08 June 2013

Why Do We Have Cash-Over-Valuation (COV)?

Because prior to the introduction of COV, sellers must sell according to valuation price, and this makes them unhappy when the valuation price doesn't match their expectation, so they resort to taking under-table money i.e. whoever willing to pay extra gets the deal. But such practice distorts data, it doesn't reflect actual selling price correctly so our government cannot tax correctly, or you can also say that they will earn lesser. Then some smart person decided to implement COV to stop all the under-table deals and as we know now, it works as intended.

COV has been around for a long time now, long enough to drastically bring up the prices of resale flats in Singapore, countless people have been buying and selling, so many change of hands, and with every change of hands, the price goes up, but some people may argue that there were also cases where flats were sold below or at valuation i.e. no COV. But how many such cases? Obviously it doesn't matter, just look at the current resale flat prices.

And speaking of buying and selling, people who bought at high prices naturally wish for the COV to stay, but don't be surprised when the same people start asking to remove COV because they sold their flat and wish to buy again. It's just a matter of which side your standing on, if your the buyer, of course you say scrap COV, but if your the seller, of course you say COV should stay, but while in the midst of doing business, people forget that public housing was meant to give citizens a place to call home.

Notice that I referred to buying and selling of HDB flat as doing business, because nowadays, a HDB flat is being called an asset. According to Robert Kiyosaki, an asset is something that brings money into your pocket, selling a flat fits the description but provided you have enough money to set aside for your CPF minimum sum, and you don't need to purchase housing while the market is hot, and even more so if you decide to rent it out instead.

For the government, it used to be easy for them to manage since they can simply say "willing buyer willing seller", and then pat their backside and walk away, but unfortunately for them, this laissez-faire style of management no longer works. More and more citizens are unhappy because of housing price, especially the younger generations, and these younger people are more daring to speak up thanks to their education, specifically their ability to access more information than the older generation. And also looking at the last election results, and the government actions that followed, they know that they cannot continue to turn a blind eye.

So the question is, what can the government do? If they scrap COV, they risk angering flat owners, and there sure are plenty of flat owners in Singapore, so this is definitely not workable. But if they leave it as it is, citizens will find it difficult to cough up the cash, especially younger people who wish to settle down, and young people generally have lesser cash savings. And those who have no choice but to go for resale, they will probably stretch their necks to pay for the COV, by borrowing from family, taking personal loans from banks, or worse, borrow from money-lenders.

I'm thinking why don't HDB offer a special loan, a COV Loan, at say 3% interest per annum, payable only in cash, with installment option, this will give people one more option to work with, and it gives HDB an extra stream of income.

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