Andy October 04 2021

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Buying a HDB Resale Flat and Valuation

Studying market trends before buying a resale flat is vital to get a sense of the prices you expect to pay. HDB resale flats are favorable if you have a specific location in mind and do not want to wait for the BTO flats or rent a home. 

How are the resale flats priced?

Resale flats prices is a guideline for owners whom want to sell their HDB at a reasonable asking price based on recent transactions.

Unless the flat is relatively new with remaining lease of more than 75 years and beautifully renovated with built in fixtures as well as branded appliances, it will be challenging to find a buyer who is willing to pay a premium of 10% more than transacted prices of the same flat type in the same location.

Because the potential buyer will save a lot of precious time on the renovation, especially during the COVID-19 pandemic. Most interior design firms and contractors are facing manpower shortage since last year due to restrictions in foreign labour. Needless to say, the cost of renovation has increased significantly. 

The facing of the main door also influence the decision making process if the buyer is particular about Feng Shui. A North South orientation is popular due to cross ventilation and the unit will not get west sun in the afternoon.

Whereas a corner unit will appeal to more buyers for privacy reasons.

 

Important notes before you make an offer and get the OTP

Buyers who are taking HDB housing loan must have a valid HDB Loan Eligibility Letter (HLE) when the sellers grant them the OTP. The HDB Loan Eligibility Letter is valid for 6 months from the date of issue.

However, if you are taking a bank loan, you will need a Letter of Offer from a bank/financial institution when you exercise the OTP.

If the remaining lease of the flat that does not cover the youngest buyer to at least 95 years old as at the date of the resale application, there may be limits on the use of CPF monies and taking of a housing loan to buy the flat. Hire a professional property agent to do the financial calculation and paperwork for you. As a buyer, you pay the standard 1% commission to a property agent to represent you in the purchase of HDB resale flat.

When buying a resale flat, you have to pay an option fee of up to $1,000 before you are granted the contract also known as option to purchase (OTP) by the seller. 

With the OTP, you must login to HDB resale portal and request for valuation by the next working day.

 

How does HDB valuation affects you?

The result of the Request for Value will be emailed to you in PDF format within 10 working days.

The HDB valuation report is valid for 3 months and the value is used by CPF Board to determine your CPF usage and reference for the Loan-to-Value (LTV) limit for a home loan by HDB and financial institutions. 

HDB may contact you to arrange for a valuer to visit the flat for an on-site assessment if the purchased price is deemed to be too low or too high.

 

What to do if the value is lower than purchase price on the OTP?

You have to pay cash over the valuation amount. If you choose to go for a loan or CPF savings, you can only use the amount quoted by HDB.

Now, you have a clear idea of the total cash needed to buy the apartment including renovation budget.

And with cash over valuation, you are liable for a higher stamp duty, which increases the overall price you pay to own this home.

Option 1: You may choose not to exercise by letting the OTP expire after 21 days from the option date. As a result, you will forfeit your option fee.

Option 2: If you are cash strapped, you could try to borrow from your family to tide you over this difficult period. Knowing that you can overcome this hurdle, you will exercise the OTP by paying the seller a deposit fee and sign at the acceptance on page 8 of OTP. The option fee plus deposit fee should not be more than $5,000.

 

What factors affect HDB valuation and cash overvaluation (COV)?

Nowadays, HDB will try to match the valuation to the resale flat purchased price. This is to minimize the financial burden of Singaporeans and Permanent Residents (PR).

But if the average transacted resale prices for this block of flat cost $400,000 and the owner wants to sell at an unrealistic price of $460,000, the buyer must be mentally prepared for a COV up to $50,000.

COV = Purchased Price - Valuation Price

The COV must be purely cash and does not form a part of the housing loan.

 

1. Location of the flat

Flats located in matured estates and near to MRT or bus interchange tend to cost more and sell at a higher price.

2. Condition of the flat

New sells better. A newer apartment with recent renovations tends to be more expensive. Prices of these flats are likely to be higher compared to a run-down resale flat. Well-maintained flats are likely to sell over the valued price.

3. Size and type of the HDB flat

A large flat commands a higher price. The price of a maisonette or Jumbo flat is considerably higher compared to a regular flat.

The general prices of resale flats in Singapore depend on the area's price index. This is a measure of prices, which compares the overall price movement of HDB resale flats. The resale price index calculations depend on the resale transactions registered across towns, the models, and the types of apartments sold. Check out the resale price index by quota and index for 2020 and 2021 by clicking here.

4. Floor level

A unit on a high floor of a HDB flat will generally fetch a higher valuation than a low floor.

Low floor is defined as ground floor to third storeys units. 

Why buy a HDB resale flat?

You can own a home in your preferred location and do not need to wait a few years for the BTO construction. Read the Pros and Cons of Resale Flat.