Now that several housing projects have been delayed for at least a year, including BTO flats, many people are thinking about buying an HDB resale flat. If you are in a rush to find a home, you need to know that the robust resale HDB market has led to a resurgence of cash over valuation (COV) prices. The reality is that since the Circuit Breaker (lockdown), a lot of buyers are willing to pay more for an HDB flat than its actual valuation. 

If you are looking at HDB resale flats, an HDB valuation is required if you plan on withdrawing funds from your CPF Ordinary Account (CPF OA) and/or get a housing loan to finance the purchase. You and the seller must first agree on a price before you pay the Option Fee and are given an Option to Purchase (OTP). And although all this must be done prior to getting an HDB valuation, you are still free to research this yourself to avoid paying more than the flat is worth. 

This article discusses the HDB valuation and how it can impact you as a buyer, and other important details that you need to be aware of. 

Table of Contents

Overview of HDB Resale Valuation

The HDB Resale Valuation Process

What Impact Does an HDB Valuation Have on Buyers of HDB Resale Flats?

COV Before 2014 Cooling Measures

HDB Valuations After 2014 Cooling Measures

Things to Know Before Requesting an HDB Valuation

How to Estimate the Valuation & Lower the COV Amount

Overview of HDB Resale Valuation

The HDB Resale Valuation Process

An HDB resale valuation is an estimate of what a particular resale flat is worth. Prior to requesting an HDB valuation you would need to come to an agreement with the seller on price and pay the seller an Option Fee before he/she would grant you an Option to Purchase.

If you are planning to buy an HDB resale flat with a housing loan from HDB or a bank and/or use funds from your CPF OA, you are required to get a valuation from HDB. This is done by submitting a Request for Value that day or by the next business day at the latest. Either you as the buyer or your real estate agent (a.k.a. Buyer’s Agent) can do this by using your SingPass to log into the HDB Resale Portal. 

You should have your HDB resale valuation in about seven business days. Most of the time the valuer does not need to visit the flat in person because there should be enough comparable sales transactions in the same block or adjacent blocks for the valuer to figure out what the open market value is for the flat. The buyer is the only one entitled to know what the valuation is, and no written report will be forthcoming. 

What Impact Does an HDB Valuation Have on Buyers of HDB Resale Flats?

The HDB valuation is what determines how much you can withdraw from your CPF savings, how much you can borrow, and the amount of cash over valuation (COV) to pay for the HDB resale flat. 

If you agree with the seller to pay $725,000 for their flat, you will go ahead and pay an Option Fee in order to get an Option to Purchase. Then you’ll submit a request to HDB for a valuation, and the official valuation may come back at just $700,000. In this case you would have to pay the additional $25,000 in cash to buy the flat at the agreed upon price. This is what is meant by Cash Over Valuation (COV). 

The amount you can take from your CPF saving, plus the amount of housing loan you’re allowed to take out is based on whichever is lower, the HDB valuation or the sales price, which in this case would be the $700,000 valuation. 

You also need to know that the Buyer’s Stamp Duty (BSD) you will be required to pay is based on whichever is higher, the HDB valuation or the sales price. In this case it would be based on the $725,000 sales price. 

Withdrawal of CPF Funds

How much you can withdraw from your CPF savings to buy a resale flat is also based on how much time remains on the lease. Is the remaining time long enough to last until the youngest buyer reaches 95 years of age? If so, you can withdraw up to the HDB’s valuation, which would be $700,000 in the case above.

If the time remaining on the lease won’t be long enough for the youngest buyer to reach 95, the amount you can use for the purchase will be pro-rated. The result will depend on the number of years remaining and how close it is to when the youngest buyer will turn 95. 

You’re welcome to use our CPF Housing Usage Calculator to figure out how much money you can withdraw from your CPF savings to buy the flat. 

How Much You Can Borrow

If you plan on taking out a loan from either HDB or a bank, how much you can borrow is based on a loan-to-value (LTV) ratio. The amount used in determining this will be whichever is lower, the HDB valuation or the sales price. The LTV ratio in the end is what determines how much you will be allowed to borrow to finance the flat, from either HDB or a bank. 

Borrowing From HDB

The LTV ratio for an HDB loan is 85% of whichever is lower, the HDB valuation or the sales price. In the case discussed above, the valuation is lower, so it would be 85% of $700,000, which means you can borrow up to $595,000 from HDB. 

Borrowing From a Bank

The LTV ratio for banks is 75% of whichever is lower, the HDB valuation or the sales price. In the case above, the valuation is lower, so it would be 75% of $700,000, which means you can borrow up to $525,000 from a bank. 

Cash-Over-Valuation (COV)

COV is determined by deducting the HDB valuation from the sales price of the flat. It’s the difference between the two. 

Since you can only borrow (from HDB or a bank) an amount of no more than the HDB valuation, you would need to pay the COV in cash. 

As discussed in the case above, you would need to come up with cash in the amount of $25,000 to pay the COV. 

The reality is that HDB valuation was a huge factor in astronomical COV prices prior to the government implementing some 2014 cooling measures, which brought property prices down.

However, a recent uptick in demand for HDB resale flats has brought attention back to COV. In the midst of a resilient market, buyers seem willing to pay COV for highly desirable flats. 

COV Before 2014 Cooling Measures

Before the measures of 2014 were introduced, the buyer and seller would come to an agreement on price after the seller having obtained valuation of the flat. 

In fact, HDB posted these valuations plus COV prices online, so price negotiations mostly revolved around the COV. 

For example, first there would be a request for HDB valuation submitted. If the value came back from HDB at $700,000, the buyer and seller would go back and forth until they settled on a COV, which would be paid over and above the HDB valuation. After considering previous COV prices, it may have been $35,000 in this case. 

However, this practice led to skyrocketing property prices, which made buying a flat unaffordable for many people. 

Sellers wanted to get the most for their flats, so they raised the price as much as they could. It got so bad that a Bishan maisonette was sold for a $250,000 COV towards the end of 2013. 

This is why the government felt the need to step in the following year and implement several measures to stabilise Singapore’s property market. 

HDB Valuations After 2014 Cooling Measures

The most significant change is that HDB valuations can now only be done once the buyer and seller have agreed on a sales price. 

Another change is that HDB no longer posts the COV prices, plus any COV prices that were previously published online were deleted. Now, HDB publishes the selling prices of resale transactions daily. 

The upshot is that sellers can no longer use the COV as a tool to raise the sales price. Instead, the buyer and seller will negotiate the price based on previous resale transactions. 

After coming to an agreement on price, the buyer gets HDB to do the valuation in order to know how much money he can withdraw from his/her CPF account and/or borrow from HDB or a bank. This also keeps the seller from raising the price just to make more money on the sale. 

If they agreed on a sales price of $725,000 and the HDB valuation comes back at $700,000, the COV has already been established at $25,000.

Since these cooling measures were implemented, they’ve had the desired effect with prices of HDB resale flats plummeting. Now buyers might have a chance of finding an HDB resale flat they could actually afford. But unfortunately, the recent comeback of the COV trend is of great concern with HDB resale prices climbing 5% in 2020 alone.

Things to Know Before Requesting an HDB Valuation

Before deciding to buy a particular HDB resale flat and submitting your request for an HDB valuation, you need to be aware of the following:

• You will be charged a $120 administrative fee for your HDB valuation request. 
• You are required to submit your request for valuation no later than the next business day after the Option Date stated on your Option to Purchase.
• HDB will determine whether it’s necessary for the valuer to make an in-person visit to the flat. 
• Once the flat’s value has been established and posted on the HDB Resale Portal and you accept it, you’ll have three months to submit your application. If you miss the deadline, you’ll be required to request another HDB valuation. 

How to Estimate the Valuation & Lower the COV Amount

To get an idea of what the HDB resale valuation might be for the flat you want, do your own due diligence. You can go online to Resale Flat Prices or to HDB Map Services to look at the prices of resale flats in the estate that have already been sold. This way you can get an idea of what your flat might be valued at. 

We also invite you to contact us at Pinnacle Estate Agency for an free indicative valuation service that is likely to be more accurate as it’s based on detailed information that we have on floor levels and specific unit numbers. 

With this price in mind, you are in a better position to negotiate with the seller and hopefully avoid paying any COV. However, keep in mind that if you start bargaining too hard your seller may conclude that you are just playing games and not a serious buyer.

At Pinnacle Estate Agency, we strongly believe in sharing our real estate knowledge to the public.⁠ For more content like this article, check out our Singapore Property Guides.