Property players split on making public COVs for HDB resale flats

[SINGAPORE] The issue of having cash over valuation (COV) in HDB resale transactions - once a political hot potato - is boggling the minds of property analysts and agencies again as latest flash estimates show that COVs have fallen to zero and may dip further into negative territory.

ERA Realty key executive officer Eugene Lim echoed calls from the past to scrap the publishing of COV figures on concerns that negative COVs will cause a downward spiral of HDB resale prices.

"How much cash under valuation, or CUV, is your seller looking at?" That's what buyers are asking the property agents now, Mr Lim said.

COV is the cash premium that buyers pay in excess of the valuation of an HDB flat. The overall median COV for HDB resale flats slumped from $32,000 a year ago to hit zero last month.

Mr Lim said that the HDB was trying to improve market transparency when it started publishing COV tables for the different estates and flat types to educate the public and address the perception that COVs were too high. "But people then started to use that as a benchmark and mark up their prices above it. The COV price becomes the registered price and the next valuation becomes higher.

"Now, if the reverse catches momentum, many flat owners will suffer because the prices will shoot downwards. It's timely to take out the cash over valuation and cash under valuation figures. Just publish market price."

Some members of Parliament have, in the past, suggested scrapping official COV figures as they believe it contributes psychologically to rising HDB resale prices.

But the government had responded that people would calculate those figures themselves even if HDB did not publish them. The COV is not mandatory in a resale transaction and the HDB does not determine the resale price, which is agreed between a willing buyer and a willing seller.

Some property analysts felt that COV remains relevant in today's market.

Ong Kah Seng, director of R'ST Research, noted that COVs have a role to play, serving as a "brake to over-buying during average and buoyant market conditions", despite being blamed for being a psychological benchmark that drives COVs and selling prices higher.

Even with the cooling measures and dampened buying sentiment, the COV mechanism can still act as a reference point for buyers and sellers, he said.

"A zero or negative COV now (and going forward) will signal to buyers that resale flat prices seem quite affordable, and can reduce the possibility of sellers having to relent to endless requests for low or very low prices."

Alan Cheong, director for research and consultancy at Savills Singapore, noted that "COVs have a role to play in setting the benchmark for subsequent valuations down the road" as valuations tend to be backward-looking.

"They should leave COVs alone. There are many measures that are administrative in nature that choke the free market mechanism," he said. "Let's work within the existing framework and calibrate it."