A STUDY ON MARKET PARTICIPANT BEHAVIOUR IN HOUSING TRANSACTIONS IN RESPONSE TO POLICY SHOCKS: EVIDENCE FROM THE REMOVAL OF CASH-OVER-VALUATION (COV) IN THE HDB RESALE MARKET

Abstract

The policy requiring the removal of Cash-Over-Valuation (COV) from the Housing and Development Board (HDB) resale market sales process was announced on 10th March 2014, causing a change in the dynamics of the HDB resale property market in Singapore. The policy intention was to ensure greater stability in the HDB housing prices. The removal of COV - the cash premium that the buyer pays on top of valuation price - would then put a greater emphasis on the valuation as the focus of the transactions would hinge on the valuation price. This study attempts to examine how the policy removal of COV could affect particularly the valuations as valuations might be affected by the behavioural changes of the valuer in response to the policy change. An analysis was carried out to assess the market participants’ behavioural changes to the policy change, with a particular focus on the valuer’s behaviour. Graphical analyses revealed that standard deviations of COV for valuations done by human valuers have converged after COV was removed in 2014. The regression results also demonstrated there was a convergence of the standard deviations of COV and it was not due to the property and spatial characteristics of the HDB resale flats. Since valuation techniques have remained the same, there could be other forces at work possibly the valuer behaviour that might have led to a change in the valuation outcome.