{"id":48796,"date":"2023-01-23T08:00:28","date_gmt":"2023-01-23T00:00:28","guid":{"rendered":"https:\/\/www.99.co\/singapore\/insider\/?p=48796"},"modified":"2024-08-19T15:48:37","modified_gmt":"2024-08-19T07:48:37","slug":"cash-over-valuation-cov-hdb","status":"publish","type":"post","link":"https:\/\/www.99.co\/singapore\/insider\/cash-over-valuation-cov-hdb\/","title":{"rendered":"COV Singapore, What is Cash Over Valuation (COV) of a resale HDB flat"},"content":{"rendered":"
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According to The Straits Times, 1 in 4 HDB resale flat buyers paid<\/a> cash over valuation (COV) on their HDB resale flats<\/a> in 2022.<\/p>\n

We\u2019ll explain COV in greater detail later, but it means they agreed to purchase their flats above market value (as determined by HDB). And as the word \u201ccash\u201d implies, any amount over HDB\u2019s valuation has to be paid out of your pocket. Ick.<\/em><\/p>\n

If you\u2019re in the market for an HDB resale flat, then COV is something you want to avoid as much as possible. But how do you figure it out before committing to the purchase?<\/p>\n

What does cash over valuation or COV mean?<\/h2>\n

First, let\u2019s talk about what COV is<\/a> and why it\u2019s important to most people (unless you\u2019re rich enough to buy the HDB flat in cash, lucky you).<\/p>\n

HDB resale prices are negotiated on a \u201cwilling buyer, willing seller\u201d basis<\/a>. HDB does not step in to set prices or stop sellers from overcharging.\u00a0But, HDB does have its own idea of how much each resale flat is worth and this will affect home financing in some cases.<\/p>\n

\"Seller<\/a><\/p>\n

Let\u2019s say you\u2019ve found the flat of your dreams in Yishun<\/a>. The seller quotes you S$600,000, and you\u2019re pleased with the price.<\/p>\n

After you pay S$1,000 for the Option to Purchase (OTP)<\/a> and request the valuation report from HDB, it turns out that HDB values your dream home at S$550,000. Your COV is thus S$600,000 – S$550,000 = S$50,000<\/strong>.<\/p>\n

If you proceed with the purchase, your home loan will be based on S$550,000 as the total amount. You\u2019ll have to pay the S$50,000 COV in cash \u2014 and that\u2019s on top of your downpayment.<\/p>\n

Otherwise, you can back out of the deal and resume your HDB hunt. But you\u2019ll forfeit the S$1,000 option fee. <\/strong><\/p>\n

To save yourself the heartache, here are 3 ways to gauge the COV of a resale HDB flat BEFORE you pay the option fee.<\/p>\n

(As for the sellers, setting the asking price too high above the valuation runs the risk of buyers backing out of the deal, especially in a buyer’s market. So it’s good to price the flat closer to the market value.)<\/p>\n

1. Check HDB resale transaction data<\/strong><\/h2>\n

We\u2019re not saying you need a Data Science degree to buy an HDB flat, but it\u2019s good to do your own market research.<\/p>\n

HDB\u2019s resale transaction portal<\/a> is good for when you\u2019re just starting the search and only have an idea of which neighbourhood you want to stay in. Key in the \u201cFlat Type\u201d and \u201cHDB Town\u201d of your choice and look at the last 6 or 12 months\u2019 transactions to get a sense of flat prices in the area.<\/p>\n

HDB resale prices can vary hugely among similar-sized units in the same HDB town, though. A freshly-MOP-ed unit near the MRT station can fetch way higher prices than one in the outskirts of the \u2018hood.<\/p>\n

So once you can narrow things down to specific blocks on specific streets<\/strong> \u2014 i.e. using Street Name and Block No. \u2014 you can get much more accurate data.<\/p>\n

Had you realised that the blocks around your dream home in for example, Yishun or Punggol<\/a>, had units transacting at S$5XX,000 in the past year, then you can easily guess that its S$600,000 price tag might land you in a COV situation<\/strong>.<\/p>\n

2. Check transaction history on 99.co listings<\/strong><\/h2>\n

House-hunting on 99.co<\/a>? Here\u2019s how you can gauge potential COV on a listing you like. Simply take note of the property\u2019s asking price, then scroll down to \u201cTransaction history\u201d and calculate the discrepancy.<\/p>\n

Here\u2019s an example of an HDB flat with an asking price of S$660,000<\/p>\n

\"listing<\/a><\/p>\n

 <\/p>\n

Scrolling down to the transaction history section shows us that recent transactions in this block were closer to around S$550,000.<\/p>\n

\"transaction<\/a><\/p>\n

 <\/p>\n

 <\/p>\n

This flat\u2019s asking price of S$660,000 is S$60,000 more than the highest transacted price of S$600,000<\/strong>. So it\u2019s quite likely to incur cash over valuation.<\/p>\n

Do note that if the flat\u2019s purchase price is fairly close to the existing transactions \u2014 let\u2019s say a S$20,000 difference \u2014 HDB may accept this as the market value of the flat and you might avoid having to pay COV.<\/p>\n

HDB flats for sale in Punggol and Yishun<\/h4>\n
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