Cash Over Valuation (COV)

Shawn Lee
Shawn Lee
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In a recent news article, a 66-years-old retiree paid an additional S$160,000 in cash on top of the downpayment for a 5-room HDB in Pasir Ris, due to cash-over-valuation. One possible reason behind the buyer’s decision is the fear of prices increasing due to the COVID-19 situation. 

This is a very interesting scenario that is happening right now in the market. News like this leaves people pondering why would a buyer be willing to fork up so much cash on top of the valuation price? In this article, let us explore what are some of the possible factors that contribute to this phenomenon.

1. Construction Delay

First of all, the BTO flats construction has been delayed due to the current pandemic situation. Shortage of manpower has slowed down the construction process and hence pushed the waiting time to 6-7 years for completion. This is a very major issue for newly married couples, especially for those with tight budgets as a BTO flat is the most affordable option.

2. Shift in Demand

Demand has shifted to the resale market due to longer waiting time for BTO flats. Simple economics concept explains that price rises when demand rises. In this current market, buyers fear that property prices will continue to go up tremendously. Hence, some buyers may feel a sense of urgency to take action now, becoming less rational and more emotional in their decision making just to secure a unit faster. As such, these buyers are more willing to pay the COV for the property.

Case Study

Let’s look at this illustration. A 2-Bedroom sea view facing Executive Condo in Pasir Ris would cost around $800k. The previous buyer who paid the COV for the 5-Room HDB flat could actually top up a minimal amount and upgrade the asset class from a HDB to an Executive Condo. It is understandable that most resale HDB buyers are purely homeowners who have their own preference in terms of the surrounding, unit type, size, facing, etc. However, as a homevestor, choosing the EC as the alternative may be a better choice.

Is it worth paying cash-over-valuation?

Before we discuss further, let us look at the numbers. For a private property, the minimum downpayment of 25% is required, of which 5% must be in cash. The remaining 20% can be financed with CPF. This means that the $800k EC will require a $200,000 down payment, of which $40,000 is in cash. If that buyer who paid the COV has sufficient cash or CPF to fulfil the difference, he or she could opt for a EC instead. With that extra amount of cash, there are better uses of the funds that can generate higher returns.

ECs would have higher growth potential instead of HDB, where the prices are controlled. HDB flats are built as affordable housing for citizens and it is under the government’s control. If HDB prices grow exponentially, it will be less affordable for the future generation. Hence, the Singapore government will make conscious efforts to keep the HDB prices in check.

In the private property market, the government has always been monitoring the prices and would implement multiple cooling measures such as ABSD or TDSR if the market heats up. This is a good initiative from the Singapore government, as otherwise the property price would definitely sky rocket high and be followed by a potential housing crash in the future. By looking at the past history, cooling measures have been effectively implemented in Singapore to control the property prices. Hence, cash-over-valuation may be an indirect measurement to “cool off” the HDB resale market. 


In a nutshell, buyers who are willing to pay the COV difference is mainly due to fear of losing out and racing with other buyers. When COVID-19 situation is recovering and the HDB BTO resumes to normal construction period, we would expect the scenario of cash-over-valuation to fade off and property prices to be normalised.

The buyers who are acting upon COV mostly make their purchase driven by emotions. Do note that any property purchase, regardless for own use or investment, is an important life decision and it requires a long holding period. Hence, do not be overridden by emotions and irrational thoughts when making your buying decision. To make a wise purchase, work out the numbers and have a long term game plan.

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