Buying a HDB resale property: Does $0 COV really mean no cash upfront?

Resale HDB Prices : $0 COV

Do you need cash to buy a HDB Resale Flat? 

Since HDB ramped up the supply of BTOs and on 10 March 2014, revised the procedures to purchase a resale HDB property from the open market, prices of HDB flats have been going down. One very obvious change has been the drop in the asking COV prices.

With the change in procedure, Sellers are no longer able to dictate how much COV they want but instead have to decide on the total selling price of the flat, based on recent transactions of flats in the area.

What does this mean for buyers? Does this mean that there will not be any COV Payable? Does this mean that buying a resale flat does not require any cash up front?

Not quite. There might be COV involved AND there is still some cash involved in the purchase.

Before we explain the COV portion, the other fees and cash involved in the process, buyers should first understand the old and new HDB resale procedures, and how it will affect how much cash you need for that resale HDB.

Old Resale Procedure

Prior to 10 March 2014, when the seller of a flat decides to sell, they would purchase a valuation report from a valuer through HDB. The valuation report will give the seller the ‘starting price’ of the flat, and the seller would add on to it by placing a cash premium on top of the selling price.

This cash premium was known as Cash over Valuation or COV and you cannot take a loan to cover this amount. Note that the banks or HDB will only grant buyers a loan based on the official valuation of the flat.

It got to a point where COV went up to $100 000 and finding a flat with low COV was almost like hitting the jackpot.

New Procedure

When a seller decides to sell his home, he can no longer get an official valuation of the flat. Instead, he can review HDB’s recent transaction of flats in the area or use various tools available online for example on SRX online to make an estimate of the value of his flat.

He then invites buyers to view his flat based on a starting selling price.

If the buyers are interested in the flat, they will put in an offer.

The negotiation process starts and once both buyers and sellers arrive at a mutually agreed price, the seller will grant the buyers an option to purchase (OTP). The buyer will then put a deposit (also known as option money), of up to $1000.

With this option to purchase, buyers will proceed to apply for a valuation of the flat via the HDB website. HDB usually doesn’t disclose to the valuers the agreed selling price of the flat.

The valuation company will then send the report directly to the buyers, which means the Seller will not be informed about the valuation of the flat. Whether or not the Seller finds out about the valuation, he will not be able to adjust his selling price.

Only with this valuation report, will the buyers be able to determine if they need to top up any cash for the flat based on the following scenarios.

  • If the valuation matches the agreed selling price, the flat is considered to be sold at valuation . Buyers They do not have to top up any cash for the flat)

  • If the valuation is more than the selling price of the flat, the flat is considered to be sold below valuation. Buyers do not need to top up any cash for the flat.

  • If the valuation is below the selling price of the flat, the flat is considered to be sold above valuation. Buyers would have to top up cash to make up the difference between the loan granted (i.e. the valuation) and the selling price.

However, at this stage, the buyer has not confirmed the purchase. If they find that the COV is too high, they are still allowed to back out of the deal but they will not be able to get back the initial deposit made to the sellers.

What are the other costs involved in buying a resale flat?

Apart from the Cash over valuation (if any), there are also other costs, which you would need to pay when purchasing a resale flat.

Costs Payable by CPF

(If your cpf is insufficient, you would need to top up by cash.)

  • Stamp Duty (This is about 3% of the value of the flat)

Costs Payable by Cash only

A) Option fee

This is the ‘deposit’ you pay the seller to kickstart the buying process. 

This amount is between $1 to a maximum of $1000. The current market practice is $1k but this is negotiable.

B) Exercise option fee.

This is the fee you pay to the seller to confirm your purchase. after you have received the valuation report and have arranged for a loan with either HDB or a bank. This amount is also negotiable but the current market practice is $4000, which is also the maximum amount legally.

C) Valuation Cost

  • $140.40 for 1-2 room flats and
    • $199. 25 for 3 room and bigger.

D) Resale Application Fee

  • $40 –for 1-2 room flats and
  • $80 for 3 room and bigger

E) Property Agent’s Commission.

For a HDB flat, the market rate is typically 1% of the flat price excluding GST.

In contrast, buying a BTO from HDB is substantial cheaper but has disadvantages like a long waiting time.

If you are still undecided, you might want to read our article comparing a BTO and a Resale HDB Flat .

HDB Resale Flats Property Singapore

You can read up on the costs involved when buying a BTO direct from HDB here. 

Good Luck with your home search!

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Siti Zubeidah is a Marketing Director with ERA Realty Network Pte Ltd. (CEA No.: R050625J) She has a Bachelors Degree in Informations Communications and Sociology from the National University of Singapore (NUS) and a Masters of Mass Communications from Nanyang Technological University (NTU). With vast experience in the HDB market, Private and Landed Properties in Singapore, she is confident that she can assist you to make the correct decision regarding the purchase of your dream home as well as to get you the best price on the sale of your property. She can be contacted at 96918885 or at askus@propertyrocking.com.

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