Most of us heard of Cash-Over-Valuation (COV), but there doesn’t seem to have a word called Cash-Under-Valuation (CUV). Isn’t it strange? Do people always have to overpay?

Last year, I wrote an article “How much Cash-Over-Valuation (COV) should you pay for your HDB flat?” It was ridiculous and hilarious to me that people are asking for $80,000 to $100,000 COV at that time.

I made a comment that “these are clear signs that property prices have gone up to non-sustainable levels”. I was trying to explain the common sense that “valuation”, by its own definition, means how much the property is worth at a given time, any premium (COV) you pay is likely unnecessary and excessive.

At that time, many people whom I know are still unfazed because “Singapore property will always go up”.

However, figures do not lie. In August this year, HDB Cash Over Valuation was already lowest since January 2011. Now, it was reported in Today’s newspaper of “spike in the number of flats sold below valuation”.

According to HDB’s latest figures, 105 units were sold in October for less than their appraisal … This means around four times as many flats were sold below valuation in October alone than over the whole of January to June.

This has forced sellers, such as assistant manager Raymond Koh, 37, to adjust expectations.

After asking for a cash-over- valuation (COV) of $20,000 for his $526,000 five-roomer in Punggol earlier this year and finding no buyers, he cut his price. “I lowered my COV to $10,000, then $5,000, then zero,” he said. “Then I started going negative.”

Today, his second-floor, nine-year-old flat is on sale for $20,000 below valuation.

This is just the beginning. Last week, the government announced another record 8,952 flats were launched for sale. When there is a continuous new supply but the demand is stagnant or diminishing, do you still want to pay cash overvaluation?

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.

  • COV or CUV is just a term use when one paid premium price or buy at discount.

    In equity investment, people use Price to Book ratio (PTB). If PTB > 1 then it is buying at premium. If PTB < 1 then buying at discount.

    The critical question is the valuation is fair?. When market is good the evaluation go up and when market is bad then it fall. When one buy at disocunt to valuation but the valuation is still high, he is still paying premium price.

  • {"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}