You will be able to explain how the valuation caps your loan and CPF use, and why cash over valuation (COV) has to be paid in cash.
When you buy a flat, the price you agree with the seller is not always the figure your loan and CPF are based on. If the flat is valued below the price, you pay the gap from your savings. In an HDB resale, you often find out only after you have taken the option.
A valuation is an independent estimate of a flat's market value at the time of purchase. For an HDB resale, HDB carries out the valuation after you ask for it, and you can only ask once you hold the option. The valuer looks at the flat's size, storey, condition and remaining lease. They also look at recent sales of similar flats nearby. For private property, banks arrange their own valuations, often before you commit.
The valuation does not set the price, because you and the seller set the price. What the valuation sets is the maximum loan and the valuation limit for CPF use. Both are based on the lower of the price and the valuation. Under the LTV rule from Lesson 4.1, "LTV limits and the cash you must put in", the bank or HDB lends a share of that lower figure. It never lends on the agreed price if that price is higher than the valuation. On the CPF side, the valuation limit is the lower of the purchase price and the valuation at the time of purchase. CPF can be used beyond the valuation limit, up to a higher cap called the withdrawal limit, which is the most CPF that can go towards the property. Check the CPF Board for how the withdrawal limit is set today. The course "CPF Mastery: every account and the choices you control" explains these limits in lesson 2.2, "Valuation and withdrawal limits, and why older leases are capped".
Any amount you pay above the valuation is cash over valuation (COV). The loan does not cover COV because the loan is based on the valuation. CPF does not cover it either. So COV has to come from your savings. You and the seller negotiate it, and it moves with the market. When demand is strong, sellers ask for more COV, and when demand is weak, many flats sell at or below valuation. COV is on top of the minimum cash share of your loan, and you must pay both in cash.
Farah and Hakim are a couple buying an HDB resale flat in Bedok (an invented example). They agreed a price of S$620,000 and took the option. From recent sales they guessed a valuation of S$610,000, so they budgeted S$10,000 of COV. Before the result arrived, Farah had already worked out what a lower valuation would mean for them.
Her sums use the invented figures from module 4: an LTV of 70% and a minimum cash share of 10%. The 10% is applied to the valuation, since that is the lower figure.
At a valuation of S$610,000, the loan is S$427,000 (70% of S$610,000) and the COV is S$10,000. Their own money towards the price is S$193,000 (S$620,000 minus S$427,000). At least S$71,000 of that must be cash: the S$61,000 minimum cash share plus the S$10,000 COV.
At a valuation of S$590,000, the loan falls to S$413,000 (70% of S$590,000) and the COV rises to S$30,000. Their own money towards the price becomes S$207,000, and at least S$89,000 of it must be cash: S$59,000 minimum cash plus S$30,000 COV. They have S$80,000 in savings, so they would be S$9,000 short of cash (S$89,000 minus S$80,000). That shortfall comes before stamp duty, fees or any renovation.
Putting the two cases side by side, a S$20,000 drop in valuation (S$610,000 to S$590,000) means S$18,000 more cash (S$71,000 to S$89,000), and the price stays the same.
HDB's valuation came back three days after they took the option. Farah opened it anxiously. It was S$610,000, and she was relieved. Working through the lower case had shown them how close to the edge they had been. They decided they would not have gone ahead at a valuation of S$600,000 or less without renegotiating the price.
In an HDB resale, the official valuation arrives after you take the option, so you are already partly committed by then. To protect yourself, make your own estimate of the valuation before you agree a price.
Start with HDB's published resale transactions, which Lesson 1.2, "Resale flats: market price, but you move in sooner", points you to. Look for flats of the same type in the same or nearby blocks, on similar storeys, sold in the last few months. Use their prices to judge roughly where the valuation is likely to land. Then adjust for clear differences, such as a much higher floor or an unrenovated unit.
Next, work out the cash you would need at your estimated valuation and at a valuation some way below it. If the lower case breaks your budget, either negotiate the price down or be ready to walk away before exercising the option. If you walk away at that stage, you lose only the option fee. Decide in advance the valuation at which you would renegotiate or walk away, the way Farah and Hakim settled on S$600,000.
For private property, ask the bank for an indicative valuation before you sign an option. It costs little or nothing and gives you the same protection.
For one resale listing, you need three numbers: the asking price, your estimate of the valuation from recent transactions, and the cash you would need to cover any gap, on top of the minimum cash share of your loan. The activity below asks for exactly those.
Pick one resale listing. Write down the price, a likely valuation based on recent transactions, and how much cash you would need to cover any gap.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).