The Minister for National Development has announced that buyers of HDB flats will now have to negotiate and agree on a selling price with the seller before he (buyer) can request a valuation report from the Housing Development Board (HDB). The aim, he said, is for the two sides to base their negotiations on recent transaction prices, and reduce the focus on Cash-Over-Valuation (COV).
This is what Mr Khaw Boon Wan said in Parliament today:
One evidence that the resale market is turning the corner is the declining trend in COV: cash-over-valuation. Nearly 40% of resale transactions last month were priced below valuation, a negative COV. Indeed, the market has coined a new term, CUV: cash-under-valuation. Whether it is COV or CUV, the practice of bargaining based on this, rather than the total price of the flat, is an anomaly unique to our HDB resale market. How did it come about? Currently, most flat sellers would obtain a valuation report for their flats, which they then use as a base price and negotiate with buyers based on COV. Contrast this with practices in the private market. Negotiations there are rightly, based on recent transaction prices, and are typically carried out before buyers request for valuations.
Er Lee Bee Wah has suggested that the HDB resale market follow the practice in the private housing market. I agree. With COVs hitting zero or negative, now is a good time to make the adjustment. I have asked HDB to move on this.
HDB will rationalise the process of price negotiations and restore the original intention of valuation, which is to help buyers obtain a housing loan. In parallel HDB will publish daily, prices of resale transactions as soon as they are registered. This way, buyers and sellers can refer to the latest market information during their negotiations. Negotiating based on price rather than COV will take some getting used to. However, it is a useful move for long-term market stability.
Changes on the resale procedure.
- HDB will publish daily prices of resale transactions as soon as they are registered, instead of fortnightly after the transactions are approved.
- HDB will only accept valuation requests from resale flat buyers (or their appointed salesperson), after the buyers have been granted an Option to Purchase (OTP) by flat sellers. This change will take effect from 5pm, 10 March 2014.
- Under the new rules, buyers who are granted OTP will have 21 calendar days to exercise the OTP to adjust to the new procedure.
What does this mean to buyers of resale HDB flat?
In an interview by PropertyGuru, Mohamed Ismail, CEO of PropNex Realty, said:
“With this revised procedure, the possible impact of allowing valuation only after the OTP is granted, will expose HDB home buyers to a higher vulnerability of a greater cash outlay if there is any gap between the agreed price and the valuation price. Buyers will become more cautious in their offer price as they enter into a purchase without an indication of how much the property is worth.”
In contrast, Mr Mohamed Ismail said, for the purchase of a private property, buyers do get an indicative valuation from the banker before entering into an option and in most instances, banks do honour the valuation based on indicative prices given.
He noted that HDB resale prices are expected to drop further as potential buyers take a cautious approach in their negotiations before they ink the OTP.
Leong Sze Hian, financial service professional, asked what happens if the buyer agrees to buy at an agreed price but discovers later that the price is a lot more than the valuation. How would the buyer be able to get a housing loan that is sufficient to pay for the HDB flat?
Mr Leong added, “Recent transaction prices are but just one of many subjective factors that may determine the price of a property, such as renovations, location, etc.”.
Mr Leong also highlighted his concerns that the market may “freeze up” as some may adopt a wait-and-see attitude – which may cause an already weak and declining market to decline even faster.