyers doubled quarter-on-quarter. But analysts said the market may be approaching a limit.

93 per cent of resale transactions in the 4th quarter of last year were above valuation and the cash premium paid by home buyers jumped by a 100 per cent from S$12,000 in Q3 to S$24,000 in Q4.

Nicholas Mak, real estate lecturer, Ngee Ann Polytechnic, said: “There seems to be more families that are going in to buy larger flats – your 4-room and 5-room flats – and as a result, these larger flats also come with higher cash-over-valuation amount, which in a way pulls up that median cash-over-valuation.”

But this increase is unlikely to continue indefinitely.

HDB said the median cash-over-valuation amount has stabilised in recent months.

The cash premium for January has gone down to S$22,000. Analysts said this may indicate that the market is approaching a limit to how much home buyers are willing to pay.

Mr Mak added: “Our salary is still not catching up at such a high rate. There will be a certain time when the affordability issue will come into play. As the sellers start to demand higher and higher COV, they may see that there may come a stage when there will be some buyer resistance.”

Efforts by the government to raise the supply of new homes by launching more Build To Order projects and Design Build and Sell Schemes will also gradually help to cool the market, once the flats are completed.

Colin Tan, head of Research and Consultancy, Chesterton Suntec International, said: “The government efforts at pushing out the BTOs and DBSS and all the executive condos, that may have helped to allay some of the panic buying. And this probably resulted in some people actually shifting the demand from the resale market to the new flats.”

To meet demand, HDB said it will be offering 6,900 new flats in the first half of this year.

Source : Channel NewsAsia – 22 Jan 2010

The post Cash-over-valuation doubles in Q4 but analysts say limit approaching appeared first on LushHomeMedia.

But the Housing and Development Board (HDB) has urged buyers to exercise caution when paying high cash premiums, and to do their homework to determine if a house is truly worth its asking price.

A 4-room flat in Bishan was recently put up for sale. It was valued at S$460,000 by an independent valuer appointed by HDB, and the owners are asking for an additional S$100,000 cash-over-valuation (COV).

The owners, who declined to be named, are a young couple in their 30s who run an F&B business. They claimed to have received three offers so far, but all were rejected.

“The COV is too low. There are those who are asking for S$50,000 to S$60,000. There was one offer which was close, about $95,000. We are not in urgent need to sell. In a way, it’s to test the market. If we sell, we sell. If we don’t sell, we will just continue to stay,” said the owner of the 4-room flat in Bishan.

Analysts said with a continued strong demand for resale flats, owners are taking advantage of the situation to increasingly ask for higher prices.

Based on the latest HDB figures, 78 per cent of home sales transacted in the third quarter of last year were above valuation. That is a 22 percentage-point jump from the second quarter of last year’s figure of 57 per cent.

The median COV is also on the rise – jumping from S$3,000 in the second quarter to S$12,000 in Q3.

With HDB resale flat prices hitting an all-time high, housing agents said most flats now command at least S$20,000 to S$30,000 cash-over-valuation.

Units situated at good locations, close proximity to an MRT station and good renovation can see COV go up to S$50,000 to S$70,000.

But there is a limit to how much buyers are willing to pay.

“If it’s not to my liking, then I’d have to do up, (renovate) it again. So how much (am I willing to pay)? About $50 to $60,000,” said one member of the public.

“It’s too high for me. Because of my income I don’t think I can afford it,” said another.

HDB said only four out of the 13,000 4-room flats sold last year had premiums higher than S$70,000.

And analysts cautioned against jumping into deals that require high cash premiums.

“COV is a premium. Five years down the line, the renovation will deteriorate. And there’s no guarantee that you can sell at S$100,000 above the then value. Therefore, buyers should exercise discretion as far as how high you want to pay,” said Mohamed Ismail, CEO of PropNex.

HDB said it does not control resale flat prices as they are the result of negotiations between willing buyers and sellers.

It added that intervening in COV means forcing people to buy and sell at fixed prices.

HDB also urge buyers to have the relevant information before negotiating with sellers, and to offer a price within their means.

Source : Channel NewsAsia – 18 Jan 2010

The post Resale flats commanding more cash-over-valuation, HDB urges caution appeared first on LushHomeMedia.

HAD you $20,000 in cash to pay for the Cash-Over-Valuation (COV) component of a resale 4-room Housing and Development Board (HDB) flat, you would have better bargaining power now than in the last quarter of 2007.

Back then, you might just have been able to afford such a flat in far-flung areas such as Bukit Panjang, Chua Chu Kang, Jurong or Woodlands.

But between April and last month, you could have had choice pickings from locations such as Ang Mo Kio, Tampines or Hougang.

On Friday, second-quarter data from the HDB showed that even as resale prices rose by 4.5 per cent, the good news for home-buyers was that the median COV dipped to $20,000 – $1,000 lower than in Q1 and down from $22,000 in Q4 last year.

Reflecting strong demand that was a contrast to weakening sentiments in the private sector, the total number of HDB resale transactions grew 22 per cent to 7,760 in Q2.

Industry players attribute the dip in COV prices to the higher valuation of resale flats :(this is based on the previously transacted price of similar flats).

This has led to buyers being far less willing to pay inflated COVs which, last year, hit peaks of $80,000 to $100,000 in choice locations.

Still, rare exceptions stood out in the second quarter: The highest median COV of $93,000 for a five-room flat was recorded in Bukit Timah. And home-buyers were willing to pay a higher cash premium for three, four and five-room flats in Toa Payoh and Kallang/Whampoa.

In the latter area, five-room flat buyers paid some $38,000 in cash over valuation, which analysts attributed to the proximity to the CBD, riverside living and plans to transform it into a new lifestyle district with retail and entertainment facilities.

On the whole, demand in the resale market is coming “from up-graders, down-graders and permanent residents”, said ERA’s assistant vice president Eugene Lim.

At the same time, with there being hardly any surplus stocks – compared to five years ago when the HDB had 25,000 unsold flats – buyers have few choices if they do not want to wait for a new HDB flat to be built on demand.

But Mr Lim and Propnex chief executive Mohamed Ismail expect COVs to continue tapering, even if resale flat prices rise further.

Mr Ismail calls the situation a win-win one: Buyers do not have to fork out so much out of pocket, and sellers can still command a high price for their flats through valuation.

Source : Weekend Today – 26 Jul 2008

The post Less cash upfront but … appeared first on LushHomeMedia.