11-08-2011, 07:53 AM
The Straits Times
Published on Aug 11, 2011
Khaw: I can't abolish HDB cash premiums
Removing COVs could lead to under-counter payment, minister says
By Jessica Cheam
NATIONAL Development Minister Khaw Boon Wan has made clear his position on cash premiums that Housing Board (HDB) flat buyers pay to sellers: He cannot abolish them.
Responding to Internet users on his Facebook page on National Day, Mr Khaw explained that these premiums, also known as cash over valuation (COV), are determined by buyers and sellers and cannot be removed.
Mr Khaw had posted a National Day celebration update and engaged with netizens on a few issues ranging from housing prices to recessions for over an hour.
One user, Lee Soh Geok, asked Mr Khaw why he is against removing COV, which has spiked in recent months due to high demand for HDB resale flats amid a supply crunch.
COV is the amount a buyer pays over and above the valuation of an HDB resale flat. As it must be paid in cash, it has a significant impact on affordability.
Mr Khaw replied: '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.
'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',' he wrote.
Mr Khaw was referring to 'cash-back' schemes which were exposed back in 2001, which involved buyers and sellers over-declaring the agreed selling price.
It allowed the buyer to get a higher loan either from a bank or the HDB, with the 'extra' cash illegally divided out among those involved.
In recent years, other ways of getting around the rules have surfaced, including a 'magic dollars' scam where buyers and sellers falsely declared a low sale price - with the buyer giving the seller some cash in return.
Such offences are punishable by a jail term and/or a fine.
ERA Realty key executive officer Eugene Lim told The Straits Times yesterday that it is 'understandable' why the minister cannot ban COV.
'If you ban it, money will start going under the table... but it is true buyers and sellers are negotiating on COVs rather than the total price. We should do something to correct this mindset,' he said.
One solution is to educate buyers to think about the total sale price rather than just the COV component, he added.
The HDB could also release more up-to-date information on resale deals so buyers have a clearer picture of market prices, he added. Currently, the HDB's website releases such data but only two to three months after the transactions.
Eventually, when the HDB's aggressive supply of new flats reaches the resale market, demand will ease and COV will drop, said Mr Lim.
Mr Khaw also tackled other comments made by Internet users such as Harry Yohannan, who called for continued downward pressure on home prices.
The minister said in response: 'We have to do it gently or too many people will get hurt.'
jcheam@sph.com.sg
Published on Aug 11, 2011
Khaw: I can't abolish HDB cash premiums
Removing COVs could lead to under-counter payment, minister says
By Jessica Cheam
NATIONAL Development Minister Khaw Boon Wan has made clear his position on cash premiums that Housing Board (HDB) flat buyers pay to sellers: He cannot abolish them.
Responding to Internet users on his Facebook page on National Day, Mr Khaw explained that these premiums, also known as cash over valuation (COV), are determined by buyers and sellers and cannot be removed.
Mr Khaw had posted a National Day celebration update and engaged with netizens on a few issues ranging from housing prices to recessions for over an hour.
One user, Lee Soh Geok, asked Mr Khaw why he is against removing COV, which has spiked in recent months due to high demand for HDB resale flats amid a supply crunch.
COV is the amount a buyer pays over and above the valuation of an HDB resale flat. As it must be paid in cash, it has a significant impact on affordability.
Mr Khaw replied: '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.
'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',' he wrote.
Mr Khaw was referring to 'cash-back' schemes which were exposed back in 2001, which involved buyers and sellers over-declaring the agreed selling price.
It allowed the buyer to get a higher loan either from a bank or the HDB, with the 'extra' cash illegally divided out among those involved.
In recent years, other ways of getting around the rules have surfaced, including a 'magic dollars' scam where buyers and sellers falsely declared a low sale price - with the buyer giving the seller some cash in return.
Such offences are punishable by a jail term and/or a fine.
ERA Realty key executive officer Eugene Lim told The Straits Times yesterday that it is 'understandable' why the minister cannot ban COV.
'If you ban it, money will start going under the table... but it is true buyers and sellers are negotiating on COVs rather than the total price. We should do something to correct this mindset,' he said.
One solution is to educate buyers to think about the total sale price rather than just the COV component, he added.
The HDB could also release more up-to-date information on resale deals so buyers have a clearer picture of market prices, he added. Currently, the HDB's website releases such data but only two to three months after the transactions.
Eventually, when the HDB's aggressive supply of new flats reaches the resale market, demand will ease and COV will drop, said Mr Lim.
Mr Khaw also tackled other comments made by Internet users such as Harry Yohannan, who called for continued downward pressure on home prices.
The minister said in response: 'We have to do it gently or too many people will get hurt.'
jcheam@sph.com.sg
