It’s a one word answer: VALUATION.
Valuation is important to both sellers and buyers. Sellers have to get apply for a valuation, where a HDB accredited surveyor would come down and value the flat, and buyers would need to pay for that valuation report, so that they can get a loan from the bank.
The purpose of valuations is to protect the lenders. If Mr Ang is asking $300k for his 3 room flat, but its current market value is only $250k, banks will only lend Mr Ang $200k. The other $100k, he would have to pay cash. This way, if Mr Ang defaults on his payments in future, and the bank repossess the flat, they would still be able to recover some, if not all their money after selling the flat to someone else. If they had lent him $240k, and they can only resell it at $200k, they would have instantly lost a lot of money. That’s how valuations came about.
What’s this all got to do with HDB prices? (more…)