SINGAPORE – There may be big bucks to be made in property, but overextending yourself when buying an HDB unit can be a one-way ticket to trouble if you are not careful.
Housing Board homes are meant for just that – providing a home, and not serving as a speculative investment that might lead you to taking on a bigger loan than you can afford.
That means picking one that suits your affordability, and not saddling yourself with one that exceeds your means just because you hope to resell it at a higher price later.
The numbers tell a cautionary tale: In the past three years, more than 160 owners have had their flats taken back by the Housing Board because they repeatedly failed to pay their mortgage despite being given more time to do so.
Cases like these, while uncommon, often arise because owners buy bigger flats that are beyond their means or spend more than they earn.
Unlike private lenders, which are usually strict with the repayment process, the HDB is known to exercise compassion in helping owners who have fallen into financial hardship.
“In these cases, compulsory acquisition was taken as a last resort as the owners persistently refused to resolve their arrears or work towards a sustainable solution, despite the assistance given by HDB,” its spokesman says.
An HDB flat is affordable but you need to do your part
What makes such cases ironic is that the monthly repayments for a typical HDB loan are affordable, even for prime location flats, and they can be paid mostly via the owners’ Central Provident Fund (CPF) contributions alone.
Take a couple with a household income of around $6,000 who buy a new three-room HDB flat for $330,000 in Toa Payoh.
After paying the initial purchase price with cash and the applicable grant, the couple are likely to need a loan of about $240,000, which would come with monthly instalments of $1,092, an amount that can be settled fully by their monthly CPF contributions alone.
Similarly, people who can afford bigger flats also do not need much cash. A couple with a household income of about $8,000 can buy a new four-room flat in the same Toa Payoh estate for about $490,000.
They would need to borrow about $396,000 from the HDB, after paying off the initial sum with cash, CPF and applicable grants.
The monthly repayment would be around $1,800, which can be serviced with less than $100 cash a month after paying the bulk with their CPF money.
Unless they always spend more than what they earn, most flat owners would not have problems keeping up with such affordable mortgage payments.
By comparison, a loan of between $800,000 and $1 million to buy a similar-sized private apartment would entail a monthly mortgage of about $4,000 to $5,000, based on the current fixed loan rate of 4.5 per cent.
Things to note before you sell your HDB flat
People have been getting the impression in recent years that HDB flats are becoming more unaffordable due to the number of headline-grabbing sales of million-dollar flats by a handful of “lucky” owners cashing in.
If you are tempted to do the same and cash out on your prized HDB flat, make sure you do your sums properly and don’t get caught up in the short-term euphoria of making a profit.
Not all properties are equal
Owners stand to make a decent gain by selling flats bought directly from the HDB because they are priced at a huge discount from prevailing market rates.
Unlike private developers, the HDB aims to provide affordable housing for all citizens, and this means pricing all new flats way below the prevailing level for similar properties in the private sector, even those in prime city locations.
The idea behind this pricing strategy is not aimed at making owners richer. Rather, new HDB flats that are progressively being built in prime locations such as the city centre and the Greater Southern Waterfront are priced with the aim of enabling Singapore families to live in such estates without their having to break the bank.
So, before you sell your prime HDB flat for a $1 million or more, you should know that you are unlikely to be able to buy a similar-sized private home nearby with your profit.
There is a reason why people say “home sweet home” – you work hard so that you can have a nice and comfortable home to enjoy.
So do consider your lifestyle expectation and not just the money before you jump onto the “upgrading” bandwagon to buy a smaller and pricier private home elsewhere.
Not easy to have a second bite of the cherry
If you think you can cash in on another new HDB flat by applying for a second one after selling your existing unit, think again.
Due to the high demand for new flats by mostly younger folk intending to buy their first homes, the vast majority of new flats are set aside for this segment.
So second-time buyers stand a much lower chance of getting a new flat because only up to 15 per cent of new three-roomers and 5 per cent of bigger flats in new estates are available for their balloting.
The chances of securing flats in mature estates or from the sale of balanced flats from previously launched projects are even lower – just 5 per cent or so.
If you have bought a flat under the prime location model, you must live in it for at least 10 years, instead of the usual five years applicable for other flats, before you can submit a fresh application to buy a second new HDB unit.
More cash needed for second HDB loan
You may not be able to spend all the profit you make from selling your HDB flat if you plan to buy another HDB one to live in.
This is because you will be given a far smaller loan for your second purchase if you want to apply for a second concessionary HDB loan at the current 2.6 per cent.
To encourage financial prudence, those who want a second HDB loan must use most of the available money in their CPF Ordinary Account and up to 50 per cent of the cash proceeds from the sale of their existing or immediate past HDB flat, to reduce the loan amount.
What this means is that before you splurge your profits from the property sale, do your sums first so you don’t get a shock when you find that you do not have enough money to fund your next purchase.
Ultimately, your home is likely to be your most valuable asset, so it pays to ensure you have planned adequately for it.
After all, having a comfortable abode to go home to every day is one of the primary reasons we work.
“Source:[Over 20,000 HDB flats built in 2022, the highest number in past five years] © Singapore Press Holdings Limited. Permission required for reproduction”
