Ever wonder why HDB prices keep going up?

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? Simple. These days, almost every buyer is asking for Cash over Valuation (COV). They feel their flat is worth more than market value. So buyers complain, complain … complain. Why COV keep rising, wah … flats so expensive. But some people still pay those COV and get their flats.

Then the next wave of valuations come out. The surveyors look at recent past transactions, and see that “oh, 3-room flats here have been selling for $240k, even though we valued it at $220k“. So they raise their valuation estimates to match the current selling prices. So now, buyers need not pay much COV right?

But sellers still want their $20k COV! It doesn’t really matter what it’s valued at, ultimately, it’ll still be priced at a crazy COV. So buyers complain complain complain. Notice, they are always complaining about the high COV, and seldom about the flat valuation price. This is because Singaporeans (and PRs) are CPF-RICH but CASH-POOR. So the cycle continues.

1. Buyers complain about high COVs
2. Surveyors tries to lower COV by raising valuation to match market sale price
3. Owners maintain their asking COV
4. Some buyers will still buy cause they can’t wait
5. Sale price increase, which means market price increases
6. Go back to pt 1

The cycle continues. Get it?

And here’s the funniest part of it all. Some Singaporeans have overcommitted on loans in order to get their own place, and if some more serious crisis happens, and more of them start defaulting, it’ll be like a ‘sub-prime – Singapore edition‘. When HDB prices finally crash, lenders will suffer. The whole concept of valuation has failed to protect their pockets.

But in the meantime, as long as high demand for limited HDB flats continues, and valuations keep rising like the high tide, HDB flat prices will continue rising.

(This is part of “The Almost Complete Goondu’s Guide to Buying a HDB Flat in Singapore” series.)

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7 Responses to “Ever wonder why HDB prices keep going up?”

  1. The Singapore Daily » Blog Archive » Daily SG: 26 Oct 2009 Says:

    […] – Singapore Watch: Ever wonder why HDB prices keep going up? – The Star: Buyers Feeling The […]

  2. The Singapore Daily » Blog Archive » Weekly Roundup: Week 44 Says:

    […] – Singapore Watch: Ever wonder why HDB prices keep going up? – The Star: Buyers Feeling The […]

  3. Singapore Democrats Says:

    Thank you for the insightful blogpost. The Singapore Democrats have featured your post in our blogs of the week section – http://yoursdp.org/index.php/news/blogs-of-the-week

    More about our “Blogs of the week” section – http://yoursdp.org/index.php/news/singapore/2212-blogs-of-the-week

  4. cleodux Says:

    I really like your article there. And i think the funniest thing of all is bto hdb prices are depend on market value too. And declaring whatever discounted price you get is a subsidy from the goverment. In actual they already earn since market value keep going up because of cov (also the price they get from sla and the building cost is remain secret). And then they are declaring the subsidies as deficit in their annual report.

    Correct me if i am wrong.

  5. they play, we pay Says:

    Once the government uses HDB as a mean to achieve their other motives beyond the mission of providing public housing, eg., in the name of enhancing the value of HDB flats artificially, IMO unsustainably and depleting all our CPF savings on it, they MUST micro manage it or it will NOT work. So, they ended up with more than one set of unknown variables to handle… the REAL market force at play and the ARTIFICIAL demand-supply HDB plays. The real concern is – it’s our lives and monies that they are playing with.

  6. Singapore HDB Public Housing is getting expensive « Singapore Watch Says:

    […] reason for why flat prices are going up – VALUATION. The crazy system on how valuation is determined is a big part of the […]

  7. How to make HDB housing affordable (Part 1) « Singapore Watch Says:

    […] Fix the Valuation process. The current valuation system is absurd, and as I mentioned before, a big part of what has caused housing prices to […]

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