Understanding the Valuation Process for Resale Flats in Bank Loan Sanctions

When considering a bank loan to finance the purchase of a resale flat in Singapore, it is crucial to understand the valuation process that banks undergo to determine the worth of the property. This article will delve into the intricacies of how the realisable value of a resale flat is calculated, considering factors such as the registry value and the one-year rule, to ensure that you have a clear understanding of what to expect from the valuation process.

The Concept of Realisable Value

The realisable value of a property is the actual value that a property can be sold for in the open market. For resale flats in Singapore, there are two key elements that determine this value: the realisable value and the registry value. The bank will choose the lower of these two values to determine the property's value for loan sanctioning purposes.

The Registry Value

The registry value, also known as the taxable value, is the official valuation of the property established by the Singapore Land Authority (SLA). This value is important as it is used for property tax purposes. It represents the maximum amount that a property can be sold for at the time it was last registered.

The One-Year Rule and Realisable Value

For properties sold within one year of being registered, the bank may consider the initial realisable value at the time of sale. This is known as the one-year rule. If a resale flat was sold within the past year, the bank may use the original realisable value rather than the current registry value for loan sanctioning purposes. This is to avoid artificially inflating the value of the property and ensuring a more accurate representation of its worth at the time of the loan application.

The Valuation Process: A Comprehensive Overview

The process of valuing a resale flat for loan sanctioning typically involves several steps to ensure a thorough and accurate assessment:

Property Analysis: The bank will conduct a detailed analysis of the resale flat, including its location, size, condition, and any other relevant factors. Market Research: Banks will gather data on the current market trends in the area where the property is located, including recent sale prices of similar properties. Valuation Assessment: Based on the property analysis and market research, a professional appraiser will provide an estimated value for the property. Final Determination: The bank will compare the appraiser's evaluation with the registry value and the one-year rule to determine the property's realisable value for the loan sanctioning process.

Factors Influencing the Value

Various factors can influence the value of a resale flat, impacting the final loan sanction amount. These factors include:

Location: The proximity to public transportation, schools, and amenities can significantly affect the property's value. Size and Layout: The size of the flat and the layout, including features like balconies and structural improvements, can impact its attractiveness to potential buyers. Durability and Amenities: The age of the property and the quality of its amenities, such as security systems and fitness facilities, can contribute to its value. Retail Price Trends: Fluctuations in the resale market, including highs and lows in property prices, can influence the bank's assessment of the property's realisable value. Government Policies: Changes in government policies, such as cooling measures or incentives, can affect property values and loan approval terms.

Implications for Borrowers

Understanding the valuation process for resale flats is vital for borrowers to secure an accurate loan amount. By familiarizing themselves with the factors considered, they can make informed decisions and potentially negotiate a more favorable loan offer. Borrowers should also be aware that the realisable value may differ from the perceived market value, as banks are more likely to use conservative valuations to ensure that loan repayments are realistic based on the property's current market value.

Conclusion

In conclusion, the valuation process for resale flats in bank loan sanctions is a critical aspect of purchasing a property in Singapore. By understanding the realisable value, the registry value, and the one-year rule, borrowers can navigate the loan application process with confidence and secure the most suitable loan terms. Always ensure to engage with professional valuers and keep abreast of the current market trends to make well-informed decisions.