New valuation rule makes HDB homebuyers more vulnerable: PropNex

Homebuyers may end up paying more cash.

The Ministry of National Development, in hopes of improving the longer-term real estate market stability, has introduced a new valuation rule which PropNex believes will put HDB homebuyers in a more vulnerable position by possibly asking them to shell out more cash. This effectively makes homebuyers more cautious when submittin offer prices.

HDB will only accept valuation requests from resale flat buyers (or their appointed salesperson), after the buyers have been granted an Option to Purchase (OTP) by flat sellers -- a rule meant to encourage buyers and sellers to focus on the sum total of flat price.

The rule takes effect from 5pm 10 March 2014. Also under this new rule, buyers who are granted OTP will also have 21 calendar days, instead of 14 days to exercise the OTP to adjust to this new procedure.

“Using valuation and negotiating based on COVs has been a long-standing practice for the sale and purchase of HDB resale flats. With this revised procedure, the possible impact of allowing valuation only after the OTP is granted, will expose HDB homebuyers to a higher vulnerability of a greater cash outlay if there is any gap between the agreed price and the valuation price. Buyers will become more cautious in their offer price as they enter into a purchase without an indication of how much the property is worth. In comparison, for the purchase of a private property, buyers do get an indicative valuation from the banker before entering into an option and in most instances, banks do honour the valuation based on indicative prices given” commented Mr Ismail, CEO of PropNex Realty.

“This new procedure will take some time to adjust as the market moves away from the use of COV as the yardstick in negotiations. In those estates where the Cash-over-Valuations (COVs) are still holding high, especially in central locations like Redhill, Bishan or Toa Payoh, buyers and sellers are likely to continue to rely on the valuation of other sources for their price negotiations as such information are still going to be made available by property portals and other platforms,” concluded Mr Ismail.