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Explanation of COV wanted

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Explanation of COV wanted

Postby carteki » Fri, 09 Sep 2011 10:16 am

Hi,
I was wondering if the esteemed members of this forum can enlighten me on what in my mind is a bit of a puzzle - the COV - cash over valuation - problem...

From what I've gleaned from the presses, it seems to be impossible to purchase a HDB without COV and I cannot get my mind around why this issue exists. It seems that there is a complete disconnect between what the market is saying the prices are and what the valuers are saying the prices are, but you are talking an active market with a number of very similar units transacted, independent transactions etc so shouldn't the market price be a fair reflection of the valuation? It will happen on occasion that COV comes into play when one purchaser agrees to pay above the odds for the property because of some personal considerations, but in my mind COV for all properties says something is wrong with the valuations...

Thanks

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Postby sundaymorningstaple » Fri, 09 Sep 2011 11:09 am

Valuation - what is it.

So how is a valuation determined? A fair market value could be defined as a transaction value that a property being changed hands between a willing and knowledgeable buyer & seller who are under no pressure to buy or sell. Most of time there will be a period of time, let’s say 3 months transactions of comparable transactions for the valuers to work on. The valuers can only base on recent ‘transacted transactions’, together with other factors like location, storey height, internal condition, and special features. Therefore the recent record breaking transactions would have played a part in a housing valuation, be it you are the seller (you will be very happy) or the buyer (you have to be very optimistic and richer) now.

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Postby carteki » Fri, 09 Sep 2011 11:23 am

Thanks SMS - so why is it that COV seems so prevalent? If the valuation was related to the total price, COV should be irrelevant in most circumstances in my mind (but trying to understand it)?

Why also is COV mainly only relevant for HDB? You rarely hear of COV on condo's (example: yesterdays paper had a letter to the editor where the purchaser bought a more expensive condo unit because there was no COV and therefore was fully financed, they couldn't afford the HDB because of the COV and cash requirements)

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Postby Tigerslayer » Fri, 09 Sep 2011 1:48 pm

COV is one of the most bizarre things i have had to deal with.

A valuator comes to a house... takes into account location, local amenities, floor of unit, condition of unit, and to an extent the renovations done.

So on top of this valuation people place their COV which they justify based on the factors above (which should have been priced in already by the valuator).

All i can say on this is it is complete greed.

But similar to what SMS says there are people seemingly willing to pay extortionate fees so if there are willing buys, as a seller why wouldn't you get what you can?

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Postby sundaymorningstaple » Fri, 09 Sep 2011 1:51 pm

The valuation is what the banks/HDB will base the loan amount on. The COV is basically what the market will bear. When enough people buy with the higher COV after a couple of months, they end up being revalued and the process starts over again. Unless you have a situation like we had by the end of 1998 after the '97 crash. High valuations but no buyers. In a lot of cases, people were into negative equity as they couldn't sell at valuation even. (I bought my flat at valuation 12.5 years ago following the financial meltdown - 332K) I just checked while writing my last post and the valuation today is around 420K I guessing as the last four sales in my estate for similar flats were between 420 & 475K during the last 12 months. I'm guessing my flat would value around 420/450K now. Once the LUP is finished next year I reckon it should go up another 10 or 20K as well (course a lot will depend on if we get the damned WP out of Aljunied in 5 years though).

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Postby teck21 » Fri, 09 Sep 2011 2:17 pm

Tigerslayer wrote: So on top of this valuation people place their COV which they justify based on the factors above (which should have been priced in already by the valuator)


You are assuming the buyer values the same factors as much as the valuer does, no more and no less.

Willing seller, willing buyer.

Now all the talk is complaints about sellers asking sky-high cash-over-valuations.

There was a time when sellers could barely even sell their homes at valuation.

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Postby ksl » Fri, 09 Sep 2011 3:01 pm

Sellers have nothing to lose by asking COV, you either want the place or you don't. The Asian culture plays a role here too as families tend to want to live in the same blocks if they are allowed or nearby. So my guess is that this demand to be close to each other does have a COV price for a selected few willing to pay over and above the norm.

Some sellers are willing to negotiate down if they really desperate to move, those with units that are paid for over 25 years, normally just want to move, as one of the family may have passed on. So there are many variables that must be taken into account, when buying and selling.

The Chinese population are very superstitious and can also be affected if the feng shui is not good. :-|

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Postby sundaymorningstaple » Fri, 09 Sep 2011 4:03 pm

The biggest reason for large COV is pure greed driven AND the fact that there is/was a housing shortage. If you have a captive buyer who is paying astronomical rentals (expatriate PR's) already being gouged by Singaporean Landlords. You start to look at buying a HDB resale flat (especially if you aren't yet making in the condo class income brackets). As the Seller KNOWS you are already being gouged by some landlord, he figures he may as well get his "extra" pound of flesh as well. So he sets a rediculous COV knowing locals won't bite and then sells it the the foreigner who is being killed by high rentals. The all the other locals start complaining about foreigners driving up the cost of housing. It's actually the Singaporeans who drive up the cost of housing by playing to a captive crowd.

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Postby JR8 » Fri, 09 Sep 2011 5:01 pm

sundaymorningstaple wrote: Once the LUP is finished next year I reckon it should go up another 10 or 20K as well (course a lot will depend on if we get the damned WP out of Aljunied in 5 years though).



[naive]
Why does what party you vote for effect your home's value?

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Postby Tigerslayer » Fri, 09 Sep 2011 6:04 pm

You are assuming the buyer values the same factors as much as the valuer does, no more and no less.

Willing seller, willing buyer.



Thats not true, the fact is if you need to buy a house you need to pay COV in near all circumstances for re-sale unit.

I had first hand experience of this last year and certainly didn't value the factors the seller used to justify their COV.

More a case of willing seller... reluctant buyer

But when you need a place to live for a young family you pay what you have to.

Seller's market.

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Postby ksl » Fri, 09 Sep 2011 10:57 pm

JR8 wrote:
sundaymorningstaple wrote: Once the LUP is finished next year I reckon it should go up another 10 or 20K as well (course a lot will depend on if we get the damned WP out of Aljunied in 5 years though).



[naive]
Why does what party you vote for effect your home's value?
:lol: I know :P We are in the same boat SMS! Always better to vote those with experience, or suffer the consequences :roll:

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Postby JR8 » Fri, 09 Sep 2011 11:52 pm

ksl wrote: :lol: I know :P We are in the same boat SMS! Always better to vote those with experience, or suffer the consequences :roll:


Funny isn't it. You live in a supposed democracy (say, Europe) but whoever you vote for makes no difference at all. But if you live in a one-party state that doesn't even pretend to be democratic all hell breaks loose if the people 'vote the wrong way'.

Shouldn't it be the other way around?

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Postby luminoso » Tue, 13 Sep 2011 2:16 pm

Cash over Valuation (COV) started out as a sort of undertable payment that just became so rampant that is has become semi-institutionalised.

In short, its totally wrong but its still tolerated anyway.

The ill effects are obvious to see.

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Postby sundaymorningstaple » Tue, 13 Sep 2011 3:16 pm

Actually it's not wrong. If there were not COV, then your home purchased 20 years ago for 12K would only be worth 12K today as well. COV is the only way that valuations of properties rise.

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Postby JR8 » Tue, 13 Sep 2011 4:11 pm

sundaymorningstaple wrote:Actually it's not wrong. If there were not COV, then your home purchased 20 years ago for 12K would only be worth 12K today as well. COV is the only way that valuations of properties rise.


Does this mean that property is only ever valued once? Why do you not see property for sale at say '$x + $500k COV'?

Confused.


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