10 Things To Consider Before Buying Your First HDB Flat

Ready to make the first biggest purchase of your life? Consider the following points before buying your first home.

You just got married or achieved the 35-year-old milestone and it’s finally time to get your own abode, Yay! There’s this unspeakable sense of joy mixed in with apprehension venturing into this domain which was previously off-limits. Being a realtor myself, I have seen home buyers come and go, some having done ample research while others.. well clearly taking a leap into the unknown.

Here are some things to consider before paying that $1,000 option fee to buy your first home. Warning, long post ahead but hey, it’s your first home we are talking about here, so better to be more detailed yea?

1. Consider Your Financing

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PHOTO: sg.get.com

Before you go searching for your dream home, take stock of your current finances and how you intend to fund your property.

Top things to consider:

  • What is the maximum amount I can loan from HDB / Banks?
  • How much monies I have in my CPF Ordinary Account?
  • How much upfront cash do I have / want to put into my first property [excluding renovation fees]?
  • How much do I have to top up in cash every month if my monthly CPF contribution cannot cover the monthly installments?

Essentially, all you need in cash to buy a resale flat is $5,000 (or less) – provided you [are eligible to] take a 90% HDB loan and there is enough money in your CPF OA to pay the 10% downpayment as well as the 3% Buyer’s Stamp Duty (BSD) Government tax.

The amount of cash you need for purchasing a Build-To-Order (BTO) flat is slightly different and the option fee can be reimbursed from your CPF OA if there is enough monies in your CPF OA to pay the downpayment and BSD inclusive of the option money. For more info, click here.

And it is best that you actually get your HDB Loan Eligibility (HLE) or your bank loan approved before you start your house hunt to avoid wasting time.

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PHOTO: theindependent.sg

“If I don’t need so much upfront cash when taking a HDB loan, why should I consider a bank loan to begin with?” 

The #1 reason for taking a bank loan is simply because of their favourable interest rates. HDB loan while consistent, goes at a hefty 2.6% interest per annum whereas bank interest rates are significantly lower. As at 3 September 2017, floating interest rates can go as low as 1.28% (1st year) while fixed interest rates can go as low as 1.5% (1st year).

If you are someone who can manage your finances well, bank loan is up your alley. But do take note that you will have to engage a private lawyer instead of a HDB lawyer to do the conveyancing for you.

In spite of this, HDB loans are still popular because they allow for lesser upfront cash/CPF payments and they do not have any repayment penalties. If a homeowner has the financial ability to partially or fully pay their flat in cash/CPF, they can do so without any penalties. This may not be so for banks.

Another reason would also be that HDB – as a Statutory Board – won’t be so inhumane to kick the homeowner out of the house should they have any difficulty in future when paying the monthly installments. The bankers won’t be so kind!

Do also bear in mind that if you have a low credit score due to repayment issues in the past, it will affect your bank and HDB loan. 

There is no such thing as “HDB loan is better” or vice versa. It all depends on your needs really. Speak to your realtor should you have any questions.

2. Check Your Eligibility

Before taking the next step, be sure to check your eligibility. To buy a BTO or resale flat, you have to fall within any of HDB’s eligibility scheme.

Singapore Permanent Residents (SPRs) with a proper family nucleus who have obtained their SPR status for at least 3 years at the time of submitting the application can also buy HDB resale flats. However, they are not allowed to buy BTO flats.

3. BTO Or Resale Flat?

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PHOTO: todayonline.com

Much like buying a new launch condo unit, buying a BTO flat ensures that buyers (must form a family nucleus) buy their flat at the best price possibly. But let’s not forget that BTOs are getting expensive as well. Besides, [only] in Singapore, couples have to make a [difficult] decision of applying for their BTO flat – which takes 3 years to build – way before filing for a notice of marriage so that they can get their house on time just before or after the wedding. But ya’ know, life happens and breakups may occur as well.

The cancellation of a BTO flat application – depending on what stage of the buying you are at – can have dire consequences such as the forfeiture of the paid up money on the property as well as balloting chances for another BTO flat in the future. For more details, visit this detailed article by 99.co. BTO flat buyers may also be eligible for housing grants of up to $80,000.

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PHOTO: straitstimes.com

If you believe your relationship is fireproof, then go ahead and make the application. But lady luck may not smile on you since there can be as many as 8-10 applicant balloting for the same BTO and even Sale-of-Balance (SOB) flat.

Resale flats on other hand provide the opportunity for couples to upon marriage; choose their desired location without the hassle of balloting, move in immediately upon completion of transaction, and also enjoy up to $110,000 in grants (subject to eligibility).

For couples who don’t mind waiting for their home and enjoy a higher monthly combined income not exceeding $14,000, Executive Condominiums and maybe even private condominiums may be a better buy. More details in my next article.

4. Consider The Lease of Your Flat 

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PHOTO: propertyguru.com

One of the most important point to remember about HDB flats is that they have a running lease term – which at the end of the 99 years lease will be returned to the State. While location is important, buyers should also keep in mind that they don’t overpay for an ageing property as reminded by Minister Lawrence Wong.

Buying a flat with lesser years left on its lease can affect;

  • Your financing of the flat with HDB or Bank loan,
  • How much CPF you can use for your flat purchase and,
  • Your selling price when you want to sell your flat to upgrade.

For more information on how much CPF you can use for flats with less than 60 years lease, click here. For more information on how much HDB loan can be offered for flats with less than 60 years lease, click here.

As a rule of thumb for my clients below the age of 35, I would advise that they buy a newer flat completed not more than 10 years ago if possible. This is due to the fact that HDB flats depreciate when nearing 60 years in leftover lease and this can result in negative sale. More details in the next point.

5. Consider If You Intend To Stay Here Forever

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PHOTO: dollarsandsense.sg

“Woah, forever? Need to think so far meh?”

Forever seems too far-fetched but it will be something that you wish you considered when you realised the flat you bought ten years ago will be a negative sale (which requires you to pay the shortfall to HDB or the bank whom you loaned from). You need to plan for your tomorrow today, and I can’t emphasize that enough.

If you are in your 20s or 30s, there is a high chance that this flat won’t be your last home and you could possibly look to upgrade to a bigger house or a private property when you get promoted to a better job and earn better salaries later on in life. Hence, it is important to consider your exit plan (think of the future resale price) and come out with a 10-year game plan. Speak to your realtor to find out more.

This will be a non-issue for buyers buying BTO flats although they will have to sacrifice on the space and location since resale flats are usually in better locations closer to town, have many amenities and transportation routes, as well as bigger layouts.

6. Renovated Or Original Condition Flat?

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PHOTO: thesmartlocal.com

Okay, now that we are done with the financial stuff, let’s talk about something less boring! One of the most interesting part of house hunting is peering into someone else’s home. And that begs the question; To buy a renovated flat or not, that is the question.

For buyers looking to save a few bucks, a renovated unit would be ideal since renovation cost will be kept to a minimum. However, owners who put good money into the renovation of their homes may most likely expect to sell their flat at a price that is higher than the recent market transactions and valuation. That would also mean that there might be Cash Over Valuation (COV).

For example, an owner who spent $60,000 on renovations ten years ago may expect to pass the cost over to you by selling his property $60,000 above COV! While some may rationalise that it is essentially the same as buying an original condition flat and pumping $60k in renovations, but it’s not. Here’s why;

  • Even if the valuers were to take into account the exact renovation cost, all renovation has straight-line depreciation,
    • Many people including agents don’t know this, but there is actually a formula to calculate valuation of renovation after depreciation
    • A flat renovated 10 years ago or longer adds $0 into the valuation
  • Buyers can buy an original condition flat and take up a renovation loan, thus do not have to cough up so much upfront cash.
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PHOTO: renonation.sg

After transacting so many houses, one thing I observed was this, buyers who bought renovated flats still have to spend a small sum of money on minor renovations, toilet overhaul, carpentry works, or even hacking away passé/unwanted decor.

For buyers who choose an original condition flat over a renovated flat, you can save cost from hacking away unwanted decor while getting your interior designers to renovate the house based on the latest trends and all.

Hence, while viewing a beautiful renovated home may give you the good vibes, it might at times make more sense to buy an original condition flat and renovate it into the house of your dreams. With that said, you still got to do your budgeting for the renovations!

But again, different buyers have different needs. If the renovated flat with its gorgeous decor fits the home of your dreams, why not? Talk to your realtor about this.

7. Mature Or Non-Mature Estate?

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PHOTO: Iconic Dragon Playground in Toa Payoh | singaporeheritage.sg

Many of u like the idea of living in an exciting estate that has everything from supermarkets, to proximity to town, to movie theatres, to megamalls, and the list can go on and on. But what if staying in a happening location may set you back by more than double the price?

Last year, The Straits Times reported that a 5-room flat in Clementi was sold at a record-breaking $1.005m. That record has since been broken by another Clementi flat which was sold at $1.04m earlier in April this year. Since last year, many Design, Build and Sell Scheme (DBSS) flats in Bishan, Toa Payoh and Boon Keng have crossed the $1 million threshold.

While not all HDB flats in a mature estate will come with such an exorbitant (DBSS) price tag, expect to pay a premium for the location nevertheless. Here’s an example.

  • A high floor (above #12) 1,087 sqft 4-room flat in Block 155 Lorong 1 Toa Payoh (TOP 1999) was sold at $690,000 in August 2017.
  • Comparatively, a high floor (above #13) 980 sqft 4-room flat in Block 293 Punggol Central (TOP 2005) was sold at $408,000.
  • Both are within similar walking distance to the nearest MRT. One costs almost $300,000 more.
  • Based on the same perimeters of 80% HDB loan on a 25-year tenure, the Toa Payoh flat buyer have to pay around $2,505 in monthly installment while the Punggol flat buyer have to pay around $1,666.
  • The difference is almost $1,000, enough to pay the installment for a low maintenance vehicle.
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PHOTO: Punggol Waterway | sg.asia-city.com

To add on, properties in a non-mature estate also has the potential to appreciate in value as more developments and amenities are built over time. Some non-mature estates which will see lots of development in the future include the Northeast regionJurong district, Woodlands district. One way to find out the future developments in the area is to look it up on the URA Master Plan.

Past non-mature estates which are highly sought after today include Marine Parade and even super-popular towns like Tiong Bahru, Toa Payoh, Bishan and Bukit Timah which used to be the cemeteries.

Of course living in a non-mature estate does have its drawbacks such as limited convenience shops and coffee-shops for example. If that is something you can overlook, why not consider a flat in non-mature estates?

For buyers who have a higher combined monthly income, they can also consider Executive Condominiums instead of buying a HDB flat which will be addressed in my next article.

8. Check The Property Value

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PHOTO: homeanddecor.com.sg

Back to the point 5, some sellers are [just a little too] optimistic, hoping to sell their flats at a price that is a tad higher than recent transactions in the same block or area. Be sure to check the recent transactions in the block prior to making an offer. Also, a competent real estate agent would be able to help you negotiate down the price to avoid or minimise any COV.

If you are not in the property trade, you wouldn’t know that sometimes, there is a peculiar phenomenon where two flats in the same location with a road separating the two can have a different property value. One could just be a few metres closer to the MRT or have a better facing. If price is more important to you, choosing the cheaper alternative is a natural selection.

9. Ask The Right Questions

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PHOTO: channelnewsasia.com

One common mistake that most home hunters make is they do not ask the right questions. Questions such as “How high is the ceiling height?” are redundant when compared to other questions like “How many minutes’ bus ride to the nearest MRT?” Asking the right questions ensures you know exactly what you are signing up for and allows you to prepare in the event that something goes wrong in the deal. This becomes absolutely important if you see potential red flags such as freshly painted walls outside the flat, or a brownish ceiling in the toilet.

Some important questions include the following;

  • How long does it take to get to the nearest MRT via public transport?
  • Where is the nearest supermarket and coffee shops?
  • Where is the nearest childcare centre?
  • Who are the neighbours?
  • How long ago was the renovation?
  • Are there any leaking issues in the house?
  • Does the owner have any past history of moneylending?
  • Is the owner going through financial hardship? To name a few.

But if you have a responsible and competent realtor, just leave the asking to him/her.

10. Finding The Perfect House

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PHOTO: homeanddecor.com.sg

Have you ever tried looking for the pot of gold at the end of a rainbow and found it? It’s essentially the same as looking for the perfect house. The thing is, you will probably not be able to find a house with the best facing, ideal floor level, bright and breezy, good condition, desired amenities, angelic neighbours, and finally fall within your acceptable pricing.

If you are, unfortunately I have to inform you as a realtor that you are setting yourself for disappointment. There is bound to be something in the house which may be a [minor] issue to you. Instead of telling yourself that this house has to meet your every criteria, look instead to identify your wants vs your needs, and the dealbreakers ie. things that you confirm plus chop cannot accept.

For example, high floor is a need, while high floor and can see fireworks is a want. Another example, you cannot accept that your house is facing the main road but if the unit faces a small road is something you can consider, then strike the main road facing units out of your selection but allow yourself to consider units facing the small road.

With that, I hope that the above article has equipped you with the knowledge on searching for your first home! RW

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Share this article with your friends! The above article represents the writer’s honest opinion and does not reflect the sentiments of any company and Government organisation. Need advice on finding your home or are looking to engage the author? You can reach the author at 9833-6450 or eugenetayhy@gmail.com. The author is an experienced, licensed real estate salesperson with Huttons Asia.

While efforts have been made to ensure the accuracy of the information and data stated above, any use of the above information and data should be used at viewers’ discretion.

The Government’s Stand On SERS And How It Matters To You

National Development Minister Lawrence Wong has cautioned home buyers not to assume that all old Housing Board flats will be automatically eligible for the Selective En bloc Redevelopment Scheme (Sers). – The Straits Times, 24 March 2017

On 24th March 2017, the collective voices of Singaporeans could be heard all the way up in the heavens as they tore their garments and cussed. Okay, a little over-dramatic there.

As we all know, every statement released from the Government is loaded and carries a lot of subtle messages. The Straits Times published an article on 24 March 2017 capturing the key essence from the ‘controversial’ blog entry by our National Development Minister Lawrence Wong. So how does this affect aging flat homeowners and buyers? Reuelwrites gets to the bottom of the matter.

But first, what is SERS?

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PHOTO: sbr.com.sg


What is Selective En bloc Redevelopment Scheme (SERS)?

According to HDB website, SERS was introduced in 1995 to redevelop the existing land for better use and to ‘inject vibrancy into the area’. Residents of flats selected for SERS will be compensated with the market value of their flat paid by the Government, and can enjoy the following rehousing options:

  1. Purchase a new 99-year lease flat at replacement site
    Basically you bao jiak (sure get) a new flat at subsidised price, no need to compete with the rest of Singapore for a new flat. You will also be eligible for a SERS grant of up to $30,000* credited to your CPF.
  2. Apply for a new flat elsewhere
    Don’t like the replacement location? Apply for a Build-To-Order (BTO) or Sale of Balance Flat with HDB. 10% of the flats offered in BTO or SBF exercises for priority allocation under the Resettlement, Relocation, SERS, and Tenants’ Priority Scheme. There is still competition but less. You will also be eligible for a SERS grant of up to $30,000* credited to your CPF.
  3. Buy a private property
    Want to upgrade instead? Rather than take the SERS rehousing benefit, you can opt to receive a ex-gratia payment of $30,000 (half transferred to your CPF ordinary account). However, you will only receive this money after you have returned the SERS flat to HDB.

Points to note:

  1. The SERS grant (amount depending on your household status) can only be used to buy a replacement flat and nothing else.
  2. Flat owners who have enjoyed the SERS grant benefit have to return (with interest) to their own CPF ordinary accounts if the replacement flat is subsequently sold or transferred.
  3. You cannot enjoy the SERS grant benefits more than one. So if you’re thinking of buying another flat with SERS potential with the desire to earn again, the government is telling you to dream on.
  4. One should also note that only 4 per cent of HDB flats have been identified for Sers since it was launched in 1995. How many more flats will be chosen is anyone’s guess.

There are a lot of other terms and conditions tied up to SERS and its accompanying benefits which is really too many to write down here, so do read through the contents on the website carefully before you make any decision relating to a SERS flat.

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PHOTO: straitstimes.com

Why did Minister Lawrence Wong make such a strongly worded blog entry?

I try to put myself in the Government’s shoes to understand the reasoning behind why they do things, so here goes. To grasp the full weight of Minister Lawrence Wong’s entry, we have to first understand the intentions that supported the decision and announcement. Right from when the first HDB flat was completed in 1960 to solve a housing crisis, we know that public flats are heavily subsidised (and can be further subsidised with additional grants) with taxpayers’ monies so that the lay Singaporean can afford a roof over their heads. It was never really meant to be a money-making device.

Stated clearly on the title of HDB flat lease agreement which we all agreed and signed on reads that our flat will be returned to HDB after 99 (or 999 years for some flats) who will in turn surrender it back to the State, which will then be re-purposed. The reasons for implementing a lease policy will be debated and challenged (until the cows come home) so it will not be discussed.

Granted that not all Singaporeans are literate and adept in money management (like you), there are limitations to buying flats using CPF monies, and approval of HDB/bank loan for properties with lease of less than 60 years or will expire before the home buyer reaches 80 years of age. Whether you believe in this or not, this is the Government’s blanket policy to ensure Singaporeans still have enough money for themselves when they are old and wrinkly.

While the Government allow our flats to appreciate on the (resale) free market with *light-touch regulations, it is also the Government’s intention for flat prices to go down as the lease shortens. The Government is not obligated to bail home owners out when they choose to hold onto their property for donkey years, or pay a high price for a flat with not much years left on its lease for the sake of profit-making. Then why don’t the Government just enbloc every flat when it gets old? You might as well tell the Government to make all flats freehold right? That’s another topic altogether.

Simply put, if we choose not to sell our flat after it appreciated in value and choose to hold onto it indefinitely – with hopes of enbloc – until the lease expires, we can effectively treat our HDB purchase as paying the monthly rental (which is still fair). There might be a possibility of a lease buyback scheme kicking in in future but just like waiting for the enbloc, the risk is on us to pray that HDB lets us top up our lease or choose our flat for enbloc. The odds are not really in our favour.

Now to address the next question,

  1. What does this mean to me as a HDB flat owner?
  2. What does this mean to me as a HDB flat buyer?
Image result for hdb model straits times

PHOTO: straitstimes.com

What does this mean to me as a HDB flat owner?

You probably received calls and messages from real estate agents (I could be one of them, Laughs) informing you of the SERS article, telling you to consider selling your (ageing) flat. Before you put up your flat for sale or write it off as a marketing gimmick, what and how does the recent news relate to you as an existing flat owner, especially if you are holding onto a property with a lease of around 60 years or less?

Most HDB flat owners fall within these categories stated below:

  1. Don’t want to sell because waiting for enbloc
  2. Don’t want to sell because house got sentimental value leh
  3. Don’t want to sell because rental yield is *high

There is really too much to address so I will just address the first topic to stay on point. As mentioned above, by holding onto an ageing property you are really 守株待兔ing, (guarding a tree-stump waiting for rabbits). Don’t cry foul when the Government don’t choose your flat for SERS.

The second group of people are the ones who believe their flats are super valuable because it will be enbloc-ed. However, unless your property has been slated for enbloc, there is a chance that it won’t be as stated by our Minister. In my real estate career, I have met sellers before who have given me an unrealistic asking price to sell their flat (eg. recent transactions are around $400k-$415k but the price seller wants is $460k) because they believe their flat has “enbloc potential”.

Notice, the enbloc is only a ‘potential’, not ‘confirm plus chop’. If you want to sell your flat at a high price because you believe that your flat has enbloc potential, what you are essentially doing is you are passing the risk to your buyer. Selling at high price also means the Cash-over-value portion will be high. The question to ask is, would the average flat buyer have so much cash on hand? Never mind that a investor has to sell all his properties to buy your flat, they would have bought a private property with more potential capital upside (see MoneySmart.sg article and statistics).

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PHOTO: channelnewsasia.com

What does this mean to me as a HDB flat buyer?

After all that is said and done, I’m not saying one should never buy an ageing HDB flat. It also depends on your needs and how old you are. Ageing flats have their own charms. Ageing flats are usually (much) bigger, are located in a mature estate with many amenities, are in prime locations, or are very accessible (near or next to MRT, shopping malls, et cetera). At the end of the day, how you view your flat purchase matters – is it for convenience or for profit? The prospective buyer should not expect to buy an ageing flat with the intention of making a profit in the future.

If you are getting on with age and am just looking a retirement place to settle down, an ageing flat with its many amenities within a stone’s throw away might just be your solution. If you are still young (in your 20s), an ageing flat with a lease less than 50 years should not be in your consideration since financing your flat using CPF monies and loan will be challenging – unless you’re cash-rich? But why would you buy an ageing flat then? RW


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Share this article with your friends! The above review represents the writer’s honest opinion and does not reflect the sentiments of any Government organisation and bodies, any real estate agency or stakeholders. If you are a home owner or looking for a flat and you want to know how to proceed from here, you can reach me at 9-833-6450 or eugenetayhy@gmail.com. Disclaimer: The author is a licensed real estate salesperson with Propnex.