EFFECTS OF THE REMOVAL OF CASH-OVER-VALUATION ON RESALE TRANSACTION PRICE

Abstract

The decision made by the government on the 10th March 2014 to remove Cash-Over- Valuation (COV) was an acknowledgement that COV has been playing a key factor in the instability of the housing market. In order to reduce speculation in the market, stricter legal regulations have been enforced, and more frequent updates on recent transaction prices have been made publicly available. This bold step forward was applauded by industry players as a well-timed implementation, although some were still apprehensive about the possible negative externalities that may come with it. The primary aim of this study is to investigate the effects of the removal of COV. The methodology, to test the research hypotheses, involved 4 regression models to test out the different variables involved. The dataset spanned from September 2012 to December 2014, with a total of 39,120 datasets, all retrieved from the HDB e-Service website publicly available. The findings showed that the removal of COV has a stronger and more positive impact on (1) Resale HDB houses in mature estates; (2) Older resale HDB Flats; and (3) Executive / Multi-generational HDB flat types (flats that had a higher price). This implies that the prices of the houses within these categories increased in relation to the prices of the others within the regression model, proving that properties with attributes that are more sought after are better able to withstand the fall in price after the removal of COV.