Saturday 1 June 2013

Scrap COVs, they say, but S’poreans also want to monetise flats

By Sumita Sreedharan, TODAY, 31 May 2013

Singaporeans want flats to be affordable but also want to make a tidy sum when they sell their units, if the views of participants at Wednesday’s Our Singapore Conversation (OSC) session on housing were anything to go by.

The three-hour session — the third so far organised by the Ministry of National Development (MND) — was attended by 50 people and held at the Singapore Management University.

Several called on the authorities to scrap the Cash-Over-Valuation (COV) component for resale flats.

Mr Ganessaraj Soocelaraj, a 39-year-old engineer, pointed out that the sale prices of resale flats would affect the prices of all flats in the vicinity.

Civil servant Fiona Tan, 42, questioned why the MND accepts the practice of allowing sellers to ask for a premium in cash above the market valuation. “If the unit has been given a professional assessment, I do not understand why such an under-table deal is still allowed,” she said.

The HDB had previously explained that COV is not mandated by the authorities and that it is subject to the dynamics of the housing market, prevailing economic factors and negotiations between buyer and seller.

Speaking to TODAY, Mr Colin Tan, head of consultancy and research at Chesterton Suntec International, pointed out that COVs “cannot be eradicated until the valuation price comes as close to the selling price as possible”.

The HDB should “relook how to close this gap”, he said.

At the OSC session, which was attended by Bukit Panjang Member of Parliament Teo Ho Pin, about 60 per cent of the participants said they would like resale flat prices to go down.

However, most of them were against suggestions the MND had made to limit profiteering. The Ministry suggested that 1) flats have to be sold back to the HDB at the purchase price; 2) part of the sales proceeds have to be refunded back to the Government; 3) part of the sale proceeds have to be channelled back to the sellers’ Central Provident Fund accounts.

None of the suggestions received support from more than 10 participants. They instead suggested, among other things, giving buyers more options such as no-frills flats or having a variety of leases and minimum occupation periods for Build-to-Order flats.

To manage the prices of flats, analysts whom TODAY spoke to suggested abolishing subletting.

Mr Chris Koh, from property firm Chris International, said: “If you remove the investment element of the flat and it becomes solely for owner occupation, I believe both the resale and BTO flat prices can be controlled.”

The final OSC session focused on housing will be on June 12 and will explore how to help elderly Singaporeans who wish to monetise their flats.

Resale flat prices a hot topic at forum
By Charissa Yong, The Straits Times, 31 May 2013

LOWER the prices of resale flats or at the very least maintain them - that was the wish of most participants at an Our Singapore Conversation session on affordable housing this week.

Only a handful of the 50 attending Wednesday night's session were in favour of letting resale prices rise gradually to keep pace with inflation.

Scrapping the cash-over-valuation (COV) premium was one of the most popular ideas on how to bring prices down. The COV is a cash amount above a resale Housing Board flat's valuation. It is negotiated by sellers and buyers and paid by the latter.

Civil servant Fiona Tan, 42, said: "I don't understand why COVs are necessary, since a flat's value would have been determined by the valuer.

"These premiums stress buyers out, especially for singles who have just one income stream. I just want a roof over my head and hope that one day it becomes an affordable dream for us, like it was for my parents' generation."

But others were quick to defend the COV's role.

"It's market forces. There must be something to differentiate between units," said Mr Sonny Wee, 37. The service manager said it was the valuation of a flat, rather than the COV in itself, which drove up resale prices.

Some also pointed out that even if COVs were banned, they would still be likely to go on "under the table".

Teacher Sean McMenamin, 28, said that although he was against the idea of a COV, some sellers did need the cash for valid reasons such as renovation costs.

During the three-hour session, home owners and buyers debated different ways to make resale and Build-To-Order (BTO) flats more affordable.

Almost all rejected selling flats back to the Government, especially at purchase price, instead of on the open market.

"There's no incentive for owning a flat (if you can't sell it to someone else). It's basically a rental," said Mr McMenamin.

He added that his discussion group was against the idea because it would hinder asset appreciation and social mobility.

Property agent Elaine Goi, 48, said selling a flat back to HDB without accounting for inflation would cause its value to depreciate, hurting many people whose only asset was their home.

The idea of safeguarding part of resale flat proceeds for retirement needs was also shot down.

Several spoke of how they did not want even more of their money to be "locked away in Central Provident Fund accounts".

Providing larger housing subsidies for first-time buyers, to be partially returned to the Government upon the flat's sale, was another idea favoured by several.

Subsidies are currently tiered according to income. BTO buyers can get up to $60,000 if they earn below $1,500 a month. Those earning between $4,501 and $5,000 get $5,000.

Scrapping valuation doesn't lower prices

THE valuation of a Housing Board resale flat involves a trained person stating his opinion of the unit's value, after having examined related matters affecting it ("Resale flat prices a hot topic at forum"; yesterday). It is neither a determination of the price nor the cost of constructing the flat.

The HDB has stated that cash-over-valuation (COV) is not mandatory in a resale transaction; the board does not determine the resale price that is concluded between a willing buyer and a willing seller.

The valuation gives transacting parties an idea of the immediate past prices of similar resale flats.

People often mistake the purpose of a valuation as a process to set an "official price" of a resale flat. Some even allege that the HDB "legalised" the COV, but the reality is that a resale flat is transacted on a "willing buyer, willing seller" basis.

It is the demand and supply of a particular resale flat that will determine whether it can command a price above or below its value then.

The scrapping of the valuation of an HDB resale flat does not lower its price. Instead, it removes the guide for transacting parties to fall back on.

A situation can arise where a buyer of a resale flat goes to a financier to borrow money, and he values the unit over and above what the market values it. Thus, without an independent valuation, he will have to spend more time with his financier over the difference in opinion of the flat's value.

Patrick Sio
ST Forum, 1 Jun 2013

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