Or for that matter hold on to your HDB Flat if you already own one
Well the quick answer is – why NOT?
A HDB flat remains one of the best housing options for many Singaporeans and Permanent Residents. Yet, many of us have been overwhelmed by countless articles and videos online encouraging us to upgrade to a private property.
Many first-time property buyers are also convinced that plunging into the private property market head first will be their best bet, rather than waiting for the sometimes evasive Built-to-Order (BTO) flats.
While I don’t deny that wealth creation through property purchase/ investment is both attractive and achievable, we should also be aware that a HDB flat could be a better choice for some of us out there.
Main differences for a first-timer
|BTO Flat||Resale Flat||Private Property|
HDB concessionary loan up to 90%;
10% in cash or CPF; can be fully from CPF if OA has sufficient funds.
HDB concessionary loan up to 90%;
10% in cash or CPF
(typically $5000 cash deposit to seller)
| Bank loan up to 75%|
25% cash or CPF
(minimum 5% cash)
|Enhanced CPF Housing Grant of up to $80k, depending on income (cap at $9k per household)||CPF Housing Grants of up to $50k, depending on income (cap at $14k per household)|
Enhanced CPF Housing Grant of up to $80k, depending on income (cap at $9k per household
Proximity Housing Grants $20 – $30k
Using the price of properties in Tampines as a gauge for couple Sally and John who have a combined amount of $100k in their OAs:
|BTO Flat||Resale Flat||Private Property|
|Total Cash outlay: 0|
Assuming no grants, $245k HDB loan (2.6%, 25 years)
Monthly loan installment: $1,111
(Which can be covered fully by their CPF)
|Total Cash outlay: $5000 |
Assuming $25000 housing grant,
$354k HDB loan (2.6%, 25 years), monthly loan installment: $1488
(Which can still be covered fully by their CPF)
|Total Cash outlay: $303,600|
$825k bank loan (2%, 30 years),
monthly loan installment: $3,049
(About $700 cash top up, after using their CPF)
As you can see from the above, substantial upfront cash is required to purchase a private property. For young couples or families who will also need to fork out money to renovate their new homes or perhaps plan for their weddings, it makes sense not to overstretch their finances if they have limited savings.
Getting your first home should be a joyful event, so be sure to make the right choice so it does not bring unnecessary stress or financial hardship.
If you qualify for a BTO or HDB grants
It is a privilege to be able to purchase a heavily subsidized BTO flat. Many of my overseas client have been impressed by the quality and size of our public flats, especially iconic ones like Pinnacle @ Duxton.
While BTOs in prime locations come at a heftier price tag, it is also these flats that earn their owners a mini-windfall when they sell 5 years after MOP.
Having a BTO flat (if you can wait), is usually a good “stepping stone” for your second property. After the Minimum Occupation Period (MOP), you will most likely be able to sell with reasonable profits and save up further, putting you in a better position to choose your next ideal home.
And think about it, you may qualify for a BTO or CPF housing grants when you and your partner just start out in your respective careers.
But as you earn more, you may find it impossible to apply for a BTO as your combined income exceeds the income ceiling (at S$14,000 currently). Do treasure the opportunity to own a subsidized flat or apply for a CPF housing grant for your HDB resale purchase if you can.
Once you commit to a private property, it will be hard to enjoy any CPF Housing grants or apply for a BTO as any private property owners would only be able to do so 30 months after they sell their private property.
Landed property owners who can no longer maintain their homes
A personal story – one of my cousins – who took over her family’s inter-terrace house after her dad passed on, only to sell it a few years later because of the costs involved. Due to the age of the property, there were always some issues to manage – some big, some small.
Much to her dismay, she realized it was not sustainable for her and her mother to continue living in the house. The last straw was when they were told they had to replace the entire roof.
Furthermore, as much as my Aunt was reluctant to part with the house, she was also getting on in age, and has difficulty climbing up and down the stairs daily.
They were also one of the few landed home owners who did not have a helper, so I can only imagine how tough it was for her to manage.
After selling, my aunt settled down in 3-room HDB flat in Marine Parade as she was used in the East and wanted something easy to manage. My cousin started a business with the profit from the house, which she won’t have been able to, if they had carried on living in the family home or purchase another private property after.
Private property owners who want to cash out
Similar to what my cousin has done, there are elderly private owners who simply want to tap on their assets, cash out and enjoy their silver years. Some even go as far to pass on the cash to their children to help them purchase their dream home.
One of my clients just decided to do that when he and his wife managed to select their first BTO flat, having been private property owners all their lives.
Many of you would be surprised that private property owners can get a BTO flat. But there is of course a catch – it’s a 2-room flexi short term lease (15 – 45 years), where both applicants need to be at least 55 years old and opt for a lease duration that will last the youngest applicant till he or she is 95 years old.
Buyers of this scheme will also need to dispose of all their private properties within 6 months. And notably, there will NOT be any resale value (appreciation), since owners can only sell unexpired lease back to HDB.
This flexi short-term lease option is definitely not for everyone. Some older folks still prefer more spacious units or are looking at specific locations. These group would rather pay more for a resale HDB flat.
For instance, I sold two HDB Executive Maisonettes to owners of the former Normanton Park who had to look for alternative accommodations after their Enbloc windfall, without compromising space. These owner are able to enjoy a home of their preferred location, and still keep a substantial amount of cash from the sale of their private properties.
When private property is simply out of reach
Due to aggressive sell 1 buy 2 advertising, I have been having many meetings with hopeful HDB owners looking to upgrade to a private property. But the sad truth of the matter is not everyone is able to do so. I’m always happy if I’m able to help a family upgrade to a private property.
Yet, it is always important to do proper financial planning and that includes getting a bank mortgage specialist to confirm financing a potential buyer is able to obtain, calculating both cash and sales proceeds from the potential sale, and then evaluating if a buyer’s resource (savings, CPF & cash proceed) can comfortably support the purchase for the next 25 years.
This would also include having excess cash to support the mortgage repayment for at least a year, just to prep for unforeseen events (i.e. retrenchment, family emergencies).
I’ve had homeowners who shared how they were pushed by aggressive property agents to commit quickly in the private show flats (to get the best price/ discount), only to realise that the space is hardly sufficient for their family.
And to make matters worse, their finances were so thinly stretched that it’s been stressful until they eventually sell their private condominiums.
And some were not even aware they had to pay quarterly management fees of about $850 to $1200 (which is an additional $280 – $400 a month), depending on the development. Everything adds up.
Another group of homeowners is unable to upgrade, because they have purchased their first HDB resale at an extremely high price. When they sell their current flats, not only would they not have any cash proceed, they may even need to repay their outstanding loan or CPF in cash.
This group usually has two options – to sell and proceed to buy another HDB or even condominium if they have sufficient savings. Failing which, staying put in their current HDB flat is often their best bet until they have sufficient cash on hand.
Is a HDB flat your best option?
Our humble HDB flat has come a long way from Singapore’s founding years.
And I know it will continue to provide a safe and affordable option for Singaporeans and PRs from all walks of lives.
So should you consider a HDB flat for your next home?
Do ask yourself why not?
If you are looking to have a chat regarding selecting a HDB unit, feel free to just drop me a whatsapp message.
I might not make any commissions but I am happy to give you some pointers on what makes a HDB unit desirable to buyers in the future.