An often overlooked, but crucial, part of every buyer’s home loan financing journey is a property valuation in Singapore. Skipping this important step can have an impact on your ability to finance your next property purchase.
Getting an accurate price estimate of your property is all the more important as it helps both buyers and sellers attain the most out of your property investments as well as better understand the market value of your property.
This property valuation guide will dissect everything you need to know about property valuation. It discusses how valuation impacts your home purchase, what happens when you buy a property above or below valuation, the different types of property valuations and what factors affect the property price during valuation.
Well, property valuation is essentially an estimation of how much a property is worth. It is an integral part of a property transaction in Singapore.
Whether it is an HDB flat, private condo, landed house or retail space, an estimate of the property’s fair market value serves as an indispensable benchmark for buyers and sellers to further negotiate over the property price. So you can say that property valuation tends to set a floor for most transactions.
With a property valuation report at hand, sellers can better understand how much the property is valued and what goes into property valuations. At the same time, it provides potential buyers with peace of mind.
With the knowledge of how much a property is valued, property buyers and sellers can rest assured that the said property is available to them at a “fair value”. The valuation report helps avoid pricing disputes between the buyer and seller during negotiations by letting them know that neither is overpaying or underselling the property. What’s more, it can be used as a supporting document to get the best home loan.
Knowing the valuation process is important as it has some noteworthy effects on your ability to buy a property – the amount of loan you can borrow and the amount of taxes you must pay.
The loan quantum (or LTV ratio) refers to the maximum amount you can borrow from the lender bank to buy a house. Note that your loan quantum reduces when the valuation of your property drops.
Under normal circumstances, the maximum LTV one can get is 75%. It means you can borrow up to 75% of the property price or its valuation, whichever is lower.
For example, if a seller is pitching a property for $1.7 million but the valuation of the property is at $1.62 million, your LTV will be calculated as 75% of $1.62 million, or $1,215,000. Had the valuation of the property ($1.62 million) been the same as its selling price (pitched price), the maximum loan quantum would be $1,275,000.
Now since your loan quantum is low, you will have to pay a higher downpayment of $485,000 ($1,700,000 – $1,215,000), versus just $425,000 (75% of 1.7 million).
This can prompt some buyers to seek higher valuations.
Taxes such as the Buyer’s Stamp Duty (BSD) refer to the upfront tax on non-permanent-resident buyers when they pay for a property in Singapore. Note that the higher the valuation of the property, the higher will be the levied stamp duties.
For example, if you are purchasing a property for $1.5 million, but the valuation is $1.55 million, you will have to pay a BSD of approx. $46,600 based on the valuation of $1.55 million.
You could have saved some money if BSD was levied on the seller’s asking price.
This is why some homebuyers don’t want a higher valuation on their property.
When you conduct a valuation, you may find that your property is worth less or more than what you had expected, and it can significantly impact the initial cash outlay with a higher initial downpayment or a heftier stamp duty.
This is the reason why many property investors prefer to hire reputed valuation firms to get an accurate property valuation estimate even before the bank asks for it.
As a buyer, you are most likely concerned about whether a price being offered to you by a seller or agent is over-inflated. An over-inflated property purchase price can cause issues when finding a suitable loan after making your downpayment.
It is because most banks perform a valuation of the property before they offer you a home loan and may reduce the percentage of the total money they are willing to lend you if they don’t approve of the property price you agreed to the seller or agent.
As a seller, if you price your property too high, it will fail to find buyers unless you can justify the premium price offered.
You should also be wary of properties that are undervalued or being put up for sale for a much lesser price than their market value. There could be potential hidden issues like maintenance or property dispute, which might come to light later on.
On the other hand, as a seller, if you price your property too low in relation to market value, you could lose a lot of money. If the price gap between the price you are asking for your property and the average price of the properties in the area is big enough, the likelihood is that the property is undervalued.
Typically, there are generally two types of valuations: indicative valuation and actual valuation.
The indicative valuation is a simple and rough estimation of your property’s value, which is usually derived by averaging the price from similar properties sold and bought within the vicinity of your property.
Usually, the property owners conduct this type of property valuation on their own using their research skills and observation. However, DIYing property valuation can be time-consuming and its accuracy can be questioned at times.
Another way to make an indicative valuation is by using the past transactions report of a specific property. Together with valuations by an independent licensed property agent familiar with your area’s market, an indicative valuation can be a good gauge of a property’s price.
You can check your HDB property valuation you intend to purchase using HDB’s Resale Flat Prices e-service. It allows you to check the resale flat transactions made in the past 2 years, filtering down to flat type, HDB town or specific block. Buyers can also apply to get a valuation after they agreed on the purchase price with the seller. All HDB valuation costs are borne by the purchaser.
On the other hand, if you own private residential property, you can use URA’s Private Residential Property Transactions e-service to get an approximated valuation. It helps to check any private property transactions in the past 3 years, running down to project name or property type/postal district.
Apart from this, you can also go to a reputable real estate portal or listing website to get your property valuation done.
An indicative valuation can also be done using online valuation tools at no cost. Unless you are an agent, online evaluation tools might be your best bet to determine the valuation of a property. We will discuss more on the free online tools for property valuation in a section below.
In contrast, the actual valuation is done in a much more detailed way and that too by third-party real-estate professionals like licensed valuers and surveyors for a private property. These professionals are paid a fee to determine the estimated market price of the property based on several measurable metrics, such as renovations done to a property, maintenance of different parts of the house, etc.
For new properties or properties under construction, the developer’s price for private property and the selling price of a new HDB flat are considered as the valuation.
Please note that all potential buyers should clearly understand the property’s valuation before framing the offer and signing the Option to Purchase (OTP).
Private property buyers can request a valuation before making an offer for the property while resale HDB buyers can only request an HDB valuation after the OTP has been signed and submitted. It sometimes leads to a surprisingly high or low selling price as compared to the valuation of the property.
A lot of factors come into play when determining property value. Professional valuers and surveyors usually ground house assessment on a series of quantifiable metrics such as the property’s:
#1 Location. Flats located in prime areas or mature estates with more amenities for residents, such as shopping malls, MRT stations, schools, etc., are likely to fetch a higher price when compared to others. Such properties attract considerable consumer traffic as people are more willing to pay a premium for accessibility and convenience.
#2 URA zoning. Every property is zoned for residential or commercial, depending on its intended use, according to the URA (Urban Redevelopment Authority).
#3 Land size, built-up area & number of rooms. The larger properties or those with wider frontage generally command a higher selling price. However, there are a few exceptions to this, like shoebox apartments, which can fetch higher prices despite their smaller area.
#4 The building’s structure. The structure of the building, including the number of levels, aesthetics, etc., may have a significant impact on its value.
#5 The orientation & location in the block. The flat facing or direction in which the property is constructed can impact its valuation. For example, East-facing homes have a tendency to get more light during the early part of the day, while the West-facing properties may fetch a lower price as they get warm after the noontime.
#6 The age & condition of the property. If the property you are thinking of buying is new with modern specifications or extensive renovations, it is likely to fetch a higher price than its ageing counterparts. Also, newer properties are easy to maintain.
#7 Interior furnishings. The interior furnishings as well as the state of the interiors of the house can also make a difference. For example, if your house’s flooring and walls are not well-maintained to an acceptable state, it will affect the property’s valuation.
#8 Other factors. Besides the obvious factors mentioned above, the property’s value can also vary depending on the little details, such as whether you are living in the apartment, the property’s architectural style, layout, construction quality, and changes in the nearby amenities, for example, a new shopping mall or a new MRT line.
After closely looking at each of these, your professional valuer will provide you with a valuation report detailing all the findings based on their assessment with the final estimate of your property’s worth.
Of course, valuation can be a very subjective thing at times. That is why remember that two different banks can conclude with vastly different property valuations from one another. To get a more accurate estimate of the value of your property, it is suggested to get at least three valuation reports from different valuers. This way, you will be able to narrow down the range and then get the average.
For private residential properties, the fee valuators charge between $200 and $500, depending on the property type. It must be paid with cash only.
Most private property owners rely on their agents to get them in touch with a licensed surveyor or valuer. But you can also find and engage with a valuer from the Singapore Institute of Surveyors and Valuers (SISV) on your own to get an accurate estimation of the property’s value for a certain valuation fee.
Several real-estate companies, including Savills, Knight Frank, OrangeTee & Tie, DTZ, ERA Realty and SRX provide this kind of valuation service.
If you are buying a HDB flat, you can get a valuation report directly from the office of the Housing & Development Board (HDB) for a processing fee of $120, depending on the type of flat to be valued.
Only those on the HDB’s panel of approved valuers for HDB can do a valuation for public housing flats. You can request the valuation report to the HDB only after being granted an Option to Purchase (OTP). You can’t request a valuation report from the HDB if you are the seller.
Knowing how to calculate the property valuation can work in your favour. It can help you find out if you are overpaying or getting a real bargain deal for your dream home. We are going to have a brief explanation of some of the commonly used property valuation methods to get a price estimate for the property you intend to purchase or sell.
One of the most common methods of property valuation is Direct Comparison. It involves looking at recent transactions in the vicinity and making adjustments for differences in dates of the transaction, floor areas, tenure, location, condition, age, design and layout of similar or comparable properties to find the market value of a specific property.
To calculate the market value of an income-producing property, you can use the Income Method. This method of property valuation is useful for those who are thinking of investing in property for rental income. It is used for both commercial and residential properties.
Property valuation is derived from this simple formula:
Property Value = Net Operating Income / Capitalisation Rate
This is touted as the most complex method of the three valuation methods we have discussed. It is used for vacant lands and abandoned properties with potential for development. It provides an estimated value of the property by assessing a current gross development value (GDV).
According to this method, the property value is a sum of the construction cost, land cost, developer’s profit, and fees to the authorities.
Property Value = Construction Cost + Land Cost + Profit for Developer + Fees
There are several evaluation tools that you can use for free to find out how much your home is worth. These online tools can provide a pretty good estimate of the property’s worth as compared to against its asking price.
These data-driven online tools sure outperform searching in confusion for similar units in your area on property listing sites. Something to take note of is that these sites do not offer bank valuation but serve merely as a guide.
If you want more certainty, it is better to get an actual valuation by engaging with a credible valuer or surveyor who will come to your house to examine it and appraise its market value.
As discussed, different banks or valuation firms can have their own property valuation standards and practices. If you are not satisfied or comfortable with the valuation you have got, you can use different valuation firms or approach different lender banks.
Note that there is no guarantee that you will get the desired results from the next valuation firm or bank. But still, you have the option to get the property valued again by a different surveyor acting for a different bank or valuation firm. You can keep doing so till you finally settle on a quote you are happy with.
You can also seek help from a professional mortgage broker, who are able to get you multiple valuations at once, rather than going to different banks to obtain valuations by yourself. It may save you a lot of time and effort.
To boost your odds of success in your property investment journey, it is crucial for any homebuyer to understand the valuation of a property and its right purchase price. But remember, the whole process of valuation is just an approximation of how the market might value your property.
Do not hesitate to walk away from a deal that you find overpriced; there will always be another property that fits your budget and needs. Get the best home loan in Singapore across all major banks and compare mortgage rates with the highest rewards.
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