Rising Cash Over Valuation (COV) trend in Singapore

Rising Cash Over Valuation (COV) trend in Singapore: What does this mean for prospective HDB resale flat buyers and sellers?

With the recent news of more buyers paying higher Cash Over Valuation (COV) in 2021, many prospective flat buyers are concerned that they’d pay higher resale prices and cough up more cash for the COV as well.


Let’s explore some of the factors that caused this trend and how to avoid overpaying more than necessary.


What is Cash Over Valuation (COV)

As the name suggests, Cash Over Valuation (COV) literally means that the flat is sold above the HDB’s valuation and the buyer must pay for this difference in cash. COV is only possible with resale flats and not any other flats purchased directly from HDB such as Build-to-Order (BTO) flats.


How to Find Out HDB’s Valuation of a Resale Flat

The resale valuation is HDB’s official estimation of how much the resale flat is worth. HDB’s valuation of a resale flat depends on several factors such as the following:

Location of the flat: Higher-floor HDB flats close to key amenities like shopping malls, bus stops, and MRT stations tend to fetch a higher valuation.

Size of the flat: Larger flats such as rare jumbo flats and executive maisonettes (2-storey flats) will definitely command a higher premium.

Lease of the flat: The longer the remaining lease, the more valuable the flat is.

Maintenance of the flat: A well-maintained flat both inside and outside is likely to be more expensive.


Current HDB Resale Valuation Process

HDB had stopped publishing data on resale flats’ valuations and the COV prices since March 2014. 


Now, resale buyers must first negotiate with the seller on the selling price and pay him/her the Option to Purchase (OTP). Once the OTP –  a sum between $1 to $1,000 – is granted and signed, the buyer can submit a Request for Value ($120) to HDB. An assigned HDB valuer will then go to the flat to inspect and determine the value of it.


The HDB valuation ultimately decides the price of the flat, which translates to the loan amount you may take, CPF savings you can use, and Cash Over Valuation (COV) to pay.


For example, the selling price of a resale flat is $620,000. After paying the OTP and submitting the valuation request, you realised that HDB’s official valuation of the flat is $600,000. This would mean paying a COV of $20,000. 


The amount of housing loan and CPF savings that buyers can use is based on whichever is lower – the HDB’s valuation or transaction price.


If you’re taking an HDB loan: You can take up a loan of up to $540,000, with a Loan To Value (LTV) of 90%. This is based on HDB’s lower valuation of $600,000.

If you’re taking a bank loan: You can take up a loan of up to $450,000 with a LTV of 75%. This is based on HDB’s lower valuation of $600,000.


Rising COV in the resale market in 2021

There is a rise in the number of resale flat buyers paying COV in 2021 compared to 2020 — 1 in 3 flat owners have paid COV in 2021 vis-à-vis 1 in 5 flat owners in 2020. 

The reason for this trend can be attributed to strong demand from prospective buyers due to the following factors:


1. The COVID-19 pandemic

With restrictions of manpower in the construction sector, BTO projects are delayed, causing prospective home buyers to shift their focus to the resale market instead. Also, more individuals are keener to hunt for a property and take up a loan due to the current low interest rate environments.