Making Sense of Cash-Over-Valuation (COV) in HDB Resale Market

In Singapore’s HDB resale market, Cash-Over-Valuation (COV) is a term that reflects the difference between what you agree to pay for a resale flat and the official valuation set by the Housing and Development Board (HDB). Let’s break down what COV means for both buyers and sellers, understanding its significance, factors influencing it, and how it impacts transactions.

Understanding Cash-Over-Valuation (COV)

COV arises when the negotiated purchase price of an HDB resale flat exceeds the official valuation assigned by the Housing and Development Board. In simple terms, you are willing to pay for a HDB flat more than what HDB says it’s worth. This extra amount, known as COV, is a feature of resale transactions and does not apply to flats acquired directly from HDB, such as Build-to-Order (BTO) flats. This difference between the negotiated price and HDB’s valuation constitutes the COV amount.

Changes in COV Reporting

In the past, you could check HDB’s valuation figures on their website. However, since 2014, these valuations are not made public anymore. Now, you only find out HDB’s valuation after you’ve agreed on the purchase price, making it tricky to predict COV beforehand.

When is it time to get a property valuation?

After a buyer being granted option to purchase from seller, they can request a valuation from HDB. This request costs $120, and within the next 10 working days, a third-party valuer assigned by HDB will create a valuation report for the buyer. Do note, a valuation is only required if the buyer is getting a loan or using CPF to pay for the property. If the buyer is using all cash, a valuation isn’t necessary.

How do you know if there’s Cash-Over-Valuation (COV)?

Once the valuation report is out, the buyer will learn the assessed value of the flat. If the valuation is less than the negotiated price, the extra amount is the COV.

What leads to Cash-Over-Valuation (COV)?

In every sellers perspective, the goal is to sell at the highest possible price, often aiming to surpass the actual valuation of the property. This makes them feel like they’re succeeding in their selling journey. However, not every house can achieve COV. Despite sellers wanting higher prices, not all buyers are willing to pay. After some unsuccessful marketing, sellers often need to reconsider their expectations to align with market prices.

Buyers, on the other hand, might consider paying COV if there’s a compelling reason. In today’s market, three common factors can lead to a flat commanding COV:

1. Outstanding Location:

Flats in prime locations or near MRT stations are highly sought after, and sellers can ask for higher prices. An example is the well-known Pinnacle @ Duxton, where excellent location drives prices. Many record breaking prices with COV comes from here.

2. High Floor with a WOW view:

Higher floors with great views can command higher prices. A flat with a million-dollar view is a rare find, and buyers are willing to pay extra for it. But keep in mind, when we talk about great views, being high floor with some buildings blocking the sight isn’t usually considered great.

3. Well Renovated Flat:

A flat with designer decor and extensive renovations can justify COV. Buyers are willing to pay more for a move-in-ready place, avoiding the hassle of renovations. The newer and more stylish the renovation, the higher the potential COV.

Having just one of these factors gives sellers a reason to ask for a reasonable COV. If a property has all three, the seller might find themselves waking up with a smile every day until the day he sell.

Determining a reasonable COV isn’t straightforward; it depends on the market’s supply and demand at the time of selling. It’s a dynamic factor that sellers and buyers need to navigate based on current conditions.

Loans do not cover COV

It’s crucial to know that you can’t use HDB loans, bank loans, or CPF money to cover COV. It’s a cash portion that you need to pay on top of the flat valuation price. Your loan will only cover up to the flat valuation amount. This sets COV apart from the overall property price when it comes to calculating loans.

Stamp Duty calculated with COV in

Even though COV cannot be counted as part of the property’s price for home loans, it is considered when determining the amount of Buyer’s Stamp Duty (BSD) payable by buyers. This is because stamp duty is based on the higher of the two values: the purchase price and HDB’s valuation of your HDB resale flat.

When do you pay COV?

Cash-Over-Valuation (COV) and any other cash required for the house must be paid on the completion day. It’s important to note that any cash payments are made directly to HDB and not to the sellers. HDB will issue separate cheques to the sellers. There are various payment options available, with the most commonly used one being obtaining a cashier order from the bank.

Conclusion: Navigating COV

To sum up, COV is a big deal when dealing with HDB resale in Singapore. If you’re a buyer, be aware of what influences COV – location, views and renovations. And remember, COV is a cash payment, so be ready for that.

If you’re selling, understanding COV helps you set a fair asking price. Before aiming for a record-setting price, a helpful tip is to think: if you are a buyer looking at your house, would you pay the price you’re asking, considering your house’s level, condition, and renovations compared to others on the market and recent transactions that has been made?

In the world of Singapore’s HDB resale, COV adds a unique twist, underscoring the need for clear thinking and planning for both buyers and sellers. Working with a good property agent can be a game-changer in negotiating a deal that be a win-win for everyone.

I’m Jerry Han Sin, bringing over 15 years of valuable experience as a seasoned agent. Whether you’re considering selling or renting your property, I’m here to assist you every step of the way. My expertise spans both residential and commercial properties, ensuring comprehensive support for all your real estate needs. Backed by a dedicated team, we stand ready to provide the assistance you require for a seamless and successful transaction. Your property journey is important to us, and I’m committed to making it a smooth and rewarding experience for you.