01 May 2012

HDB Resale Flats — Valuation and Cash-Over-Valuation

In a recent article ("HDB Resale Prices Stabilise as COVs Fall", TODAY 28 Apr 2012), it was said that Housing and Development Board resale market was stabilising, with prices rising at their slowest pace in 5½ years as cash-over-valuation premiums fell.

Transacted prices and cash-over-valuation premiums: which is the cause and which is the effect?

The cash-over-valuation premium in any particular transaction is the transacted sale-and-purchase price in excess of the valuation of that HDB flat.  It must be paid for in cash, not from the buyer's Central Provident Fund account.

In a rising market, valuations typically trail transacted prices because of the way valuations are usually computed.  The faster the market is rising, the larger the cash-over-valuation premiums.

As the market stabilises, transacted prices stabilise.  This allows valuations to catch up with transacted prices, and results in cash-over-valuation premiums falling.

Falling cash-over-valuation premiums do not, in themselves, result in the market for HDB resale flats stabilising.

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