By Stella Thng

A uniquely Singaporean property negotiation tool used only in the open market for HDB resale flats, the COV refers to the cash premium that a buyer agrees to pay, on top of the official valuation of the flat.

At its peak in the third quarter of 2011, the Singapore Real Estate Exchange reported that buyers were shelling out an average of $36,000 in COV. As recent as January of this year, a HDB maisonette in Bishan commanded a COV of $250,000 and sold for a record $1.05 million.

But that was a rarity in those times. COV figures across the island had already been steadily slipping, especially in less popular estates such as Woodlands, Jurong West, Sengkang and Punggol. In February this year, the HDB median COV dropped to zero, from $32,000 just a year before. Twelve out of 28 HDB towns saw zero or negative COV, with almost 40 per cent of transactions priced below valuation.

On the back of the bearish property market, it was probably as good a time as any to finally introduce a radical change to the COV system, announced by Minister for National Development Khaw Boon Wan in March this year.

Still unsure of how the new resale procedure affects you? We answer your FAQs and clarify some common misconceptions.

A: Previously, buyers would wait for a flat’s valuation report to be ready, before negotiating to pay a COV on top of it. This cash premium inadvertently became the focus of price negotiations in resale flat transactions, explains Sharon Tung, senior corporate communications manager of the Housing Board (HDB).

However, COV is not a requirement for resale flat transactions. “Such transactions take place on a ‘willing buyer-willing seller’ basis,” says Sharon. “COV arises when buyers are willing to pay more than the market valuation of the flat, as determined by professional valuers.”

As of March 10, 2014, HDB will accept valuation requests from resale flat-buyers (or their
appointed salesperson) only after the buyers have been granted an Option to Purchase (OTP) by the sellers. This means that buyers now have to offer a “lump sum” price for the flat, before finding out its valuation later. This is to encourage buyers and sellers to focus on the sum total of the flat price, rather than on the COV.

This practice is similar to that of private property transactions, where a single price is negotiated without a separate COV.

No, it doesn’t mean that. For example, if you signed an OTP to pay $460,000 for a flat and the
valuation turns out to be $445,000, you still need to fork out $15,000 in cash. Your loan will be based on the $445,000 valuation price.

Similarly, Cash-Under Valuation (CUV) can occur if you buy it cheaper than the market value. “Hence, COV or CUV will exist, as long as the agreed price differs from the valuation,” sums up Sharon.

As of March 10, 2014, HDB stopped publishing the quarterly median COV by town and flat type and removed all previous COV data on the HDB InfoWEB.

Instead, buyers can now access daily prices of resale transactions as soon as they are registered, to make offers based on updated figures. Previously, resale prices were published only fortnightly and after the resale transactions were approved. “This is to encourage flat-buyers and sellers to return to negotiating resale prices based on the total price of the flat, taking reference from recent transaction prices,” highlights Sharon.

Reviews have been mixed. Although Clarissa Tan, 36, who is currently shopping for her own flat, found the daily updates of resale transactions useful, they still didn’t indicate how much of the prices were forked out in COV, if any.

Cash flow is still Clarissa’s biggest concern so she prefers the old system. “If I’d bought my flat before the new regulation kicked in, I’d know exactly how much cash to pay instead of playing the guessing game,” she laments.

However, fellow home-shopper Adrian Cheong, 33, welcomes the change. “When my parents wanted to buy a modest four-room flat in Clementi back in 2000, it was common for sellers to demand $40,000 to $50,000 COV – even for a simply renovated flat valued at $250,000.

“One agent used the neighbours’ COV figures to urge us to outbid another interested party, and each bid increased by the thousands. I feel that this revised system is a better one as I now negotiate one price based on how much I feel the flat is worth,” says Adrian.

In the first few weeks after the new resale procedure was announced, property agents reported that buyers preferred to buy from sellers who already had a valuation report on hand, which were honoured by HDB as long as they had not expired (valuation reports are valid for three months).

We also heard of a seller who was left in the lurch when the buyer backed out of the sale and the negotiated $20,000 COV. Despite losing the $1,000 deposit, the buyer – a single lady living with her parents who was not in a hurry to move – decided to wait in hopes of a cheaper deal.

The Resale Price Index, which started dipping from the third quarter of 2013 even before the new regulation kicked in, has continued its slow but steady downward trend. The second quarter of 2014 (right after the new procedure was announced) saw a modest drop of 1.4 per cent.

However, Sharon reminds buyers not to attribute it solely to the new resale procedure. “Resale prices are affected by many factors such as the overall economy, property market sentiment, prevailing demand and supply of HDB resale flats in a locality, and the individual flat’s attributes such as location, size and age.”

While some desperate sellers may have offered deeper discounts in the early days after the announcement, agents tell us that, like all changes, things have settled down as people adapt to the new system. “After all, HDB flats are a necessity for most Singaporeans,” says one agent.

“Those who can’t afford to buy private property and don’t want to wait a few years for a new HDB flat will still have to shop in the open market.” So, buyers, don’t expect HDB prices to fluctuate wildly, unlike those of private properties which are open to riskier speculation.

In fact, some sellers are relieved to find that the new rule has not “devalued” their flat. Jophia Bok, 37, recently sold her five-room flat at Bukit Panjang within weeks, at $540,000. It was later valued at $530,000 and her buyer paid a comfortable $10,000 in COV. “It was a good price, similar to what our neighbours received for their units sold much earlier than us,” says Jophia. A neighbour on a higher floor sold his for a few thousand dollars cheaper – proof that every flat’s worth is different in the eye of the beholder.

There is really no “best time” to buy your HDB flat as nobody knows when the market will hit rock bottom. Every resale flat-seller will naturally ask for the highest possible price no matter when he sells it. “Potential flat-buyers should consider other flats in the market and the tradeoffs between price, location and flat attributes,” suggests Sharon.

Factor in your needs, such as its proximity to your parents, the current renovation, availability of childcare arrangements or schools, or even the variety of food in the area. A higher-priced flat that is “worth buying” because the seller has slashed his price can become a burden if you are saddled with high monthly instalments. “Buy a flat that you can comfortably afford.

Exercise financial prudence and do not over-commit yourself,” adds Sharon.

The new resale procedure is here to stay and if it encourages sellers to price their flats more realistically and caution buyers to spend within their means, then that can only be a good thing.


Before you make an offer for that flat you’re eyeing…

HDB Loan Eligibility (HLE)
Before you start shopping, it is best to obtain a HLE letter for your HDB loan, or in-principle loan approvals from banks for bank loans. This gives you a better idea of the budget you  have to work with. You don’t want to commit to an Option-To-Purchase agreement, only to lose your $1,000 deposit if you cannot get the loan quantum you need.

HDB’s Resale Flat Prices enquiry service
This interactive service lets you customise your search based on flat type, range of resale prices, resale application registered date, and so on, over the past two years. iPhone and Android users can also download the Mobile@HDB app to check prices on the go or access the mobile site at – very useful when you need to compare prices during home viewings.

Centralised Map Services
If you have already narrowed down your choices, this service will offer you more information about the
neighbourhood you are keen on. Look up resale transacted prices 500m from any HDB block or DBSS site or project, for all flat types in each block. You can also get related information to the block such as ethnic group eligibility, Singapore Permanent Resident quota, HDB’s Upgrading or Estate Renewal Programmes, and distance enquiry for CPF housing grants.

[Image by Southern Stock Corp/ Corbis]