These sellers are not seriousGurmit is wrong. In the current market, sellers who constantly seek revaluations are not only serious, but savvy.
Flat owners re-valuing flats for profits
Letter from Gurmit Singh Kullar
THE latest cooling measures have admittedly had some effect in curbing the cash over valuation (COV) for resale HDB flats but we are still unlikely to see any decrease in valuations.
I have come across some sellers who have had their flats re-valued even before their current valuations expired so as to lock in a further gain.
A flat owner who rejected my offer did exactly that because he was convinced by property agents that his flat was "too cheap".
In another case, a property agent tried to convince me to buy a particular flat because the valuation had increased by $10,000 since the last assessment two months earlier.
Is this practice of multiple valuations for a HDB flat across such a short period condoned? Can the value of a flat really increase so rapidly?
Since valuation prices are based partly on previous assessments, frivolous seller behaviour causes unjustified increases in baseline prices.
In addition to focusing on buyers, I feel that the HDB also should introduce steps to weed out non-serious sellers ....
Property valuation is not a science. We should think of it more as an art. Or even better, just as an opinion. Supposedly an independent, educated and informed opinion - but in any event, still just an opinion.
So for instance, let's say that we simultaneously ask for three property valuations of the same HDB flat. Even though all valuations are done at the same time, the first valuer might say "$500,000"; the second valuer might say "$520,000"; and the third valuer might say "$540,000".
In all three cases, the respective valuer will support his opinion by citing a list of relevant factors in his report. For example, he would look at the recent sale prices of similar properties in the same neighbourhood. He would consider the nearby amenities (is there an MRT station nearby? Or any top school? Or a good shopping area?). He would also take note of the physical state of the apartment itself (for example, whether it has a good view, or has been renovated nicely).
But all these factors have subjective elements. For example, what is a "good" view? Which schools are "top"? How faraway can an MRT station be, and still be considered "near"? Since the answers to these questions are merely opinions, it should be obvious that the valuation figure itself is also merely an opinion.
Particularly in a rising market, a savvy seller may seek revaluations. Why? Because, as I mentioned earlier, property valuers will consider the recent actual sale prices of similar properties in the same neighbourhood. If market prices are generally on an uptrend, the valuation you get in January is likely to rise by April. That's because the April valuation would have taken into consideration data on sale prices that had become available only in February and March.
Although property valuations are merely opinions, they have a lot of practical significance. Among other things, they determine the maximum amount that a bank would be willing to lend to the buyer. In turn, this influences the price that the buyer is willing to offer to the seller.
So Gurmit is both wrong and right. He is wrong to say that the sellers are not serious. He is right to say that they are out to make money. The sellers are serious. They are serious about making money.
12 comments:
Property prices are like stock prices, except that they move slower (but they can still vary in value drastically!) A million dollar house when money is plentiful may not fetch half a million when money is tight. We have witnessed significant price swings in major cities worldwide, from Vancouver, Miami, to Shanghai. It is foolish to extend oneself to "own" (invest, really) a property. To most people, a house is just a shelter, and no more. Unfortunately people all over the world like to make "easy" money. Yes, you can get rich if you are lucky, at the right time and place. But for everyone who gets rich this way, many lives are ruined. Singapore property is poised for a big fall when it slows the intake of FTs. A typical Singaporean wage cannot sustain prices at this level. The simple back of envelope calculation shows that properties are way overpriced currently.
I find the letter writer bizarre.
Just as a buyer wants to pay less, the seller wants to receive more.
Maybe tomorrow he will pen another letter asking why the sun always rises from the east and demand government action to rectify the "issue."
/// I have come across some sellers who have had their flats re-valued even before their current valuations expired so as to lock in a further gain. ///
I am not aware that there is an expiry period for valuations. The key point to consider is whether the valuation is up-to-date. In a hot market, transacted prices move fast, and the valuations will likewise move fast, and more frequent valuations are needed to reflect market price. OTOH, in a slow market, that valuation done 3 years ago may still be relevant.
/// A flat owner who rejected my offer did exactly that because he was convinced by property agents that his flat was "too cheap". ///
Yes, if that is what the market is telling him. This is all the more believable as usually the agents will be keen to get his commission by selling at a easy price - that is, lower price.
/// Is this practice of multiple valuations for a HDB flat across such a short period condoned? Can the value of a flat really increase so rapidly? ///
Why not - if the prices move rapidly
/// Since valuation prices are based partly on previous assessments, frivolous seller behaviour causes unjustified increases in baseline prices. ///
Frivolous? Frivolous are those who anyhow sell. Serious are those who sell at what the market can bear.
/// In addition to focusing on buyers, I feel that the HDB also should introduce steps to weed out non-serious sellers .... ///
Valuations are based on transacted prices. Completed transactions are ALL done by serious sellers - that's why they are done deals.
Ape would like the buyer to make serious considerations about buying that flat at that price. There's a whole lot of considerations.
First being the selling price (i.e Valuation + COV). Is that flat worth that amount in the first place? Is it affordable to me (buyer)?
Next is the valuation price and the COV. Some buyer would rather have high valuation (to obtain higher loan) and lower COV. Some prefers less loan amount (loan comes with interest afterall).
Don't just blame the sellers (and property agents), ask yourself, a buyer, do you want to join this frenzy? Is there an alternative? Can you rent a place until the frenzy cools down? Or perhaps stay put with your parents for the time being? Or seek a smaller, further-from-town and less cost flat? Or simply join the queue for a new flat?
Doesn't matter what price. There will be a deal if there is willing buyer, willing seller.
And it is a deal between 2 consenting adults. Applies in all areas too, not just property sale.
If you are bothered, there will be no end to it.
Are there cases of huge differences in valuations of the same property at about the same time by different valuers?
Good thoughts all. Thanks, at least some people thinking about the situation.
I agree that home owners and home seekers will respond at opposite ends of the stick to my letter. Home owners have profit in mind and home seekers want a good deal. That's just human nature and market forces at work.
Let's look at the bigger picture though. HDB flats house 80% of our population and resale flats make up more than 80% of flats bought/sold each month (The HDB sells only about 1-2k on average each month). Resale flats' prices have gone up by 50% since 2007. Our purchasing power has not. Effectively, a generation of young people and upgraders have been priced out of the market because of these price spikes.
Sure, first timers can buy from the HDB but at more than double bank loan rates. Most buyers would be in debt for a long, long time, locked into 'contributing to the economy' till, if, they retire.
So I am riled by sellers' greed, riled by practices that allow home prices to spiral upwards. We are tiny and expensive. We can't afford our country to price its people out. We'll just be in debt and miserable. We aren't Malaysia where living in the suburbs means cheaper houses but driving to work. Sadly, we'll only realise the consequences much later.
Actually it is the agents greed that caused all these spirals in prices. Agents add no real value to the process except to inflate sellers expectations and cause prices to rise faster than it should. Again it is the commissions that is the root cause of all these. Luckily, over 200 corrupt and fraudulent agents have been taken out of the action.
"Sure, first timers can buy from the HDB but at more than double bank loan rates."
Not really, lah. You must check out the banks' interest rates, very low now. :D
But I do understand the overall gist of your comment.
/// So I am riled by sellers' greed, riled by practices that allow home prices to spiral upwards. ///
This is what the market does. If the sellers are really greedy and price their HDB flats at $2 million each - will you buy it? Will anyone in the right mind buy it? How about $1.5m - still no takers? $1m? Who decide what is the right price? The market.
Willing buyer and willing seller. If you are not willing to buy - then the seller cannot sell. And if everyone think the price is "expensive", it will come down.
Supply and demand. This is key. If the HDB were to immediately flood the market with 40,000 units a year (which happened in 1984), what do you think will happen to HDB flat prices? Do you think the sellers can still be greedy, or "not serious"?
Think of it this way. If the market is going down, will you as a buyer pay the stated valuation even if the most recent valuation is lower? So that answers your complaint.
However, it is stupid to allow prices to spiral out of control. Just like who Alan Greenspan allowed US house prices to overheat, the "invisible" hand is now making home unaffordable based on current income. This is simply gross incompetence.
to anon January 7, 2011 7:29 AM
bank interest rates for housing loans may be low but that's just now. bank's interest rates are usually floating (or at most fixed for max 3 years??), whereas HDB loan rates are fixed (correct me if i'm wrong, it's what my mother told me). private housing interest rates went up to even 7% before (again told by my mom), for a regular joe who is not investing aside from CPF (if you consider that an investment at all), it's a lot more tedious on the heart than hdb's loan rate. so.. whether to take a HDB loan or private mortgage loan depends on your risk appetite and your perspective of interest rates in the next 20 30 years when you're still paying off your HDB flat.
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