Review Ways to Narrow Gap between Cash Over Valuation and Valuation of HDB Flat

Mr Kwek Hian Chuan Henry asked the Minister for National Development whether HDB will review ways to narrow the gap between Cash Over Valuation (COV) and the valuation of an HDB flat as the current high COV has made it hard for young couples to buy resale flats which is the popular option now given the long BTO construction delays.

The recent increase in resale prices can be partly attributed to a broad-based increase in demand for housing, supported by the current low interest rate environment. Nonetheless, the majority of resale flat buyers did not have to pay any cash-over-valuation (COV), and the median COV across all buyers has remained at $0.

HDB resale flat transactions are conducted on a "willing-buyer-willing-seller" basis, with prices negotiated and mutually agreed upon between flat buyers and sellers. Many factors influence the price of a flat, including its location, size and condition. The transacted prices of resale flats for the last 12 months are published on the HDB InfoWEB to guide flat buyers and sellers in their negotiations. Taking reference from these transacted prices, buyers should first consider if they will be overpaying for the flat when they make an offer.

After a resale price has been agreed upon, the flat sellers will grant an Option to Purchase (OTP) to the buyers. If the buyers wish to use their CPF savings or a housing loan to pay for the flat purchase, they will need to make a "Request for Value" to HDB. Cash-Over-Valuation (COV) arises when the resale price is higher than the market valuation of the flat, as the difference can only be paid by cash. Otherwise, there is no COV. Buyers can decide whether to exercise the OTP for the resale transaction depending on the valuation and any COV payable. Should they choose not to proceed with the transaction, buyers will forgo the option fee of between $1 and $1,000 paid to the seller.

Ultimately, the resale price has to be agreed upon by the buyer and the seller. Before March 2014, sellers would obtain the valuation first before negotiating the COV payable with buyers. As a result, the vast majority of transactions involved a COV. We, therefore, reviewed the resale process and the current process allows price negotiations to take place between buyers and sellers, guided by the latest market information available on the HDB InfoWeb. Any further changes to the resale process that reduce or cap the COV payable could restrict the functioning of an efficient market. This is a situation we want to avoid.

The Government will continue to monitor the housing market conditions closely and ensure that Singaporeans have access to affordable public housing.