20 January 2012

When Cash-Over-Valuation Analysis Is Inconclusive

Minister for National Development Khaw Boon Wan provided the following information on median cash-over-valuation ("COV", or cash premium over valuation, paid by the buyer to the seller) for transactions involving resale Housing and Development Board apartments in Q4 2011:








If Mr Khaw was trying to prove to the public that private property owners, rather than permanent residents, were pushing up the COV and resale prices, I think he failed.

First, COV is typically correlated to the transacted price, which in turn is typically a function of the size of the apartment (all other factors e.g., location, orientation, age, condition, etc. being the same).  This relationship may be seen from HDB's webpage (Median COV by Town and Flat Size).  What is relevant is the median ratio of COV-to-valuation for each buyer group.

Second, for each apartment size, the median COV varies from town to town.  For example, the median COV in Q3 2011 for 5-room HDB apartments ranged from $33,000 in Sembawang and Woodlands to $66,500 in Bishan.  Unless the distribution by buyer group for any apartment size in question is approximately uniform (or, the difference is not statistically significant) across all towns, the COVs attributed to the respective buyer groups have limited meaning.

Third, how many resale transactions were attributed to each buyer group?  If, for instance, the number of transactions by private property owners was small relative to the total, the COV attributed to them may have limited impact on median overall transacted prices.

Fourth, HDB last July stopped disclosing data on the median overall COV for all HDB resale transactions during each calendar quarter because the figures could be misleading.  If the median overall COV could be misleading, wouldn't the median overall COV for the five buyer groups be equally if not more misleading?

1 comment:

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    Valuation of Apartment

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