Minister for National Development Khaw Boon Wan has announced that he cannot abolish cash premiums that HDB flat buyers pay to sellers.
(Not abolition of the COV cash premiums)
Khaw made the statement via his Facebook page on National Day (August 9), in response to questions from Internet users.
These cash premiums, more commonly known as Cash Over Valuation (COV), are purely determined by demand and supply forces, explained the Minister, adding that it cannot be removed.
COV is the amount that a homebuyer pays to the seller, over and above the valuation of the HDB resale flat. As the agreed amount has to be paid in cash, the COV has a big impact on affordability.
This announcement came as Khaw was interacting with his Facebook ‘followers’ in celebration of the nation’s independence day, when one user asked him why he is against removing the COV. Recent months have seen a spike in COV due to a combination of soaring demand for resale flats and a slump in supply.
In response, Khaw wrote, “It is simple… COV is the difference between (a) price of flat as agreed between buyer and seller and (b) the valuation of the flat given by a professional valuer. (b) is done by an objective professional. (a) is between buyer and seller.”
The Minister added, “Abolishing COV means removing (a)? Then who sets the price? The professional valuer? Years ago, it was tried. COV then went underground as ‘under counter cash payment’,”
His comments were made in reference to the ‘cash-back’ schemes that were exposed way back in 2001. Cash-back schemes involved both the buying and selling parties over-declaring the agreed selling price, so that the buyer could be granted a higher loan (from the bank or from HDB). The extra cash was then split among the parties involved.
Recent years saw the uprising of other rule-bending methods. The ‘magic dollars’ scam, for instance, allowed buyers and sellers to declare a false low sale price. The buyer will then give the seller a sum of money in return. These schemes are punishable by law; offenders risk facing a jail term, a fine, or both.
ERA Realty key executive officer Eugene Lim told The Straits Times that the Minister for National Development’s inability to ban the COV was ‘understandable’. “If you ban it, money will start going under the table,” he agreed. “But it is true buyers and sellers are negotiating on COVs rather than the total price. We should do something to correct this mindset.”
One solution could be to educate buyers to consider the total sale price instead of merely the COV component, Lim suggested. Additionally, HDB can also release more timely information on resale deals for buyers to have a much clearer picture of how the resale property market is doing. The HDB website only releases such data two to three months after transactions have been made.
Meanwhile, buyers can look forward to a more promising future resale market, when the throngs of recently released HDB flats eventually enter the resale market, and the COV drops.
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Related Categories: HDB and Public Housing, HDB
Tags: Cash Over Valuation, Cash Premiums, COV, HDB, Khaw Boon Wan, Ministry of National Development, MND, public housing trends in Singapore, resale flats, Resale Market in Singapore
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Comments:
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anonymous said...
COV tend to be the main concern for most of the buyers, and why COV is allowed when no tax is imposed on it? should this also be considered under table?
September 06, 2011 12:28:00 PM
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anonymous said...
You agree valuation is the amount the buyer has to paid. Why COV is implenment to the HDB flat? I see no reason without COV cannot sell the HDB flat. Please can you elaborate on this.
August 24, 2011 9:33:00 AM
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