A STUDY OF THE HOUSING POLICY EFFICACY: EVIDENCE FROM THE CASH-OVER-VALUATION POLICY IN THE HDB RESALE MARKET

Abstract

The Housing Development Board (HDB) in Singapore has a mission to provide affordable homes. Affordability in the primary market can be easily regulated however, resale flats are subjected to market forces. This gives rise to an optional component of cash-over-valuation (COV) amount in resale transactions. With the valuation report as the base price and published COVs, COVs become the focus of negotiation between buyers and sellers. Positive COVs which are not included in loan amounts put a financial strain on homebuyers since this additional amount is to be paid in cash. On 10 March 2014, the government introduced a policy to remove COV to stabilise the resale market along with removing published COVs from HDB Infoweb. The intention is to shift the focus of negotiation from COVs to the true market value of the flats where transactions are focused on valuations. This study explores if this ideal outcome is achieved by using a dataset from 2011 to 2017. Property and spatial characteristics are controlled for in this study. Findings show that the effectiveness of the policy removal of COV in reducing resale prices and COV amounts remain persistent after 2014. Findings remain largely robust with the inclusion of Geographic Information System (GIS) data and automated valuations. The policy removal of COV is most effective on 5-room flats with longer remaining lease term located outside the central region which are further away from the commercial area, transportation, and healthcare facilities. The policy is found less effective on 3-room flats.