If you are an HDB buyer, you must know the word “COV”. It is a Singapore term, a.k.a. “Cash-Over-Valuation”.

Being one of the kiasu parents, me and my wife intend to move to a house which is near our preferred school for our children.

Although I have always been critical of unhealthy misconceptions of property investment, the recent harsh property cooling measures do bring my attention to the development of property prices and I consider this to be potential opportunity to make my acquisition.

I am not a property expert, but I am going to share with you my researches and thoughts along the way and these will be part of my series of articles relating to property investment to help you make informed decisions. Do feel free to leave comments to make this more meaningful discussion.

The Real Meaning of COV

Today I am going to talk about Cash-Over-Valuation (COV) for investing in HDB flat. (Note I am only going to talk about COV, not the movement of valuation.)

By the name, COV means you pay a premium above the valuation of the property which you intend to buy. The valuation is generally done by the professionals and I assume they have already taken into account various factors like locations, market sentiment, demand and supply, property age, structure, floor, etc.

This has always puzzled me because “valuation”, by its own definition, means how much the property is worth in the market. i.e. the “market value”. However, why do you have to pay a much higher price than what something is worth for, especially if you treat it as an investment?

The Pursuit of Greater Fools

This reminds me of the greater fool theory of Gold investment. “Price is what the greater fool is ready to pay!” If today you pay a COV of $30,000, you must assume that some “greater fool” is willing to pay a much higher COV, say $50,000. The same person who bought your flat may also assume another “greater greater fool” to pay him a higher COV, say $80,000. But how long can this last? Can COV go up forever?

You may say valuation will go up in the future to offset the high COV. Yes, you may still make a profit, but you will earn much less than the people who bought a similar property with lower COV, especially taking into account of the interest, stamp duty, upfront commitment, potential loss of time value of money.

Many sellers are still not ready to accept lower COV. The flats we have viewed are asking $80,000 to $100,000 COV, that is nearly 10% premium!. The most common comment from the seller was always “If I have sold this flat before the property cooling measure…”

To me, these are clear signs that property prices have gone up to non-sustainable levels. Just look at the Price Index of HDB Resale Flats. Investment asset price always accelerates just before it crashes.

You may want to sell your flat at $100,000 premium simply because your neighbour has made hundreds of thousands of dollars. But why should a buyer pay for that?

I may have to pay some premium for better renovation or scarce unit, but $100,000 COV will definitely not from me.

HDB Owners Do Default

Singaporeans are lucky that the tragedy of US subprime did not happen here. However, that is not because Singapore property owners are more prudent. In October 2008, some 33,000 flat owners owed HDB arrears of three months or more. They make up less than 8% of the 420,000 households with outstanding HDB loans, nearly reached the US housing default rate of 9% at that time.

Fortunately, HDB is much more lenient than the banks and they did not force sell those houses; but unfortunately, the lesson was never learnt. Why blame the government where you could be the person who paid the high COV just because it was asked for? How many people have been living beyond their means?

For now, I will just wait patiently for the price to move in my favour.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

  • Liked your article… I personally feel that a data base should be set up by buyers. Seeing a few rare publicised cases of 200k COVs get everyone excited, especially the sellers and the agents. We should create a page to know the true COVs paid by area and type of flat. How much are buyers actually paying for COV?

    I called an agent to enquire about an EM recently. I told him I’d be interested if the COV was less than 60k. This agent kinda told me rudely that he couldn’t help me and I’d have to go find myself. In the end I bought one for $26k COV.

    I think property agents are inflating COVs to increase their commission and they are promising sellers high COVs. People are of course not realistic and believe these agents. Agents keep telling buyers about last offers of 80k rejected etc how true are these? Is there documentary proof?

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