The Almost Complete Goondu’s Guide to Buying a HDB Flat in Singapore (Part 1)
Chapter 1: The Consideration Phase
Housing Development Board (HDB) was created with the intention of making housing affordable for Singaporeans and Permanent Residents. As such, there are many rules and restrictions which you have to qualify before you can purchase a HDB flat.
Before you embark on one of the priciest purchases of your life, there are some things you need to take note of:
1) Fulfilling the criteria for a Flat.
2) How much should your house cost?
3) Location
4) Timing
5) Size
6) Type
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1) Fulfilling the criteria for a Flat.
- Not anybody can buy a flat. You have to fall into one of the following categories:
(a) Public Scheme: Parent(s) + child(ren) family.
(b) Fiance/Fiancee Scheme: Couples intending to get married.
(c) Single Citizen Scheme: Any Singaporean above 35, or a single orphan above 21 can buy alone.
(d) Non-Citizen Spouse Scheme: Singaporean marrying a foreigner.
(e) Non-Citizen Family Scheme: Singaporean + Non-citizen parents/children
(f) Orphans Scheme: An orphan and his siblings.
(e) SPR Siblings: Two Permanent Resident (PR) siblings.
For more details about the above scheme, visit the HDB Website.
2) How much should your house cost?
- Mr Tan suggests that the cost of your house should be limited to:- 7 years of the breadwinner’s income
- 5 year of the combined family income
Eg. If guy makes $3k and girl makes $2k, house should cost $252k (7yr breadwinner), or $300k (5yr combined).
That however, is not the maximum loan that you can qualify for. Banks will allow you to use as much as 40% of your monthly income to repay our loan, while HDB generally will allow a much lower percentage for loan repayment.
I personally suggest that the price of your house should have monthly payments that do not exceed you and your spouse’s monthly CPF Ordinary Account (OA) Contributions.
If you are below 35, 66.7% of your monthly CPF contributions enters your OA account. A quick way of calculating this amount is: [0.23*(gross pay)]. Note that the amount is more than 20% of your pay, because you have to add in your employer’s 14.5% contribution as well.
Eg. If your monthly household income is $5000, your monthly payment should not be more than $1150. That works out to be approximately $285k in loans, payable over 30 years at 2.6% pa. interest (HDB loan). If you add in the 10% downpayment, your property should not cost more than $317k.
Ideally, it would be best to limit it to one party’s income, so that in case one party decides to stay home and look after the kids, or if one party loses their job, you still have the other party’s CPF to pay off the installments temporarily.
- Now that you know you are eligible to buy a flat, and how much your flat should cost, the question to consider next is where. If you are eligible for housing grants, where can mean an extra $10k in grants. If you choose to buy a HDB in the same estate as your parents (eg. Bishan-Bishan, Tampines-Tampines, Bedok-Bedok), or within a 2km radius (eg. Bishan-Toa Payoh, Simei-Tampines), you get an additional $10k on top of the $30k family grant.
There are pros to living near your parents. They spend time with their future grandkids and help you babysit, and it would be more convenient to visit them.
However, if your parents currently live in ‘hot’ estates like Chinatown, Queenstown, Tanjong Pagar (basically areas near the city), where property prices are sky-high, you might be limited to smaller flats in order to fit within your budget.
Eg. A $317k budget could get you a small 4 room flat in Simei, but only a small 3 room flat in Chinatown.
- Do you need a flat within 6 months? Then resale flat is the way to go. If you can afford to wait 3-5 years, you can apply for a new flat. New flats are generally priced cheaper than current resale flats nearby (about $50k less).
However, while new flats are cheaper, generally much better designed than old flats, and carry a fresh 99 year lease, they are mostly not anywhere near the city. Also, new flats (apart from DBSS and Exec condos) are not eligible for any grants as they are already subsidized.
Another aspect of timing, is watching the economy as a whole. In times of property booms, private property tend to lead the way, with prices rapidly increase. HDB flats will follow suit. As resale flat prices rise, new flats released by HDB will rise accordingly.
Note that the reverse is true too. In today’s economy, things are looking bad. Singapore has entered a recession, and private property prices have started to come down. Resale HDB flats are still high, but are slowly tapering off. In the new year, resale HDB prices should fall, and when they do, so will new HDB prices.
The question is about timing: Can you afford to wait for the right time?
- Let’s say your budget allows you to get a 5 room flat not so near town. The question to consider next is, do you really need a 5 room flat? Sure it’s nice to have, but a house that you plan to live in is ultimately a liability. A bigger house means larger property taxes, higher utility bills, more money spent on renovations, and more furniture to furnish the extra rooms. Also, you get less ‘ang pows’ from the government from programs like GST offset packages.
A 4 room flat has the same number of rooms as a 5 room flat. If this is your first flat purchase, perhaps you should consider not over-stretching your budget. This would allow you to save more for retirement, or more money towards investments in another property or otherwise.
Consider renting out your spare rooms for the first few years to help pay for your mortgage. An average room rents out for about $500-$600/mth, including utilities. As new additions to your family comes, you can then solely cease to have tenants in your home.
- - Types of New HDB Flats
(a) Studio Apartments: These are meant for the elderly, and you must be age 55 and above to apply.
(b) Quarterly Sales of 3-room and smaller flats (Jan/Apr/Jul/Oct): Unsold or repossessed flats from previous projects. Some keys available already.
(c) Half Yearly Sale of 3-room Premium, 4-room and bigger flats (Apr/Oct): Unsold or repossessed flats from previous projects. Some keys available already.
(d) Build-to-Order: New projects that will only commence when majority of units have been booked.
(e) Design, Build and Sell Scheme (DBSS) Flat: HDB flats build by private contractors. Also known as ‘condo-style HDBs without the facilities’. Applicable for HDB grants.
(f) Executive Condominium (EC): HDB Condominums, build by private sector. Comes with facilities, security guard, the whole ‘condo’ deal. Applicable for HDB grants. Cannot be sold during 5year period from occupancy. From the 5th-10th year, can only be resold to Singaporeans and PRs. After the 10th year, ECs become privatized, and can be sold to anyone, including foreigners.
- Existing HDB Flat Types
Check out the various HDB Flat Types & Models
(Via juzproperties.sg)
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