With the construction of several housing projects, including HDB BTO flats, delayed for a few years, you may be looking at the HDB resale market especially if you are in need of a home, privacy or want a bigger space.
Due to the increased demand for an HDB resale flat, prices for HDB resale flats increased for the 29th straight month in November 2022. The HDB Q3 2022 Resale Price Index (RPI) rose by 2.6% from Q2 2022.
If you’re a buyer looking to buy a resale HDB flat, obtaining the valuation is important as it will determine both the housing loan and CPF amount that you can use. Whilst you must first agree on the price with the seller and sign the Option to Purchase (OTP) before getting the valuation, you can still do your own research so that you won’t have to pay too much Cash Over Valuation (COV) or cash in excess.
In this article, you’ll learn how HDB’s valuation will affect you, and some other key things you should note about it.
HDB Resale Valuation: An Overview
| HDB resale valuation: what is it? | HDB’s estimation of how much the resale flat is worth. |
| What does the HDB valuation affect? | The amount of CPF savings you can use, the loan amount you may take, and COV to pay. |
| How to get an HDB valuation report? | After signing the OTP, the buyer can submit a Request for Value. |
HDB Resale Valuation: How Does It Work?
An HDB resale valuation is simply an estimation of how much the resale flat is worth and is part of your HDB resale application.
If you’re buying a resale HDB flat with your CPF savings, or with a housing loan from HDB or a bank, you’ll need to submit a Request for Value from HDB.
As a resale buyer, you’ll first need to negotiate with the seller on the selling price and pay him/her the option fee first before requesting an HDB valuation.
Once the seller has granted you the OTP, you can then submit the valuation request to HDB.
If HDB decides that a valuation is indeed required to determine the value of the flat, an assigned valuer will come to the flat to inspect it.
How Does HDB Property Valuation Affect HDB Resale Buyers?
The HDB property valuation will determine the amount of CPF savings, housing loan, and COV to pay for your resale flat.
Let’s say that you and the seller have agreed on the selling price of $725,000. You pay the OTP and submit the HDB valuation request. HDB’s official valuation of the HDB flat, however, is $700,000. This would mean that you will be paying a COV of $25,000.
The amount of CPF savings and housing loan that you can use is based on the lower of the HDB property valuation or price, in this example, it’s $700,000.
However, the COV will affect the stamp duty that you pay, namely Buyer’s Stamp Duty (BSD) and Seller’s Stamp Duty (SSD) as they are based on the higher HDB valuation or price. In short, COV would result in higher BSD and SSD.
1. Amount of CPF Savings You Can Use
| Remaining lease of the property is at least 20 years and can cover the youngest buyer until at least age 95 | CPF usage |
| Yes | Buyer can use CPF to pay for the property up to the HDB Valuation Limit |
| No | Use of CPF will be prorated based on the extent of the remaining lease of the property and can cover the youngest buyer to the age of 95. This will help buyers set aside CPF savings for their housing needs during retirement (e.g. a replacement property). |
The amount of CPF savings that you can use to pay for your HDB resale flat is based on the remaining lease of the property.
Using the example above, you’ll be able to use your CPF savings up to the HDB valuation of $700,000 if the remaining lease of the flat is at least 20 years.
You may use the online calculator from CPF Board’s website to calculate the amount of CPF savings that you can use.
2. Loan Amount You Can Get
| Type of loan | LTV ratio | Loan quantum (based on $700,000 HDB valuation) |
| HDB loan | 80% | Up to $560,000 |
| Bank loan | 75% | Up to $525,000 |
If you’re taking a loan from HDB or the bank, the loan amount is based on the HDB valuation amount and not the selling price. Specifically, the Loan-to-Value (LTV) ratio of the resale flat will determine the maximum amount that you can borrow from HDB or the bank.
After the latest round of cooling measures announced on 29 September 2022, the LTV for HDB loans has been reduced to 80%. Based on the valuation of $700,000, you can take up a loan of up to $560,000. If the remaining lease of the flat does not cover the youngest buyer from the age of 95 and beyond at the time of flat application, the loan limit is prorated.
On the other hand, for a bank loan, the LTV is 75%. This means that you can use a bank loan of up to $525,000 to pay for the HDB flat.
3. COV You Might Have to Pay
COV is essentially the difference between the selling price and the actual HDB property valuation of the flat.
Since the housing loan (whether it’s from HDB or a bank) will only cover up to the HDB property valuation amount, you’ll have to pay the balance in cash.
As explained in the example above, this means that you’ll have to pay the COV of $25,000 in cash.
In fact, HDB property valuation played a huge role in the sky-high COV prices before the government introduced a cooling measure in 2014 to bring down property prices.
However, increased demand for resale flats has seen COV again in the spotlight amid a resilient property market, which has seen more buyers paying COV for their choice of HDB flats.
How COV Worked Prior to 2014
Prior to 2014, the seller and the buyer would actually settle on the selling price of the flat after HDB’s valuation of the flat.
With the HDB valuation and COV prices published by HDB online, their negotiations would be largely focused on COV.
For example, a request for valuation would be submitted first. Let’s say the flat is valued at $700,000 by HDB. The buyer and the seller would then negotiate on the COV to be paid on top of this valuation. Based on the past COV prices, they may agree on a COV of $35,000.
However, property prices skyrocketed due to this practice, making it less affordable for buyers to buy a flat.
Sellers had hiked up the selling price to earn a higher profit. For new and spacious units in prominent locations, prices might approach a whopping COV price of $200,000. Furthermore, at the end of 2013, a maisonette in Bishan fetched a COV price of $250,000!
So, the Government introduced a few measures in 2014 to stabilise the property market.
HDB Property Valuation From 2014 Onwards
One of the changes made is that HDB property valuations can only be done after the buyer and the seller has settled on the selling price.
HDB stopped publishing the COV prices and removed those that were previously posted online. Currently, HDB publishes the selling prices of resale transactions daily.
This means that sellers cannot use the COV as a basis to hike up the selling price. The seller and the buyer will instead focus on negotiating the total selling price based on the prices of past resale transactions.
After agreeing on the selling price, the buyer will then get the HDB property valuation done to know the amount of COV to be paid. This also prevents the seller from changing the selling price to earn a higher profit.
Let’s say the agreed selling price of the flat is $725,000. With an HDB property valuation of $700,000, the COV will be fixed at $25,000.
Since then, the prices of HDB resale flats have gone down, making them more affordable for buyers.
What Are Some Factors That Affect the COV?
Various factors influence the COV that you’ll need to pay, but the main ones are:
- Location;
- Flat condition; and
- Size of the flat
1. Location of the HDB Flat
Flats located close to amenities such as MRT stations, shopping malls, and schools tend to sell at a higher price. They’re also more likely to fetch a higher price if they’re located in mature estates, where more amenities are available for residents.
For convenience and accessibility, people are more willing to fork out a premium to buy these flats.
For example, a resale flat in Bishan is more likely to sell above the flat’s valuation because of the flat’s location and surrounding amenities, compared to an HDB flat located in Woodlands.
The same goes for buying a resale flat in Tanjong Pagar. Given its proximity to the CBD, it’s more likely that people will pay a higher COV for it.
2. Condition of the HDB Flat
Flats with extensive renovations and furnishings tend to fetch a higher price. People are also more likely to pay more for older resale flats, provided that they’re well-maintained.
On the other hand, if the resale flat that you’re thinking of buying looks run down, it’s more likely that the COV will be lower.
3. Size and HDB Flat Type
Larger flats in general command a higher selling price.
If you’re eyeing a rare type of resale flat, such as an HDB maisonette or jumbo flat, be prepared to fork out a higher COV. As these flat types are no longer in production, they’re highly in demand because of their rarity.
HDB Valuation Report: Things to Note to Receive One
Before you decide on buying the resale flat and submitting a request for HDB’s valuation, be sure to take note of the following administrative matters before you receive your valuation report:
- You’ll need to pay an HDB valuation fee (aka admin fee) of $120 for the HDB valuation request.
- You’ll need to submit the request by the next working day after the Option Date stated in the Option to Purchase.
- Should HDB decide that a valuation is needed, they will assign the valuer for you.
- If you’re happy with the HDB valuation, you’ll have to submit a separate application to buy the resale flat.
- Once the value of the HDB flat is published on the HDB Resale Portal and you’re satisfied with it, you’ll need to submit your resale application within three months. Otherwise, you’ll have to submit another request for HDB valuation.
What You Can Do to Get an Idea of the HDB Valuation and Reduce COV Amount
To get a better sense of the HDB resale flat’s valuation, you can start by doing some due diligence. There are various methods for you to do so:
- You can get an estimation of the price of resale flats in the estate by referring to the transacted resale flat prices on HDB.
- You can also search for similar-sized HDB flats in the same area/estate on PropertyGuru as the one you are keen on getting.
Each of these methods will give you a rough idea of the possible selling price range of the HDB resale flat.
With the baseline price in mind, you can then use that as a basis for negotiation with the seller. Make sure to negotiate with the seller so that you reduce as much COV as possible. But do also remember not to be too aggressive with your bargaining because it can indicate that you aren’t a genuine buyer and just turn off the seller.
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