Cash Over Valuation (COV) for HDB

Having bought a HDB flat directly from HDB itself, I never had to grapple with the issue of cash over valuation or what is commonly called COV.

If a flat is valued at $300,000 and the owner asks for a COV of $50,000 , the buyers literally have to fork out an extra $50K. This could potentially dry up the savings for a young couple who are thinking of getting their own place. I wonder whether any couple has put off marriage because of the high costs involved in setting up their own homes.

If it were me, the maximum COV that I will be willing to pay will not be more than 5% of the valuation of the flat. A 5% error in valuation is what I can accept as a logical explanation for the owner's refusal to sell. But to have to increase the valuation by 10% or 20% of the valued price seems a bit ridiculous to me. Either the valuation is wrong or the owner is really not keen on selling. Or am I mistaken?

What do you think? What is the maximum COV that you will be willing to pay for a HDB flat?

Review of March 2010

Dear Valued Reader,

Every magazine that you read probably has some notes from the editor. This blog does not have an editor so I thought that I should at least address the reader once a month to give a round up of the happenings for that month.

March 2010 has proven to be another exciting month. At home, we were bombarded with news of how the prices of everything is literally going up. These include HDB prices, COE and also electricity tariffs. This is certainly not good news for most of us.

Here at this blog, I mentioned quite a bit on the increasing costs of housing, COE prices and electricity tariffs and included some simple tips to manage this when it comes to personal finance. Hopefully the tips suffice. You can review the related postings here:

1. Average Singaporean's Largest Expense = HDB
2. COE prices skyrockets
3. Time to Buy a Car?

On the side, I have been overwhelmed by the response that I am getting at this blog/site. The latest number of unique readers registered on this site was 2,000 per month. I still remember the days when less than 10 people visited this site per month.

It is wonderful to see the readership go up and there are lots of interesting conversations that I am having with the online community. Everyday, I wake up and realise that there are probably 100 people waiting for my site to be updated. This makes me look for interesting material to share with them. And this is the reason why I blog today.

Every blogger goes through various milestones where they realise that their blogs are no longer personal blogs but blogs that are read by the public at large. This has happened to me too. CPF has approached me to blog at their IM$avvy site (Invitation to Blog at CPF IM$avvy). I still need to wait and see how all this pans out but it has gotten me to think a lot more about this blog and whether I am prepared to take it to the next level. The desire to remain anonymous has also been bugging at me. Is it time that I put a face to this blog?

What has started out as a blog to just chronicle my journey has now turned into me sharing my journey with friends and strangers. Somehow, it seems like I was running some race all alone and all of a sudden, I am surrounded by people who have also been embarking on a similar journey to mine.

On the personal side, I have been giving tuition and using my spare time to reflect on certain things. Sometimes, we think we make wrong decisions in life only to realise that these decisions were not wrong but just part of the process of growing up. Our unique experiences shape us into who we are. I just pray that I become a better person through all my experiences.

If there was one thing I could change, it would be to change the name of this blog. Perhaps I would have named it "My Journey" instead of "SgFinancialFreedom". But like I said above, the seemingly wrong decisions in life might not be wrong if we look at it from hindsight.

Thanks for all the wonderful encouragement and support. Let's have a good April 2010!

Warmest Regards,
FF
The Resident Blogger

Higher Electricity Bills

A rise in oil prices will push up electricty tariffs again for the 4th consecutive quarter.

The new rate for the April to June period is reported to be at 23.56 cents which is 3 per cent higher than the current rate.

The Straits Times reported that it will translate into an increase of $2.47 for a family in a four-room HDB flat. Hopefully that will be all that I am paying in extra for the month of April.

The increase in prices is largely due to the price of fuel oil which has gone up over the last 3 months.

You might want to re-read my Save Electricity Save Money post to avoid a shock when you receive your electricity bills for April.

An Average Singaporean's Largest Expense = HDB

In Singapore, people spend the most amount of money on their houses and their cars. With the increasing prices of HDB flats and COEs for cars recently, I think quite a few Singaporeans are concerned that these big ticket items will only go higher and higher.

Our Largest Expense $$$$ = Housing ($200K to $500K)

I remember that there was an article published on Today newspaper over the weekend stated that HDB's policy was to provide housing for the majority of Singaporean, make it affordable and at the same time allow Singaporeans to monetise on their houses. (I can't really remember the exact details so someone will have to correct me if I am wrong).

This being said, it shows that the government is truly concerned about making housing affordable for all. The supply of HDB flats have been increased recently but at the same time, the government needs to make sure that the value of people's houses increase over time. So this supply and demand has to be managed carefully. I have written about this previously when I said that the government should not be pressured into increasing the supply of HDB flats just because people are complaning. Complaints have to be heard but if the supply of HDB flats are increased without any proper planning, the value of all HDB flats in Singapore will be diluted.

Yet in today's newspaper, we hear of one flat being applied for by 6 applicants. It perhaps shows that there is still a great demand for HDB flats. Or maybe the supply is not enough. The cup is either half empty or half full depending on how you look at it =)

But are there any alternatives for people who cannot get a HDB flat?

1. They could opt for private housing which is even more expensive or they will have to put off their buying to a later date.

2. HDB BTO flats are another option. This is quite a funny scenario as I know of people who are still waiting to occupy their BTO HDB flats. Some have waited for 2 to 3 years. The wait is long and at the mean time, they put up at their parent's place.

3. HDB resale flats. More expensive and sometimes require Cash Over Valuation.

4. Another alternative would be to rent a place. But rental isn't exactly cheap either for an entire unit.

5. Stay with parents or in-laws. I know of people who chose to stay with their parents. They do not have to worry about queuing up for a HDB flat. Of course, they will have to forfeit their privacy.

So the point at the end of the day is that we need to manage people's expectations. If your expectations are high, be prepared to pay a high price for it. At the end of the day, most of us will still have a roof over our heads even if we can't get a HDB flat.

With housing being one of the largest expenses that an average Singaporean will incur, the house that you buy has a GREAT impact on your finances and should not be taken lightly. The loan period is usually 30 years and one can expect to pay a grand total of $200 to $500K depending on where they chose to stay. Of course, there are groups of people who purchase houses that cost way above $500K.

When people are desperate to get a HDB flat, they might sometimes make a hasty decision of buying a flat that is way above what they can afford. A rule of thumb used is that your monthly loans (all loans) should not exceed 35% of your monthly income. Please take note that some women also tend to stop working when a baby arrives. It might be wise to consider buying a house where the monthly installments can be managed based on a single person's income.

$1 Fish and Chips

Yes, you heard me right! There is a special promotion of $1 fish and chips at Fish and Co.

All you have to do is go to the Fish and Co Earth Hour promotion and spread the message and they will give you a $1 coupon which entitles you to a $1 fish and chips (terms and conditions applies).

You can only use one coupon per table though.

I used the voucher today and managed to grab a nice pan of fish and chips at $1.00. Never mind that the total bill added up to over $20 in the end, the feeling of getting a discount or good deal always feels good.

Everybody in the restaurant were literally using the coupon, waving the printed sheet of paper in their hands. I saw big groups of people that even split themselves into smaller groups so that they could maximise the number of coupons they had. Some came in earlier and ordered separately before their friends joined them at nearby tables and they then proceeded to combine their tables. The waiters and waitresses seemed a bit overwhelmed by the various methods used though.

Anyway, I was quite surprised to realise that this ongoing promotion was actually part of the Earth Hour promotion. Perhaps the word should be "amused". I can imagine the Green Peace activists flipping in their chairs when they see the amount of paper that customers have used to print the coupons for the discount. Talk about saving the earth =)

Well, fish and chips at Fish and Co is always good and at $1 per pan, it is an offer not to be missed!

Public Transport Cheap

A few weeks back, I commented that it took me $0.91 per trip to use the bus to get to one of my destinations. This makes a two-way trip a mere $1.82.

With the rising costs of COE prices which I have highlighted previously, a lot of Singaporeans will have to consider taking public transport as an option.

Comparing the costs of public transport and car ownership

Public transport in Singapore is definitely affordable I must say. Compared to a car, if one was to spend $5 on public transport each day, the total cost per month only adds up to $150. That is assuming that the person does not take any taxi. But we can add in some discretionary taxi expenses at say $150 per month and the grand total is ONLY $300.

Compared to a car's monthly charges of $1000 and up, $300 is definitely very affordable. One can save the difference and invest in stocks or REITs to beef up their retirement funds. This is indeed a worthwhile option that people should consider.

Cheap but....

Today I took my regular two way trip which cost me $1.82. While public transport is cheap, it is not entirely "convenient" per se.

On my first trip, I had to wait 10 minutes for the bus. Due to this long waiting time, I was late for my appointment by 5 minutes as I still had to walk a certain distance to get to where I wanted to go.

On my return trip, I faced some dilemma. The bus was crowded and there was only standing space left. When I had about 5 stops left to my stop, I was sort of "forced" to move to the back as that was the only way new passengers could get in.

I did not want to block the way yet at the same time, had to lament the fact that after 5 stops, I would have to SQUEEZE my way out of the bus. So yes, the bus is cheap but it does put you in a tight spot (literally) at times.

Great World City Experience

I spent the morning at Great World City today.

I went to Toast Box for breakfast. It was then that I realised that the people in front of me were Japanese. Yet, they managed to converse in English to the auntie who was serving them in Toast Box. After eating some really great nasi lemak at Toast Box, I proceeded to walk around Great World City.

While I was passing by starbucks, I noticed another pair of Japanese. I looked into starbucks and couldn't help noticed that there were hardly any locals at all.

At Cold Storage, I couldn't help noticing that majority of the people there were expats or foreigners. Even the staff did not look like they were from Singapore.

It felt pretty weird shopping around in a place where I was literally the only local around. (Okay, I must be exaggerating a little). Perhaps there were a few other locals around.

Oh well, with 5 million people in our country, I would expect to bump into some foreigners. But to bump into an entire shopping centre that is filled with them makes me wonder whether we are a segregated society where certain groups of people can only be found at certain places.