COVs: Consigned to history?

[princess_morbucks]

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On Monday, a piece of Singapore’s public housing story was consigned to the annals of history after National Development Minister Khaw Boon Wan said in Parliament that buyers and sellers of Housing and Development Board (HDB) resale flats must agree on a price before seeking an official valuation for the purpose of applying for an HDB housing loan.
Cash-over-valuation (COV) — the difference between the flat’s selling price and its official valuation — which had dominated the HDB resale market for years, will no longer exist, in theory at least. In a practice that is unique to Singapore — it exists nowhere else in the world — almost all HDB flat sellers had hitherto obtained a valuation before marketing their property, usually as a guide to its worth in the market.

To re-focus the market’s attention on the selling price, the HDB will now provide daily updates of recent resale transactions as soon as they are lodged. Sellers and their agents can now use them as comparables to set the initial asking price for their flats.
Will it work? That depends on whether COVs remain relevant to the market. If the difference between the selling price and valuation remains high, the COV will continue to exist, whether by the same name or by any other. And marketing agents will continue to compile such data.
The most frequent comment by property experts following Monday’s announcement is that buyers will now have to be extra vigilant. They will have to negotiate very hard lest the valuation falls way short of the agreed price. And if buyers cannot come up with the cash, they will have to pull out of the deal. But don’t buyers do this already?
So, will it come down to the appraisers on the HDB’s valuation panel? Will they give an appropriate premium to some of a flat’s positive features?
After all, some of the very high COVs reported by the media in the past were the result of the valuer not fully appreciating the market’s take on the flat.
Personally, I feel that these valuations could have been executed better: It is inexcusable for the valuation to be so vastly different from the selling price, sometimes by as much as 15 per cent, unless there are very good reasons. One often-quoted reason is the long time lag between valuation and sale, and the effects of this may be compounded by fast-changing market conditions.
But now the timing of the official valuation — after a price is agreed — means that any lag period between the actual sale and the date of valuation will only be as long as the time a buyer takes to request a valuation and its delivery.
Previously, new market comparables were made available to valuers only once every two weeks. And if the flat is exposed on the market for six weeks, it means the valuation could be outdated by as much as two months or even longer, if it takes more time to sell the property.


Needless to say, a lot can happen in two months.
The biggest help to a valuation being done under the new system is that the property would have been exposed to the market for a period of time.

Every property is unique simply because it does not occupy the exact same location as any other, and property is all about location. Comparables are after all comparables, not the real deal. And the adjustment process is not an exact science.
The marketing ends when the seller feels he has received the best offer under the prevailing circumstances. If that is not the best indication of the value the market attaches to the property, what is?
So, we can expect most official valuations to be very close to the agreed price in the absence of suspicious circumstances where the sale is not concluded at arm’s length. The days of COVs rising to as high as S$80,000 to S$90,000 should be a thing of the past — notwithstanding rapidly changing market conditions.

If the HDB feels that resale prices are rising too quickly and not supported by the fundamentals, it can always lower its loan quantum to below 80 per cent, just as the banks do with private housing transactions when they feel the market has become too bubbly. Or it can even call for partial capital repayment as market conditions change.

Colin Tan is Director of Research and Consultancy at Suntec Real Estate Consultants.

[Arcachon]

https://www.dropbox.com/s/qz4lkgmr5x...%20Housing.pdf

To further promote the resale public housing market, the “Mortgage Loan
Financing Scheme” was revised in April 1993. This scheme allows resale
public housing purchasers to obtain mortgage loans of up to 80% of the
purchase price or the market value of a housing unit, whichever is lower.
Before this policy revision, the amounts of mortgages available for resale
public housing were pegged at the HDB’s “posted prices,” which were fixed
at historical values and priced very much below transacted prices. This
change in mortgage loan financing has therefore provided a great boost to
the public housing resale market, as purchasers are now able to obtain much
larger mortgage amounts.

Anti-cashback rule starts from April 1
Resale flat buyers must appoint HDB-assigned valuers
The Straits Times - February 19, 2005
By: Goh Chin Lian

TO CURB the practice of falsely inflating the price of a flat to get a bigger loan, buyers will have to appoint a private valuer assigned by the Housing Board.

The new ruling will be from April 1 for resale flat buyers who wish to take bank loans and pay up with their Central Provident Fund (CPF) savings.

National Development Minister Mah Bow Tan made the announcement in Parliament yesterday, following a report in The Straits Times on the apparently prevalent practice.

The ruling already applies to existing buyers who take up HDB loans, Mr Mah said.

He also told the House that two more housing agents were being investigated for illegal cashback deals.

Ms Kereen Teo Pei Pei, 27, became the first property agent to be convicted of attempting such a deal last month, and was fined $8,000.

The HDB knows of only these three cases, though media reports suggest there are many more, Mr Mah said.

'It is very, very difficult to detect instances of cashback arrangements if all the parties involved collude and do not blow the whistle,' he said.

'We do not know how rampant these practices are and therefore we also do not know how much the prices have been inflated... unless somebody spills the beans.'

The HDB and CPF Board will announce more details of the new ruling soon, he said.

He also noted the current penalties for cashback deals. Now, buyers and sellers who give false information to HDB could be jailed for up to six months, fined and be barred from buying an HDB flat. Errant housing agents could be jailed for up to three years and fined; HDB could strike off their agency from its list.

Despite such penalties, buyers who need fast cash have resorted to cashback deals to secure a bigger housing loan, which they slowly pay back with their CPF savings.

But Mr Mah warned that not only is the arrangement illegal, 'but it also exposes buyers to greater financial risk, to high loans and erodes their retirement savings'. He also noted that buyers would incur higher stamp and legal fees, and that sellers may end up paying a higher resale levy if they subsequently buy a second subsidised HDB flat. This is because the levy is based on the sale price of the first subsidised flat.

Dr Amy Khor (Hong Kah GRC), who raised the question on cashback deals, asked if the ministry would allow only real estate agents from firms listed with the HDB to carry out resale flat transactions. Mr Mah did not think having such a restriction was necessary as it was not compulsory for real estate agents to be on the HDB's list, even though most are.

When Dr Khor pressed her point again, arguing that the onus was on these firms to ensure their agents do not cheat, Mr Mah agreed to consider her suggestion should a review be necessary.

http://www.stproperty.sg/articles-pr...s-from-April-1

http://www.mas.gov.sg/~/media/resour...BD_04_2005.pdf

[reporter2]

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Property

COVs: Consigned to history?

By COLIN TAN

Published: March 14, 4:12 AM

Updated: March 14, 4:15 AM


On Monday, a piece of Singapore’s public housing story was consigned to the annals of history after National Development Minister Khaw Boon Wan said in Parliament that buyers and sellers of Housing and Development Board (HDB) resale flats must agree on a price before seeking an official valuation for the purpose of applying for an HDB housing loan.

Cash-over-valuation (COV) — the difference between the flat’s selling price and its official valuation — which had dominated the HDB resale market for years, will no longer exist, in theory at least. In a practice that is unique to Singapore — it exists nowhere else in the world — almost all HDB flat sellers had hitherto obtained a valuation before marketing their property, usually as a guide to its worth in the market.

To re-focus the market’s attention on the selling price, the HDB will now provide daily updates of recent resale transactions as soon as they are lodged. Sellers and their agents can now use them as comparables to set the initial asking price for their flats.

Will it work? That depends on whether COVs remain relevant to the market. If the difference between the selling price and valuation remains high, the COV will continue to exist, whether by the same name or by any other. And marketing agents will continue to compile such data.

The most frequent comment by property experts following Monday’s announcement is that buyers will now have to be extra vigilant. They will have to negotiate very hard lest the valuation falls way short of the agreed price. And if buyers cannot come up with the cash, they will have to pull out of the deal. But don’t buyers do this already?

So, will it come down to the appraisers on the HDB’s valuation panel? Will they give an appropriate premium to some of a flat’s positive features?

After all, some of the very high COVs reported by the media in the past were the result of the valuer not fully appreciating the market’s take on the flat.

Personally, I feel that these valuations could have been executed better: It is inexcusable for the valuation to be so vastly different from the selling price, sometimes by as much as 15 per cent, unless there are very good reasons. One often-quoted reason is the long time lag between valuation and sale, and the effects of this may be compounded by fast-changing market conditions.

But now the timing of the official valuation — after a price is agreed — means that any lag period between the actual sale and the date of valuation will only be as long as the time a buyer takes to request a valuation and its delivery.

Previously, new market comparables were made available to valuers only once every two weeks. And if the flat is exposed on the market for six weeks, it means the valuation could be outdated by as much as two months or even longer, if it takes more time to sell the property.

Needless to say, a lot can happen in two months.

The biggest help to a valuation being done under the new system is that the property would have been exposed to the market for a period of time.

Every property is unique simply because it does not occupy the exact same location as any other, and property is all about location. Comparables are after all comparables, not the real deal. And the adjustment process is not an exact science.

The marketing ends when the seller feels he has received the best offer under the prevailing circumstances. If that is not the best indication of the value the market attaches to the property, what is?

So, we can expect most official valuations to be very close to the agreed price in the absence of suspicious circumstances where the sale is not concluded at arm’s length. The days of COVs rising to as high as S$80,000 to S$90,000 should be a thing of the past — notwithstanding rapidly changing market conditions.

If the HDB feels that resale prices are rising too quickly and not supported by the fundamentals, it can always lower its loan quantum to below 80 per cent, just as the banks do with private housing transactions when they feel the market has become too bubbly. Or it can even call for partial capital repayment as market conditions change.


Colin Tan is Director of Research and Consultancy at Suntec Real Estate Consultants.

[Arcachon]

If the HDB feels that resale prices are rising too quickly and not supported by the fundamentals, it can always lower its loan quantum to below 80 per cent, just as the banks do with private housing transactions when they feel the market has become too bubbly. Or it can even call for partial capital repayment as market conditions change.

How can they feels when they have SOP to follow, guess the valuation also got it set of SOP.

Who decide the HDB loan, CPF or HDB or MAS or MND?

[Royston8H]

Those who bought resale HDB with high COVs certainly have to . Will be tougher to sell really.

http://www.todayonline.com/business/...inglepage=true

Property

COVs: Consigned to history?

By COLIN TAN

Published: March 14, 4:12 AM

Updated: March 14, 4:15 AM


On Monday, a piece of Singapore’s public housing story was consigned to the annals of history after National Development Minister Khaw Boon Wan said in Parliament that buyers and sellers of Housing and Development Board (HDB) resale flats must agree on a price before seeking an official valuation for the purpose of applying for an HDB housing loan.

Cash-over-valuation (COV) — the difference between the flat’s selling price and its official valuation — which had dominated the HDB resale market for years, will no longer exist, in theory at least. In a practice that is unique to Singapore — it exists nowhere else in the world — almost all HDB flat sellers had hitherto obtained a valuation before marketing their property, usually as a guide to its worth in the market.

To re-focus the market’s attention on the selling price, the HDB will now provide daily updates of recent resale transactions as soon as they are lodged. Sellers and their agents can now use them as comparables to set the initial asking price for their flats.

Will it work? That depends on whether COVs remain relevant to the market. If the difference between the selling price and valuation remains high, the COV will continue to exist, whether by the same name or by any other. And marketing agents will continue to compile such data.

The most frequent comment by property experts following Monday’s announcement is that buyers will now have to be extra vigilant. They will have to negotiate very hard lest the valuation falls way short of the agreed price. And if buyers cannot come up with the cash, they will have to pull out of the deal. But don’t buyers do this already?

So, will it come down to the appraisers on the HDB’s valuation panel? Will they give an appropriate premium to some of a flat’s positive features?

After all, some of the very high COVs reported by the media in the past were the result of the valuer not fully appreciating the market’s take on the flat.

Personally, I feel that these valuations could have been executed better: It is inexcusable for the valuation to be so vastly different from the selling price, sometimes by as much as 15 per cent, unless there are very good reasons. One often-quoted reason is the long time lag between valuation and sale, and the effects of this may be compounded by fast-changing market conditions.

But now the timing of the official valuation — after a price is agreed — means that any lag period between the actual sale and the date of valuation will only be as long as the time a buyer takes to request a valuation and its delivery.

Previously, new market comparables were made available to valuers only once every two weeks. And if the flat is exposed on the market for six weeks, it means the valuation could be outdated by as much as two months or even longer, if it takes more time to sell the property.

Needless to say, a lot can happen in two months.

The biggest help to a valuation being done under the new system is that the property would have been exposed to the market for a period of time.

Every property is unique simply because it does not occupy the exact same location as any other, and property is all about location. Comparables are after all comparables, not the real deal. And the adjustment process is not an exact science.

The marketing ends when the seller feels he has received the best offer under the prevailing circumstances. If that is not the best indication of the value the market attaches to the property, what is?

So, we can expect most official valuations to be very close to the agreed price in the absence of suspicious circumstances where the sale is not concluded at arm’s length. The days of COVs rising to as high as S$80,000 to S$90,000 should be a thing of the past — notwithstanding rapidly changing market conditions.

If the HDB feels that resale prices are rising too quickly and not supported by the fundamentals, it can always lower its loan quantum to below 80 per cent, just as the banks do with private housing transactions when they feel the market has become too bubbly. Or it can even call for partial capital repayment as market conditions change.


Colin Tan is Director of Research and Consultancy at Suntec Real Estate Consultants.