Beating high COVs

Source : Straits Times – 7 Aug 2010

Targeting older flats and those in less popular areas can mean paying well below the high cash-over-valuation prices

When homebuyer Ng Hui Hui and her husband, Mr Edwin Soon, read newspaper reports of how median cash-over-valuation (COV) prices hit a high of $30,000 recently, they heaved a sigh of relief.

This may seem a surprise, given that having to fork out a higher cash premium to snare that home-sweet-home resale flat is a hot topic among property purchasers.

However, the couple were not being perverse – the pragmatic pair were just glad that they managed to nab a home with a COV that was under $30,000.

COV is the cash amount paid upfront by a buyer over a flat’s valuation by the Housing Board, and is not covered by a bank loan.

The Soons, who have been married for two years, got the keys to their five-room HDB resale flat in Sengkang last month. They paid $448,000, inclusive of $28,000 COV.

Ms Ng, 30, a corporate communications specialist, says that while $28,000 is way above their budget of $20,000 COV, ‘it is a small blessing that we paid less than what is the norm for this area’.

According to HDB resale transactions, the median COV for a five-room flat in Sengkang is $35,000.

The couple have been house-hunting for the past nine months and say they saw more than 100 resale flats.

They did not want new flats – which are sold directly by HDB and do not involve paying COVs – as they did not want to wait about three years to get their keys.

‘When we told agents that our budget was $20,000 COV, they told us it would be impossible to find a flat,’ says Mr Soon, 32, a program manager.

An Hougang maisonette that they viewed came with an asking price of $150,000 COV. A ground-floor unit in Bedok had a low $7,000 COV, ‘but we do not like ground-floor units as they offer little privacy’, says Ms Ng.

In the end, the couple settled for their fourth-floor, seven-year-old flat in Sengkang, which comes with floor-to-ceiling windows, white floor tiles and is opposite a primary school.

‘It will be convenient for our daughter, Charlotte, to enrol there,’ says Ms Ng.

The couple had set aside $40,000 for COV and renovation works. They now have a roof of their own over their heads, but they cannot move in yet.

With the higher COV price that they paid out of their savings, renovations will have to wait. Works they want done include upgrading the kitchen, which can be costly.

‘We will have to renovate our home in stages,’ says Ms Ng. Meanwhile, they will continue to live with Mr Soon’s parents in a terrace house in East Coast Road.

The $30,000 median COV figure was for resale cases registered with HDB in the second quarter of this year. It was a $5,000 increase on the previous quarter.

Typically, the agreed price for a HDB resale flat includes a cash premium on top of the official valuation determined by an HDB panel of independent professional valuers. It is an amount that a seller wants over and above the valuation.

However, there is some small cheer for disheartened home-hunters: Property experts that Life! spoke to say it is possible to find resale flats whose owners are not asking for such large cash amounts upfront. The caveat: Be prepared for the flat to come with less than ideal conditions, such as a less popular location and advanced age.

COV unlikely to top $35,000, say experts

Sales manager Alan Wong, 44, paid $26,000 COV for his three-room flat in Boon Lay. It is not a central location, but he says the COV paid is ‘reasonable, as it is on the 17th floor, a corner unit and nicely upgraded’.

Mr Eric Cheng, chief executive of ECG Property, says it is possible to find a flat for $15,000 COV in Jurong. Four-room flats in areas such as Choa Chu Kang, Pasir Ris, Woodlands and Jurong East come with a COV lower than $30,000 (see table).

Mr Lim Yong Hock, senior vice-president at PropNex, recalls a recent deal where a three-room flat in Ang Mo Kio sold with a $15,000 COV. ‘In today’s market, $15,000 is low,’ he says.

Despite the flat being nearly 30 years old and not on a floor with a lift landing, ‘the buyer bought it because other units in the area were going for $40,000 COV’. On the other hand, some COVs have soared way above the latest median, as much as several times that figure.

Mr Cheng’s firm recently brokered a deal for a rare penthouse maisonette in Bishan. The buyer, who declined to be interviewed, paid $170,000 COV for it. ‘He saw the flat, loved it and was willing to buy it even before he sold his former five-room flat,’ says Mr Cheng.

But before sellers rub their hands in glee at the prospect of seeking sky-high cash premiums, Mr Eugene Lim, ERA Asia-Pacific associate director, says that ‘$100,000 COV is very rare, usually one- off cases and usually for flats on very high floors’.

PropNex’s Mr Lim says that these days, ‘it is natural for the seller to ask for $40,000 to $50,000 COV because buyers are willing to pay’.

Ms Tay Yi Ling, 36, a senior manager, agreed to fork out $38,000 COV for her three-room flat in Bedok North, despite finding the amount on the high side.

‘It is a corner unit, big for a three- room flat, and it is right next to my parents’ flat,’ she says.

The highest median COV record on HDB’s books is $42,000 in 1996, when the property market was at its peak.

Mr Chris Koh, director at Dennis Wee Group, says ‘paying for high COV is becoming a norm now, but it should not keep rising’.

Property experts interviewed all say that median COV prices are unlikely to go higher than $35,000 in the next quarter of this year.

‘Once the threshold is hit, buyers just won’t pay,’ says Mr Koh.

Property agent Vincent Koh, who runs his own firm, MindLink Vincent Koh, says that with more new flats being launched, prices of resale flats and COV amounts will stabilise.

The HDB launched almost 9,000 new build-to-order flats in the first half of the year and will launch another 7,200 in the second half. The total amounts to 80 per cent more than last year’s number.

In addition, there are about 4,700 new flats under the design, build and sell scheme and the executive condominium housing scheme. In the pipeline are four more executive condominium sites in Punggol, Pasir Ris, Bukit Panjang and Tampines, which should yield 1,900 units.

However, despite more new flats on the market, some potential buyers say they will stick to hunting in the resale market.

Among them is tax officer Joanne Chang, 36. She has a flat in Sengkang, but spends most of her time at her mother’s home in Hougang.

She is on the hunt for a four-room flat in Hougang. ‘I want to live near my mum and also be near the school where I hope to enrol my daughter in next year,’ she says. She has viewed three flats since she began her home search a few weeks ago.

‘Most sellers are asking for a COV of $35,000 to $50,000, which I find steep. But I’m willing to fork out that sum if I like the unit,’ she says.

Account director Joseph Yeo and his consultant wife, Ms Hing Ying Ling, are also flat-hunting. They now live with his parents in an executive flat in Jurong East, but want to have a home of their own. Private housing is not an option as the couple find the prices too high and their joint income exceeds the $8,000 ceiling set for new HDB flats.

‘Our budget for COV is $30,000 or less,’ says Mr Yeo, 35.

They have seen more than 20 flats this year, in areas such as Clementi, Jurong East, Delta and Cantonment.

He says there are flats in Jurong East that fit his budget, but ‘it is a real hassle to drive to work in town daily’.

They recently viewed a four-room, 75 sq m flat in Cantonment Close where the seller was asking for $50,000 COV. ‘But it was just too small for our liking,’ says Ms Hing.

One of the more expensive flats they saw was in Clementi, which came with a $100,000 premium. ‘That is way beyond our budget,’ says Mr Yeo, who does not think he is being too picky. ‘A flat is a long-term investment.’

Mr Roy Varghese, foundation adviser and director at Ipac Financial Planning Singapore, advises buyers to do their sums before coughing up any cash.

He suggests dividing the premium over 10 years to see if they can afford it. ‘If not, buyers should be realistic and consider other flats that are cheaper but are in less central locations or are smaller in size, or even give up their cars, as a flat is a long-term asset,’ he says.

‘You must do your maths, and not depend on agents to tell you whether or not to buy.’