ST Forum : Worry over 'stretch' valuations

Apr 28, 2010

Worry over 'stretch' valuations

I TRIED to buy an apartment recently and was surprised when the bank loans officer advised me that his valuer could value property at whatever price I needed to secure a larger loan.

The property was valued at $510,000 in November last year and after checking with several banks, the present indicative value was between $530,000 and $540,0000.

So just last week, the property agent, together with her banker and the banker's valuer, assured me that the property's indicative valuation of $600,000 could be matched without any problem.

When I questioned the fact that the value had jumped so much and whether it would be a risk, I was advised by the loans officer that loans of under $1 million were rarely scrutinised and with an uptrending market, such 'stretch' valuations would easily be approved.

In fact, the agent's response was that the valuation was not important; it was purely the buyer's willingness to match the seller's price and that it was better to buy now before prices rose even higher.

Shouldn't the valuation of a property be an independent function to ensure that property prices are supportable? And if the banks and valuers are feeding a buying frenzy, where is the control mechanism to prevent a property bubble from developing?

Kang Wey-Ming