Why is COV Rising, and When Will It Drop Again?

Ryan Ong



Cash-Over-Valuation (COV) has been a hot topic lately, generating more accusations than Tiger Woods in a court room. High COV rates are touted as an obstacle to home owners, and a major hurdle for anyone wanting a resale flat. And as of now, there’s a lot of guesswork about when it will drop. But considering COV is closely tied to market forces, why is it not quickly self-correcting? And why did COV rise so much in the first place? MoneySmart takes a closer look:


What is COV?

The COV is a sum that the seller charges, over and above the valuation by the housing board. With rare exceptions, the COV is not covered by the bank loan. For example:

The housing board determines the flat you’re buying is worth $250,000, on account of it belonging to another era. Like the Jurassic. When you get a bank loan, the size of the loan is pegged to that evaluation: You get $250,000 as a loan, and no more.

But say the seller suffers from chronic optimism. He wants $300,000 for the flat. Why? Because he can, damn it. If you still agree, that extra $50,000 is the COV, and you’re paying for it without the bank’s help.


Laughing lady
Madam, the official valuation was NOT the punch line to my “joke”.


Between April to June (2011), real estate agencies like PropNex and DWG indicated median COV prices of up to $30,000. This is significantly higher than the $21,000 listed in the first quarter of 2011. iProperty also mentioned this.

Tellingly, HDB pulled records of COV prices dating back to 2007. The official argument is that, because of the mix of flat types / locations being transacted, some of those figures were “misleading”. I’m sure it’s just coincidence that the records are pulled now, as prices start to soar.

Let’s look at some possible reasons:

  • Former Private Property Owners
  • Former Property Price Hikes
  • Home Ownership Laws
  • High Rental Yields


1. Former Private Property Owners

Private property owners who sold before cooling measures (late 2011) would have done so on a high. Some sellers who bought in ’07 and sold in ’11 claimed profit margins exceeding 50%.

Since these buyers had cash in hand when “downgrading”, most accepted high COVs. They were willing to splurge for fully furnished houses, or for locations near desirable schools. This collective acceptance played a large role in driving up the median COV.


Man in a lucha libre mask, with clenched fists
“COV? Bring it on! I’ll sign it! Whatever it is! Gawd, I’m stoked about selling that house.”


2. Former Property Price Hikes

Supply in the resale market has not been high, due to rising private property prices (lasting till December ’11). Simply put: fewer people could afford an upgrade to private property, and hence, fewer people sold their flats. This means buyers in the resale market had fewer choices; there was no viable response to a collective rise in COV.

Even with cooling measures in place, the availability of resale flats might remain low up till 2013 or 2014; flat owners looking to upgrade might decide to wait for private property rates to dip even further. Whether or not that strategy works, it does mean fewer resale flats on the market.


Man sleeping next to bicycle
Sold flat to upgrade. Now going places…on that bicycle.


3. Home Ownership Laws

New home ownership laws were passed in August 2010: Anyone buying a HDB flat has to sell their private property within six months.

This move could have stopped a lot of upgraders from putting their flat on the market. If upgraders sell their flat and buy a condo, they won’t be able to buy a flat again later (not without selling off the condo). So most of them buy their condos without selling their flats, and instead put the flat up for rent. It might not cover all the costs, but it does allow them to eventually hold two properties.


Guys playign guitar hero in a HDB flat
Own another place = No. Stay here and annoy the whole block = Yes. Good move, HDB.


4. High Rental Yields

With the additional buyer’s stamp duty, private property has become too expensive for some foreigners. A significant percentage are now choosing to rent instead of buy. As a consequence, the rental market is booming.

In relation to point 3, renting has become a viable alternative to selling. With high rental yields, flat owners also have more holding power. Even if they’re willing to give up a flat with existing tenants (as probable as sprouting a third arm this evening), there’s no urgency on their part. And high rental yields are, in themselves, major contributors to the COV on any flat.


solid gold tableware
When the new landlord invited him to tea, Chua had a sinking feeling about the rent…


When Will COV Prices Drop?

New balloting rules will be announced this March, which might cause a drop in COV prices.

It’s expected that, under the new system, second time buyers will be allocated as many as 30% of the available flats. With more second-time buyers getting new flats, there should be wider availability on the resale market. I would expect drops in COV some two to three months after.

Property firms like PropNex speculate that median COV prices beyond $35,000 are unsustainable, and that this is a natural cap on the market. It is true that sellers are encountering increased resistance to COVs beyond $30,000. Although this doesn’t signify a drop, it at least indicates that COV prices cannot go much higher.

At any rate, be sure to factor in the COV if you’re getting a resale flat. The added cost means you’ll need  a good home loans package, so be sure to talk to out experts at

Image Credits:
Jim Epler
Mel B.

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.