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how much is your hdb worth with cash over valuation (COV)

5 Factors Contributing to the Return of Cash Over Valuation (COV) in 2021

Maelyn Lagman

Maelyn Lagman

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Perhaps the biggest surprise out of the Covid-19 pandemic and Circuit Breaker period is that Singapore’s real estate market saw record-high levels in take-up, demand, and prices compared to previous years. 

An HDB market forecast accurately projected the rise in resale prices: 53 million-dollar resale flats have already been sold in the first quarter of this year, with prices rising for the ninth consecutive month in March. And that’s including cash over valuation (COV). 

An Overview of the 5 Relevant Factors Contributing to the Return of COV:

What is Cash Over Valuation (COV)?The amount of money buyers have to pay in cash if the sale price exceeds HDB’s home valuation. For example, if the resale flat is valued at $600,000 and the HDB valuation is $550,000, the COV will be $50,000. 
Ohmyhome’s must-know tips about COV– COV is only a risk when it comes to resale flats, not BTO flats.
– But the COV principle applies to private properties as well.
– COV must be paid by cash and cannot be covered by loan or CPF.
Why is COV coming back now?– Increase in housing demand due to delayed BTO key collection.
– Longer waiting time for new BTO flats to be ready.
– Units with negative sale take advantage of the current market to minimise the impact.
– There’s a shrinking supply of available homes to purchase.
– Sellers are aiming for a higher asking price to finance their next home purchase.
– Newer HDB resale flats (around five years old) entering the market.
HDB flat prices increased for 22 out of 26 HDB towns: Which ones to look out for?HDB towns and price increase in psf:
– Clementi (32.64%)
– Choa Chu Kang (29.45%)
– Toa Payoh (23.13%)
– Sembawang (19.59%)
– Pasir Ris (19.25%)
– Bukit Panjang (19.23%)
– Woodlands (18.26%)
– Yishun (18.11%)
– Jurong West (16.99%)
– Serangoon (13.91%)
– Sengkang (12.68%)
– Tampines (12.18%)
– Queenstown (11.13%)
– Bukit Batok (10.32%)
Ohmyhome Super Agent TipCompare the seller’s asking price to the overall resale prices in the area. If you see that it’s higher, about 10% above the median price, it is your sign that you need to set aside cash in case of COV.  Always secure the OTP before getting the official valuation from HDB.

What is Cash Over Valuation (COV)?

COV is the amount of money buyers have to pay in cash if the sale price exceeds HDB’s home valuation. For example, if the sale price of the flat is at $600,000 and the HDB valuation is $550,000, the COV will be $50,000. 

While COV is not the norm today, not since the policy change in 2014, it has made a significant comeback in the first quarter of the year. 

COV is the amount of money buyers have to pay in cash if the sale price exceeds HDB’s home valuation.

COV mostly happens when the offers are too aggressive or buyers are not informed enough. Hence, we highly encourage engaging a trustworthy property agent who is experienced and knowledgeable in such matters. They can help you with the right pricing strategies and financial planning when buying or selling. 

Ohmyhome Super Agent Tip: You can only apply for the HDB valuation after securing the Option To Purchase (OTP) for your flat. 

With a robust HDB resale market following the Circuit Breaker period, worsened construction and BTO delays, and demand for bigger homes, the average COV has actually risen in some locations. It can now be between $10,000 to $20,000 or $30,000 to $40,000, according to reports. 

So what must you know about COV now that it’s returned?

Here are 3 must-know tips about COV:

COV can only be paid in cash, resulting in a higher cash outlay than buyers may have initially expected.

1. COV is only a risk when it comes to resale flats, not BTO flats

BTO flat buyers don’t need to worry about paying the COV as the price is considered the same as the valuation. 

COV applies to HDB resale flats, including non-standard flats like maisonettes, dual-key units, and DBSS flats. 

2. But the COV principle applies to private properties as well

Just like with HDB BTO flats, new launch prices are taken at valuation. But for private resale properties, you can get an estimated valuation before submitting an offer. It gives you a good idea of how much you should offer and prepare for COV when the seller sticks to the selling price, which may be above valuation.

The amount you can borrow from a bank (for private properties) is capped by the Loan-to-Value (LTV) limit, which is 75% of the purchase price or valuation, whichever is lower, for your first property. The amount decreases if the buyer has multiple properties with existing mortgage loans. 

3. COV cannot be covered by an HDB loan or bank loan

COV can only be paid in cash, resulting in a higher cash outlay than buyers may have initially expected. In recent months, COV has been a regular occurrence, personally experienced by Ohmyhome Super agents whose clients are contending with COV.

When asked about their advice for buyers, they simply said: Put aside extra cash just in case you need to pay the COV. 

Why is COV coming back now?

COV applies to HDB resale flats, including non-standard flats like maisonettes, dual-key units, and DBSS flats. 

Reports have shown that COV saw a revival amid this year’s robust HDB resale market (so far) due to many reasons. According to Ohmyhome Super Agents, one of the main reasons for it is the supply and demand imbalance of flats.

Increase in housing demand due to delayed BTO key collection

Several factors contribute to the increase in demand for HDB resale flats, and chief among them is the delay in BTO delivery dates. According to recent reports, you may now have to wait up to seven years for your BTO key collection due to projected construction delays

Dive Deeper: BTO Delayed? Consider These 5 Alternative Housing Options

As such, buyers (including first-timers) are turning to the resale market for housing options, especially those who urgently need to move in. They are giving up balloting in favour of choice flats in desired mature locations. 

They are the type of buyers who are looking for homes to live in—not for investment purposes—and are more willing to pay the COV so they can move in immediately. With 85% of BTO flats delayed and about 43,000 households affected, not to mention that BTO flats are oversubscribed in selected areas, there’s nowhere to turn to but the resale market. 

Units with negative sale take advantage of the current market to minimise impact

There is also a certain segment of the market whose units, if sold at normal market condition pricing, would see a negative sale. Some have taken the rejuvenated market to profit from or at least minimise the impact of their negative sale.

There’s a shrinking supply of available homes to purchase 

Another reason for the return of COV is that sellers are also hesitant to put their homes up for sale, especially as supply in the pipeline is shrinking, excluding Executive Condominiums (EC).

Source: URA

There are 48,139 uncompleted private properties, down 2.4% from the supply of 49,307 by the end of 2020. 

There is also a stark difference in the available HDB resale units in the market: for every ten to 20 HDB resale units that Ohmyhome Super Agents could match with their clients before, there are now only two to five in today’s market they can offer. 

Sellers are aiming for a higher asking price to finance their next home purchase

As HDB resale and private property prices continue rising, sellers are also growing more financially prudent when making their next home purchase. 

They will have to consider the 25% minimum downpayment required when buying their new home, 5% of which must be paid in cash. To cover the difference, sellers are aiming for a higher asking price.

Newer HDB resale flats (around five years old) entering the market

Recently MOP-ed flats present a strong draw for buyers who are willing to pay the COV for immediate housing as there’s little lease decay to worry about. Unlike BTO flats, there’s no extended waiting period (as mentioned above) for the key collection and move-in dates. 

From recent reports, we can expect another 26,000 new HDB flats to reach their five-year MOP period and enter the resale market, adding to the price growth of HDB resale flats. These are the type of flats that would have undergone recent renovations, often displaying added value from a seller’s point of view. 

Some believe that adding features such as walk-in closets or kitchen islands justify the higher asking prices, but it is not always the case. 

hdb flats getting more COV
If the asking price is higher, about 10% above the median price, it is your sign that you need to set aside cash in case of COV. 

Ohmyhome Super Agents reveal that even HDB resale flats that are in their original condition are selling with COV these days. This goes to show that the limited supply of resale flats available in the market has pushed buyers to be willing to pay a higher price even for older flats, or those that are not renovated. 

HDB flat prices increased for 22 out of 26 HDB towns: Which ones to look out for?

By comparing the past transactions of HDB flats in 2018 and 2021, we’ve found which HDB towns have seen the highest price increase and where you can expect to find flats with COV.  

As seen in the table below, prices for resale flats rose in 22 of the 26 HDB towns, which are:

  • Clementi
  • Choa Chu Kang
  • Toa Payoh
  • Sembawang
  • Pasir Ris
  • Bukit Panjang
  • Woodlands
  • Yishun
  • Jurong West
  • Serangoon
  • Sengkang
  • Tampines
  • Queenstown
  • Bukit Batok
  • Hougang
  • Bedok
  • Geylang
  • Bukit Merah
  • Central
  • Jurong East
  • Bukit Timah
  • Punggol

Here are the TOP HDB Towns to watch out for in terms of COV: 

HDB Towns2018 Past Transactions (psf)2021 Past Transactions (psf)Percentage Increase (psf)
Clementi53070332.64%
Choa Chu Kang32642229.45%
Toa Payoh54967623.13%
Sembawang34240919.59%
Pasir Ris37444619.25%
Bukit Panjang39046519.23%
Woodlands33439518.26%
Yishun35942418.11%
Jurong West36542716.99%
Serangoon46052413.91%
Sengkang41046212.68%
Tampines42747912.18%
Queenstown65672911.13%
Bukit Batok37841710.32%
Hougang3854239.87%
Bedok4424757.47%
Geylang5175557.35%
Bukit Merah6426734.83%
Central6376654.40%
Jurong East4204353.57%
Bukit Timah6186352.75%
Punggol4744852.32%
Bishan567564-0.53%
Kallang / Whampoa554551-0.54%
AMK470466-0.85%
Marine Parade596573-3.86%

HDB price increase in the West

With a 32.65% increase in psf, Clementi has seen the most significant growth in price from 2018 to 2021. Followed by Choa Chu Kang (29.45%), Bukit Panjang (19.23%), and Jurong West (16.99%) in the same region. 

HDB price increase in Central

Clementi is followed closely by Toa Payoh, with a 23.13% price increase, and Queenstown, at 11.13%.  According to The Straits Times, flats in the Central region clocked the highest median resale price at $910,000 for a four-room flat.

HDB price increase in the North

In the North region, Sembawang saw the highest price increase at 19.59%, followed by Woodlands (18.26%), and Yishun (18.11%).

HDB price increase in the North-east

HDB flat prices in the North-east region also saw an increase. It rose 13.91% in Serangoon and 12.68% in Sengkang. 

HDB price increase in the East

In the East region, Pasir Ris clocked the highest price increase at 19.25%, followed by Tampines at 12.18%. 

One thing to note before you go: 

Both buyers and sellers have to agree on a price without the assumption of COV as the HDB official valuation can only be applied by the buyers after securing the Option to Purchase (OTP). 

It is only when you have received the valuation results that you know if COV is applicable. 

To financially prepare for that, you can compare the seller’s asking price to the overall resale prices in the area. If the asking price is higher, about 10% above the median price, it is your sign that you need to set aside cash in case of COV. 

Contending with COV? Or don’t know how to price your flat? 

Engage Ohmyhome Super Agents to help you sell your home the right way, at the right price, with guaranteed financial planning for as low as $2,888. 

Call us now at 6886 9009 to engage a Super Agent!

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