Making Your First Financially Sound HDB Flat Purchase

For most Singaporeans, one of the biggest investments they make is purchasing an HDB apartment. Whether you are single and 35, or married and looking to build a house, money is a critical factor that you should consider when you are on Property Guru for an HDB for sale. Below is a comprehensive list of questions you should ask, as well as guidelines that will help you eventually enjoy restful nights in your new home for next few years.

Should You Opt for a Build to Order Apartment or Find One in the Resale Market?

With the average price difference between HDV and BTO resale apartments increasing every decade, more buyers are choosing the resale market instead of waiting for BTO flats to be built since resale prices are moderate. This means that resell apartment prices will continue to enjoy some slight uptick. While a BTO flat will be cheaper than a resale flat, going for resell as a first purchase when the market is taking a severe beating and prices are down makes good economic sense.

What is a Good Rule of Thumb for Posting the House?

The purchase price of your HDB home, after grants, should not exceed:

  • Five years of your combined family income
  • Seven years of a solo breadwinner’s income

Therefore, if your monthly income is about S$5,000, that means you should be aiming for a flat that will cost you less than S$300,000, after grants. Also, you can go for a flat that attracts a monthly loan repayment not exceeding the combined CPF OA contributions of you and your partner. While this makes sense on paper, allowing you get a bigger apartment in a “prime” location, it may leave you and your partner in a dangerous position should something like loss of a job should happen to either of you. This decision is also likely to affect your retirement fund – your CPF. This is a decision you will only feel the full effects of much later in life. By then, it may be too late to repair the financial damage done.

It is also prudent that you setup an emergency fund that is six months your monthly income, so consider this as you decide on your apartment. If you do manage to find an under-priced flat in a mature estate and extensive research tells you that the price will go up, by all means go ahead and take a calculated financial risk.

Should you Opt for a Bank or HDB Loan?

There is no right or wrong answer to this question. Bank loans offer lower interest rates than HDB loans, but the fear of rising rates has seen more flat buyers choosing HDB fixed concessionary loans.

A major issue with bank loans is that they fluctuate up and down, depending on the Singapore Interbank Offered Rate (SIBOR). Many banks are now adjusting their fixed home loan rates to match floating rates in response to SOR and SIBOR soaring above one percent.

The important thing to ask yourself is whether you intend to upgrade, move out of the country or sell your home within a decade of moving in. If that is the case, then you should go for the bank loan when interest rates are lower. Next, negotiate a lock-in period for the interest rate with a bank officer. A higher loan quantum means more leverage on the negotiating table, since the bank is going to choose to keep your business rather than lose you to a competitor.

However, if you intend to stay in your home for several decades and not planning to move out, then the HDB loan is the best option. The interest rates are locked in at purchase time and HDB is also more lenient when it comes to dealing with late monthly payments.

Know the Regulations and How they Affect Your Purchase Decision

An important consideration for you is to get familiar with property regulations. This is in relation to eligibility to purchase, the amount of loan you can borrow and kinds of loan available to you. At an early stage, doors might close or open depending on whether you meet the regulations.

For example, under a regulation enacted in 2013, a permanent resident needs to stay for about three years before he or she is allowed to purchase a resale. Purchasing resale properties requires permanent residents pay a five percent stamp duty levy, making resale flats preferred compared to private property.

When permanent residents remain as just that, they cannot purchase a private property while still holding on to a HDB flat. They have to sell the HDB flat. It is also a requirement that a minimum occupation period (MOP) be achieved before selling the property.

Generally speaking, when you have successfully applied for an HDB flat, you will be required to pay a variable option fee that is refundable to you once you sign the sales agreement. Also, while grants you took are returned to your CPF, none are taken out of pocket. This is why your first HDB flat becomes your pot of gold.