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Thread: Flat-hunters feeling COV pinch

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    Default Flat-hunters feeling COV pinch

    http://www.straitstimes.com/Invest/S...ry_429026.html

    Sep 13, 2009

    property

    Flat-hunters feeling COV pinch

    HDB flat buyers need to have cash in hand as cash-over-valuation premiums soar because of strong demand and low supply

    By Joyce Teo, Property Correspondent


    Willing buyer, willing seller - few people get fazed when private properties change hands this way.

    But unhappy HDB flat hunters, clearly not in the 'willing buyer' category, have recently complained about the affordability of public homes as resale flat prices go up, up, up.

    This is because these days, the agreed price for an HDB resale flat typically includes a cash premium on top of the official valuation determined by an HDB panel of independent professional valuers.

    Any premium - known as the cash over valuation (COV) - above this valuation has to be paid upfront in cold cash. This favours a buyer who is cash-rich.

    A Straits Times Forum writer has even called for a ban on such cash sums.

    The COV premium emerged because buyers chose to pay more than the market value of the resale flats. It is not imposed by the Government.

    There are some deals done below valuation but most HDB flats have not been immune from the current rising property market: Strong demand and low supply lead naturally to substantial rises in COV sums.

    How high are COV sums now?

    COV sums reportedly doubled in July this year, to about $10,000-$15,000 for five-room and executive flats, from a median level of $5,000 in the second quarter.

    The rise is still gathering pace, with experts saying they are seeing more deals done at higher COV sums.

    In popular towns such as Bukit Merah, Ang Mo Kio and Sengkang, sellers always ask for upfront cash, that is, COV, they said.

    For instance, in the Jalan Bukit Merah area, one four-room HDB flat seller is asking for a COV sum of $45,000 on top of the $440,000 valuation.

    Classified advertisements for HDB resale flats in Sengkang show 'asking COV' of $38,000 to $45,000.

    Meanwhile, the latest HDB data, which is for the second quarter, still shows the median overall COV for flats in Bukit Merah and Sengkang to be zero.

    Experts say the pick-up in the HDB market intensified only in the past few months. And the optimism seems to have spread to farther-out towns.

    Last week, the seller of a high-floor Bedok North executive flat received an offer from a buyer keen to pay a $58,000 COV sum on top of the $520,000 valuation - after just the first viewing.

    PropNex data for last month showed that a five-room flat in Punggol went for $450,000, including a COV sum of $70,000, while an executive maisonette in Pasir Ris went for $580,000, including a $65,000 COV sum.

    ERA data showed deals done with COV sums of $60,000 in Choa Chu Kang and Jellicoe Road, though the firm said the majority of its resale deals done above valuation were sealed at more reasonable amounts of $15,000 to $30,000 above valuation.

    When did buyers start paying COV?

    In the private market, if buyers pay more than what the bank thinks the property is worth, they also have to fork out the extra sum in cash.

    In the public housing market, COV emerged when HDB announced that it would arrange for valuation of all resale flats for the purpose of mortgage loan financing, said the CEO of C&H Realty, Mr Albert Lu.

    That was in 1993. Prior to that, the maximum loan quantum was pegged to the HDB's 1984 posted prices.

    A decade later, COV largely disappeared for a while when the private banks got into the HDB loan market. The banks were 'very willing' to match the HDB sale price when they got in and competed for loans, and as a result there was no COV, Mr Lu said.

    But that had its own problem. Prices shot up and an illegal cashback practice - in which a flat's price is inflated so the buyer can get a bigger housing loan - became rampant, he said.

    As a result, in 2005, the HDB stepped in and made it compulsory for banks giving loans on Housing Board flats to use valuations only from the HDB's panel of approved valuers.

    The HDB and banks provide a housing loan of only up to 90 per cent of the market valuation or the transacted price for HDB flats, whichever is lower.

    An HDB spokesman said the cap on the loan quantum is a prudent measure required by regulators.

    'It helps to protect the lender by providing a buffer so that a drop in value of the property will not immediately result in negative equity (the outstanding loan amount exceeding the market value of the property).'

    He added that it is also in the interest of the flat buyer, as liberal credit will generally fuel price increases.

    The headline-grabbing COV sums started to be noticed only during the market run-up in 2006-2007, said ERA Asia Pacific associate director Eugene Lim. During that time, some buyers were willing to pay COV sums of $100,000 to $150,000.

    The HDB recommends that sellers do the valuation upfront before selling their flats, so that they know their properties' market value.

    Mr Lim said this is to help the seller set a reasonable selling price. But sellers will naturally want to get a COV sum, the higher the better, he said.

    Is COV necessary?

    'I do not think COV is a good idea as the valuation has already taken into account the property's attributes like its location, condition and any renovation done,' said Mr Lim.

    This is particularly so when HDB resale prices are at a new peak, he said. HDB resale prices are at a record high, after rising some 35 per cent from the start of 2007.

    'With COV continuing to increase, it does signal more investment in the HDB market,' said Mr Lim.

    'But it takes two hands to clap. There has to be a willing seller and a willing buyer.'

    In a way, the COV measures how overvalued an HDB flat is, given that the HDB or the banks will lend based only on the valuation. It is then up to the buyer to decide if he wants to buy the flat.

    Mr Lu doubts sellers will stop asking for COV in the near future, 'unless we see another economic crisis (that is, a double dip) or a major disease epidemic'.

    COV did disappear towards the end of last year when many large HDB flats were sold at or below valuation, he pointed out.

    It will be hard to get rid of COV, as it is all a matter of supply and demand, he said.

    'Right now, COV has gone up because of high demand and low supply.'

    Ultimately, the buyers have a choice. 'They can always walk away if the COV sum is too high,' said Mr Lim, adding: 'At the end of the day, you are buying an HDB flat. Why pay so much cash?'

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    The Mr Lim guy does not seem to know what he is talking about. It is no doubt true that the valuation takes into consideration most attributes of the house, but valuations do not take into consideration one very important aspect, that is the trouble and sacrifice owners have to make to give up their property to another buyer. No owner would want to give up a good piece of property at par value, especially when they have put in a lot of effort in something and holds a certain sentimental value to them. COV thus pays for that loss to the owner which cannot just be measured by how much that kitchen cabinet or the built-in wardrobe in worth. The loss could be the giving up of a good location, accessibility etc. which are often personal to the sellers.

    Flat-hunters feeling COV pinch

    HDB flat buyers need to have cash in hand as cash-over-valuation premiums soar because of strong demand and low supply

    By Joyce Teo, Property Correspondent


    Is COV necessary?

    'I do not think COV is a good idea as the valuation has already taken into account the property's attributes like its location, condition and any renovation done,' said Mr Lim.

    This is particularly so when HDB resale prices are at a new peak, he said. HDB resale prices are at a record high, after rising some 35 per cent from the start of 2007.

    'With COV continuing to increase, it does signal more investment in the HDB market,' said Mr Lim.

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    COV comes about when they are more buyers than sellers loh.. simple supply and demand theory lo.... if more sellers than buyers you will find no COV or even sell below valuations.... so to prevent COV, build more HDB lah, but it won't solve the current supply crunch becos any new HDB will take 4-5 years to complete... if someone want to marry now, they can wait so long meh???

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    agree ss & dd issue. also in matured estate, land issue....

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    http://www.straitstimes.com/Think/St...ry_434857.html

    Sep 27, 2009

    YOUR LETTERS

    18 failed attempts to get an HDB flat


    With reference to the report, 'Flat-hunters feeling COV pinch' (Sept 13), here is my story.

    My wife and I registered our marriage in late 2001 but have yet to hold our customary wedding as we have been unsuccessful in our numerous attempts - around 18 times since 2001 - to get an HDB flat.

    Over seven years, we had spent much time, effort and money in applying for a flat under various Housing Board schemes, such as the walk-in selection, balloting exercise and build-to-order scheme.

    We have also approached our Members of Parliament for help, and written to the HDB to give our feedback.

    All those unsuccessful HDB applications have left us poorer and emotionally drained.

    Many people can't believe we still can't get a flat after so many years and so many applications.

    We can only say that we have rotten luck.

    Thus, we have been forced to try our luck at getting a resale flat, which means cash for agent, cash over valuation (COV) for seller, competition with other buyers and more cash for renovation.

    With the rising population, plus scarcity of land in Singapore, the cost of property will rise, and low COV is uncommon, especially at this point when the economy is improving.

    Therefore, we are at the mercy of valuers, sellers and even the HDB policies which may indirectly affect the prices.

    Where is the help for those first-time buyers who face the cash issues of buying a resale flat?

    Many like us are in need of money to hold the customary wedding, furnish and renovate a flat and set up a family. Many will be unable to pay the high cash over valuation.

    The HDB should take steps to help people like us, who are forced to buy the mostly over-valued resale flats.

    Perhaps the HDB could relax its rules and allow certain groups of applicants to use the HDB grant or Central Provident Fund money to pay for such flats, if the COV is not to be abolished.

    Soh Say Kiat

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    this must be the crap of the decade.

    from 2001 to 2005, property price is at the lowest point since last peak. including HDB. how can he not get a place if he is serious about it.


    Quote Originally Posted by mr funny
    http://www.straitstimes.com/Think/St...ry_434857.html

    Sep 27, 2009

    YOUR LETTERS

    18 failed attempts to get an HDB flat


    With reference to the report, 'Flat-hunters feeling COV pinch' (Sept 13), here is my story.

    My wife and I registered our marriage in late 2001 but have yet to hold our customary wedding as we have been unsuccessful in our numerous attempts - around 18 times since 2001 - to get an HDB flat.

    Over seven years, we had spent much time, effort and money in applying for a flat under various Housing Board schemes, such as the walk-in selection, balloting exercise and build-to-order scheme.

    We have also approached our Members of Parliament for help, and written to the HDB to give our feedback.

    All those unsuccessful HDB applications have left us poorer and emotionally drained.

    Many people can't believe we still can't get a flat after so many years and so many applications.

    We can only say that we have rotten luck.

    Thus, we have been forced to try our luck at getting a resale flat, which means cash for agent, cash over valuation (COV) for seller, competition with other buyers and more cash for renovation.

    With the rising population, plus scarcity of land in Singapore, the cost of property will rise, and low COV is uncommon, especially at this point when the economy is improving.

    Therefore, we are at the mercy of valuers, sellers and even the HDB policies which may indirectly affect the prices.

    Where is the help for those first-time buyers who face the cash issues of buying a resale flat?

    Many like us are in need of money to hold the customary wedding, furnish and renovate a flat and set up a family. Many will be unable to pay the high cash over valuation.

    The HDB should take steps to help people like us, who are forced to buy the mostly over-valued resale flats.

    Perhaps the HDB could relax its rules and allow certain groups of applicants to use the HDB grant or Central Provident Fund money to pay for such flats, if the COV is not to be abolished.

    Soh Say Kiat

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    Quote Originally Posted by H88

    Anger at rising HDB prices misdirected
    Anonymous Fan
    H88
    Sunday, 27 September 2009, 15:41

    I have been monitoring the chatter on popular local forums lately, and of late, is the hot topic of rapidly increasing HDB prices. While some of the voices have legitimate issues, some are just blindly joining in the fray.

    Let me explain:
    •For those that are complaining about high Cash-Over-Valuation prices, it is either time to start saving or settle for a low floor unit.

    •For those that want to stay in mature estates and yet want low prices, they need a reality check.

    •For those that insist on staying near parents in mature estates, they can't complain of high prices in older estates.

    •For those who insist on having a home before starting a family, it is a matter of choice.

    •For those that complain about why your parent's flat cost $75,000 and yours cost $350,000, you need a time machine.

    No, I am not a "HDB ghost writer". In fact, I've personally faced some of the issues above. No doubt I am unhappy about many things, but I came to realize the root cause of my problems is the failure to plan early and lack of success at 'bringing home more bread'.

    But if there is an issue at hand that really needs to be addressed, a sudden massive influx of new residents is the one to look at. Especially if the report that "40% of recent HDB buyers are actually Permanent Residents" is accurate.

    It is understandable that we should not let an extraordinary opportunity to rejuvenate our population and competitiveness pass by, but to not have foreseen and prepared for side effects - such as increased demand leading to an unhealthy sudden price upswing; was a big blunder, with punishment handed out to citizens.

    It is hard to pin all the blame on a single organization like HDB, which is responsible for providing affordable quality homes to citizens. Perhaps, it is a simple case of multiple organizations not talking to each other - with one turning on the tap and the other shutting the drainage leading to a flood. However glazing over this issue and acting like it isn't happening is also not the right way forward.

    Knee-jerk measures - such as making available thousands of new Build-To-Order flats and introducing anti-speculative measures in a bottom-up property rally should not have been the only "visible" solution. Perhaps managing policy could help - a reader of H88.com.sg, has candidly suggested on Facebook: "PR = Please Rent"

    To the angry ones: Anger about the issue of rapidly increasing HDB prices is growing, but I feel it is misdirected. Banging on the wrong doors will only give you the wrong answers.

    To the ones that can provide a solution: Come clean and solve this problem, or this issue will fester.
    Time to stop attempting to get a HDB flat and really go get a flat?

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    They can apply for Oct 09 Sale of Balance Flats here :-
    http://services2.hdb.gov.sg/webapp/B...?strSystem=SBF
    BE CENTRED BY ALL AT THE FRINGE OF THE CITY @

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    http://www.straitstimes.com/Think/St...ry_437813.html

    Oct 4, 2009

    YOUR LETTERS

    Can't blame HDB for what results from personal decision


    I refer to Mr Soh Say Kiat's letter last Sunday, '18 failed attempts to get an HDB flat'.

    I would have understood and empathised with Mr Soh if he had started his Housing Board flat applications in late 2006, in view of the surge in prices and applications since then.

    But I fail to comprehend his application problem, as he had begun flat-hunting as early as 2001.

    As I recall, thousands of flats had stood vacant in Jurong West and Sengkang from around 2003 to 2005.

    During parliamentary debates, some MPs would question the HDB's planning, as it had resulted in a large number of unsold flats then.

    There were no long queues of applicants during those years and one could easily buy a new five-room flat for about $180,000 in Jurong West.

    One could also easily afford a resale five-room flat, priced at below $300,000 in many estates, or below $430,000 in popular ones such as Marine Parade, Bishan, Redhill and Queenstown.

    The supply of new and old flats was truly abundant from 2003 to 2005. So one should not conveniently put the blame on the HDB for a personal choice or decision that could have deprived one of a flat during those years.

    Warren Ng

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