Making Sense of HDB Standard Plus Prime Housing Models
September 28, 2023
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The decision to sell your HDB flat is never taken lightly. Like many Singaporeans, you probably still remember the joy you had when you successfully ballot your home through HDB BTO exercise. For others, you probably spend a great deal of time carefully arranging for viewing before settling down on your dream HDB home.
You might be asking yourself why some choose to sell their HDB flat after staying for just 5 years?
In my own experience, I have dealt with clients from all walks of life. Some common reasons for selling one’s HDB flat can be due to shorter commute time, better access to healthcare facilities, or other personal reasons. These reasons are often compelling, but for the majority of us, selling an HDB flat can be due to other practical financial consideration too.
I hope this post will provide additional insights and facilitate your decision-making process.
Here are my top 7 financial considerations if you are thinking of selling your HDB after MOP.
It is not uncommon to see HDB owners frowning this last decade. Ever since the last property peak in 2013, what we can observe is that resale HDB flats have mostly been locked in a long declining trend. If you are seeking to upgrade to a private home, you might find yourself in a difficult position.
Many Singaporeans often consider HDB housing as their first home. This is mainly due to the affordability as well as the attractive housing subsidy provided by the government to ease the financial burden for first-time homebuyers. The attractive housing grants combined with the ability to commit to a home purchase without much cash outlay (HDB loan) makes HDB a much attractive first home option.
As real estate remains one of priciest asset class most Singaporeans will probably own in their lifetime. Therefore it is understandable that it is in many HDB owners’ interest to ensure that the value of your flats continues to rise. This is especially so if you have the desire to upgrade to a private property at some point of time in your life.
Since 2013, the government has introduced a few cooling measures in 2013, some of which targeting specifically at the runaway HDB market.
One of the primary purposes of Mortgage Servicing Ratio is to promote financial prudence when purchasing a property. Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) allows banks to enforce a set of strict requirements before the banks are allowed to grant a loan.
This encourages prudent home affordability planning by curbing the amount of loan one can borrow from the bank. However, this has the unintended double-edged sword effect of limiting property price appreciation as buyers’ liquidity are capped.
Approximately 100,000 new HDB flats under the BTO scheme have been injected into the market within the last 4 years. This move aims to match the demand for public housing and keep resale prices in check. Over time, HDB prices should stabilize as the supply catches up with demand.
These BTO flats come with longer remaining tenure combined with the competitive entry price makes BTO units much more desirable than resale flats. The introduction of new BTO flats allows resale flats to grow at a more sustainable and affordable price range.
Singapore takes a very hands-on approach to ensure affordable housing for Singaporeans. As such, HDB has implemented very strict ownership rules and restrictions for public housing. For example, the purchase of HDB resale flat is only open to Singapore citizens and/or Singapore Permanent Residents (SPR) with minimum 3 years residency status.
Unlike private property, HDB flats are not eligible for purchase by non-residents. This has the intended effect of keeping HDB supply in check and reserve the demand for residents.
However, this also results in limiting the available buyers and price. It is not in our government’s best intention to let HDB prices go unchecked. It is in our future best interest that housing remains affordable for the masses.
Assuming you are intending to buy a HDB resale home at $500,000. You intend to use as little cash as possible to commit to your first home purchase. You intend to all your existing Ordinary Account savings to pay off your property without taking a mortgage loan.
| Property Purchase | Amount |
|---|---|
| Total Eligible Grant | $80,000 (Family Grant and Proximity Grant) |
| Existing Ordinary Account (OA) Savings | $420,000 |
| Ordinary Account (OA) Interest | 2.5% |
For simplicity sake, we will not be including other miscellanous fees such as HDB conveyancing and stamp fees.
CPF balances used for interest computation are affected by the transactions in your account. Any contributions or withdrawals received this month start earning interest next month. Withdrawals/deductions in this month will not earn interest from this month onwards.
Source: Central Provident Fund Board
| Year | Initial Downpayment | Start Balance | Interest | End Balance |
|---|---|---|---|---|
| 1 | $500,000.00 | $500,000.00 | $12,500.01 | $512,500.00 |
| 2 | $500,000.00 | $512,500.00 | $12,812.49 | $525,312.50 |
| 3 | $500,000.00 | $525,312.50 | $13,132.82 | $538,445.31 |
| 4 | $500,000.00 | $538,445.31 | $13,461.14 | $551,906.45 |
| 5 | $500,000.00 | $551,906.45 | $13,797.67 | $565,704.11 |
| … | … | … | … | … |
| 10 | $500,000.00 | $624,431.48 | $15,610.81 | $640,042.27 |
| … | … | … | … | … |
| 15 | $500,000.00 | $706,486.91 | $17,662.17 | $724,149.08 |
| … | … | … | … | … |
| 18 | $500,000.00 | $760,809.13 | $19,020.23 | $779,829.36 |
| 19 | $500,000.00 | $779,829.36 | $19,495.75 | $799,325.09 |
| 20 | $500,000.00 | $799,325.09 | $19,983.13 | $819,308.22 |
With a combination of grant and your Ordinary Account savings of $500,000 for your home purchase, you can see how the principal and your accrued interest snowballed to $819,308 in 20 years. That would also mean in order to make cash on the sale of your property in 20 years time, you would need to sell your property at a price of more than $819,308.
To put things into perspective. Your property needs to appreciate approximately by more than 63% after 20 years in order to just breakeven on the 20th year.
Considering the fact that HDB price growth has been stagnating from 2013 to 2017. How many homeowners can confidently say their HDB will not result in a negative sale situation?
If you had withdrawn $200,000 for your property down payment, and sold your property 15 years later. At the current Ordinary Account interest rate of 2.5%, your total principal and accrued interest used from your Ordinary Account adds up to $289,659. The accrued interest is the money the principal amount would have earned if it was sitting in your CPF Ordinary Account and not used for your property purchase.
The CPF funds used or received (from grants) to finance a property must be repaid when the flat is sold. The repayment amount is made up of the principal amount used/received plus accrued interest.
While technically this money is still in your CPF Ordinary Account, you should be mindful that having money in your CPF can’t exactly put food on the table during financial hardship.
One of the contributing factors as to why a private property might offer better capital appreciation potential is that there is a bigger pool of potential buyers. This allows private property owners to have access to a bigger pool of buyers not limited to just buyers from Singapore.
Unlike private property, there are many homeownership restrictions when it comes to eligible buyers’ profiles. Besides the standard citizenship requirement, you are also required to form a family nucleus to commit to an HDB purchase. If you are single, you can only commit to an HDB purchase only after you turn 35 or older.
There are no ownership profile restrictions when it comes to private property (except landed). This allows private properties to tap on a bigger demand pool with greater access to potential buyers with deeper pockets.
One of the key differentiating features between owning an HDB compared to owning a private property is that you are entitled to share value.
Share value refers to how much of the total condo you “own”, proportionate to every other owner. It is important when development goes en bloc in Singapore.
Share value determines how much you pay for condo maintenance, voting rights on estate matters and most importantly en-bloc sales proceeds. This means private property owners can gather bids from potential housing developers for collective sale. Depending on the land tenure you are sitting on, some land may be sitting on underutilized plot ratio making their land much more attractive to a developer looking to redevelop for a profit.
This allows private property owners to be entitled to en-bloc shares proceeds.
The en-bloc equivalent for HDB owners is Selective En bloc Redevelopment Scheme (SERS). The main difference being, when your flat is selected for SERS, you are compensated for your flat at market value valued by a valuer. The main difference is that
The purpose of implementing MOP is to ensure that HDB flats are used for their residential needs. It should and never be seen as an investment that can be transacted at ease and speculated for capital gains.
Unless you are buying a resale 1 room resale flat without a grant, you are required to fulfil a 5 years Minimum Occupation Period (MOP). During these 5 years, you are not allowed to sell or commit to another private residential property purchase. You are also required to physically occupy your HDB flats for a minimum of 5 years before you can market your home in the open market.
HDB
| Rental Income | No leasing of your entire HDB flat for rental income. |
| Residential Use | You need to physically occupy your HDB flat for 5 years. If you are away for work, you can lease your HDB unit. However, your MOP period will not take the time you are away for the calculation of the MOP. |
| Condition of Purchase | You cannot buy or invest in any residential property. This is regardless if it is local or overseas. |
| Sale Restriction | You can only sell your HDB flat after 5 years. Any intention of sale before the 5 years MOP is due has to be of a valid reason approved by HDB. |
Private
| Rental Income | You can lease your unit immediately for rental income upon key collection. You can make your money work for you upon finding a suitable tenant. |
| Residential Use | You do not have to physically occupy your private home for 5 years. |
| Condition of Purchase | You can buy or invest in any residential property with no restriction. |
| Sale Restriction | You can sell your private property any time upon exercising (Seller’s Stamp Duty (SSD) is payable) |
The last reported percentage of active CPF members who can meet their minimum sum at age 55 was 45%. The news was reported on 05 Mar 2012. It was more than 8 years ago.
If you happen to be a part of the Merdeka or Pioneer generation who owns a HDB unit located in prime areas such as Queenstown. You probably saw your property value grow at a rate that far exceeds the market average you see today. This also applies to lucky home buyers who manage to secure a BTO HDB unit at prime areas (e.g. Skyville @ Dawson).
If you are lucky to be such owners, you are now faced with an unusual situation. You are now asset rich with much of the liquidity held onto your HDB flat. Until you decide to sell your flat, you will not be able to unlock the value of your HDB flat.
The same HDB housing rules do not apply to private homes. When you commit to a private property purchase, you can gradually build up equity in your property. In the event your private property increases in property value. You can also increase the equity that you can take advantage of by borrowing against that equity when you need the additional cash.
Your HDB may be worth 1 million dollars but you are unable to take advantage of any increase in the equity until you decide to sell. You are not allowed to use your HDB flat, even if it has been fully paid for, as collateral to banks to raise credit facilities for private reasons.
To put things in perspective, interest rates for education loans are approximately 4%, business term loan interest rates are about 3.5%+. Home equity loan rates have dropped to new lows. One could easily take advantage of the low-interest rates offered by home equity loans and pay off your higher interest in charging loans. These loans include your child’s education loan, outstanding credit card debts or even pay off your business term loan.
Looking at the current 2 HDB monetisation options (Silver Housing Bonus and Lease Buyback Scheme). It is important o note that these 2 options have strict eligibility conditions. One of the eligibility conditions is that they are only open for elderly aged 55 (Silver Housing Bonus) or 65 (Lease Buyback Scheme). This means young owners currently staying in a resale HDB flat only have the option of selling in the open market to monetise their HDB flat value.
Even though some can choose to lease out their current residential home to supplement their income. It is not an ideal arrangement for Singaporeans without alternate housing.
It is important to note that selling at an ideal price often boils down to supply and demand. Which is why almost 1 out of 6 owners of such BTO flats often sell their HDB flats upon MOP within the first 2 years. The fresh remaining tenure makes their MOP home much more attractive to a home buyer.
Selling your HDB is a big financial decision. It is important to be mindful that HDB should be viewed for their residential purposes and not as a speculative asset class. For one, they are sold at a subsidised price, which is at a substantial discount to comparable resale prices around the vicinity. If you are looking to upgrade, timing the sale of your recently MOP home makes a lot of financial sense.
Your sales proceeds may vary depending on the existing market condition. But generally, when an HDB flat freshly completes its Minimum Occupation Period (MOP), it usually is quite well sought after. This is because young buyers will generally prefer new MOP projects with longer remaining lease tenure.
Looking at the BTO project above, we can see that the 2 transactions that happened approximately 2 and a half years apart were transacted for a price difference of $100,000. Even though the unit transacted at #17-639 is at a level higher, it still failed to command a higher closing price.
The main difference being that #17-639, at the point it was transacted, has lesser remaining lease than #16-639. Sellers of MOP-ed HDB flat should be aware of nearby HDB projects are due to MOP as well. The increased competition combined with lesser lease tenure will inadvertently affect your selling price.
Looking at the profitability of private property over the years, we can see that many who bought new private homes during a downturn and resold them subsequently have made attractive profits.
On average, homebuyers who made a private property purchase during the financial crisis in 2008 made the highest gross profits.
For residential real estate in Singapore, there is a strong correlation between GDP growth and real estate capital returns. The basic assumption arises from the fact that income has to be accumulated to buy a home. For Singapore’s case, the majority of Singaporeans depend heavily on our income, which in turn, can be directly derived from GDP. In the long run, the growth trends of both cycles typically correspond to each other.
If you are like many Singaporeans, chances are you have opted to take up CPF housing grants during your new or resale home application. You might have also opted to fulfil their monthly mortgage obligation using their CPF OA contributions. Over time, this can build up to a significant amount of accrued CPF savings contributed to your home purchase.
These CPF funds can be used to upgrade your current HDB home upon the successful sale of your HDB home. This is why many have taken up the option to upgrade their HDB home before they turn 55 to minimize their potential cash outlay.
When you turn 55, your Ordinary Account and Special Account will merge to form your Retirement Account. You will be allowed to withdraw any excess money, but are obliged to leave behind the Retirement Sum in your account. This cash is not to be touched until you are ready to receive your retirement payouts at age 65. This sum of money will be used in a longevity insurance scheme called CPF Life.
If you already turn 55 and your Retirement Account (RA) has already been formed, your refunded principal and accrued interest will need to top up to your Full Retirement Sum (FRS). Any excess beyond Basic Retirement Sum (BRS) and Ordinary Savings (OA) can be used for your next home.
Here’s an illustration on how one’s age affects the amount of cash outlay for a property purchase. Both Adam and John aged 54 and 55 respectively are intending to upgrade their HDB flat to a private home. They both have the same amount of combined funds in their Ordinary Account (OA), Special Account (SA) and Retirement Account (RA). The current mortgage interest rate is set at 1.5%. Current Basic Retirement Sum (BRS) is set at $90,500.
Let’s examine the 2 differences in cost outlay for Adam and John aged 54 and 55 respectively looking to sell and upgrade to a private home this year. Assuming both of them have sold their current home and looking to buy their next.
| Adam | John | |
| Age | 54 | 55 |
| OA Savings (OA) | $120,000 | $0 (transferred to RA) |
| SA Savings (SA) | $61,000 | $0 (transferred to RA) |
| Retirement Account (RA) | $0 | $181,000 |
| Property Price | $1,000,000 | |
| Usable CPF OA Savings for Property Purchase | $120,000 | $90,500 (Only able to use RA savings above BRS and OA savings) |
| Cash Down Payment | $130,000 | $159,500 (Higher) |
| 75% Maximum Loan to Value | $750,000 | $750,000 |
| Max Loan Tenure | 11 years | 10 years |
| Monthly Mortgage Obligation | $6,167 | $6,734 (Higher) |
Here we can see the cost implication when you decide to buy a property after you turn 55. For John’s case, as he has already turned 55, his expected cash outlay for buying his private property is higher than that of Adam. This is because he is required to reserve half of his Full Retirement Sum (FRS) for his retirement years.
However, for Adam, he can still maximise your entire Ordinary Account (OA) for his next home without forking out more cash than John even though both of them have the same amount of money in their respective combined CPF accounts.
Children who inherit an HDB flat from a deceased parent will have to fulfil one of the many HDB ownership eligibility schemes. If you are currently listed as an occupant for an HDB flat that you purchased with your spouse, you will not be able to inherit your parents’ HDB.
To put it simply, it is not possible for anyone to own 2 HDB flats. You can only fulfil the eligibility criteria for only 1 HDB flat at any point in time.
It is important to note while HDB handles such issues on a case by case basis, if you find yourself in a similar situation, you can seek HDB assistance for your housing needs by contacting them at HDB Contact Us page.
If you currently own a private home and you inherited a non-subsidised HDB flat from your parents bought before 30th August 2010, you can still retain the HDB flat if you are married with children. One additional criterion is that you are also required to live in your inherited HDB flat.
For example, if you are married with kids, you can choose to hold your inherited HDB flat under the Public Scheme. However, this means you cannot continue to live in your private home. You must live in the HDB flat to maintain ownership of these 2 properties.
Should you decide to choose to continue living in your private home, you will be obliged to sell your inherited HDB flat. All miscellaneous maintenance and town council charges are still payable until the day you sell your HDB home. This contributes to additional cost outlay for a flat they cannot live in. This is why some would rather upgrade to a private home to leave as a legacy for their children. You can check out more information on HDB inheritance rules in this link here.
Selling a home is a big decision. It goes without saying that there are certainly individuals who purchased an HDB flat solely for residential purposes. In situations like these, there is no reason for you to sell your HDB flat after MOP. The above financial considerations should not matter to you.
This is why it is very important for all property sellers to seek highly relevant investment insights from your trusted realtors. You should never sell your HDB flat on a whim without understanding what are the trade-offs.
For those who are seeking to upgrade, I hope my post can give you a greater understanding of the policies that can have an impact on your HDB flat value and provide you with additional insights to your home selling journey.
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