5 Things You Must Know Before Buying Your First HDB BTO

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Most Singaporeans live in HDB flats. Buying a HDB Build-To-Order (BTO) flat is usually the first, and often, only, big financial decision that Singaporean couples have to make. As such, it is an important topic that everyone needs to understand.

Browsing the HDB website is an important step to gaining information. However, it isn’t exactly the most fun or easy thing to do. The HDB website is filled with a massive amount of information and regulations that may or may not be relevant to a first-time homebuyer.

We decided to pick out the 5 most important things that you need to know.

(1) 5 Year Minimum Occupation Period (MOP)

When you purchase a brand new flat from HDB, you will need to stay there for a minimum of five years, or ten years for flats under Prime Location Public Housing (PLH).

This 5-year or 10-year period starts from the day you collect your keys from HDB. If we assume that a flat takes about five years to be built based on current estimates, that would mean it takes close to ten years from the day you purchase your BTO for your MOP to be over.

In addition to having to stay in the flat for the MOP period, you are also restricted from purchasing private properties, both locally and overseas, during this period. Common sense would suggest you are not allowed to sublet your entire home (because you need to stay in it), though you are able to rent out individual rooms.

The 5-year (or 10-year) MOP rule is an important one that most people fail to consider when they buy their flats. We know of people who have done well in their careers but were not able to invest in private properties during the last recession because of this rule.

Do note that even if you buy a resale flat from the open market with or without the use of a CPF Housing Grant, the MOP would still apply to you.

(2) Resale Levy Payable

This is one of the important conditions that many first-time HDB homebuyers completely miss, and which they end up complaining about in the future.

When you purchase a BTO flat, it is considered a subsidised flat. There is a resale levy, which you have to pay if you sell your flat and then subsequently buy another subsidised new flat from HDB.

The resale levy depends on the size of your flat.

First Subsidised Flat Types	Resale Levy
2-Room	$15,000
3-Room	$30,000
4-Room	$40,000
5-Room	$45,000
Executive	$50,000

We think you should bear this in mind for any upgrading plans you may have for the future. For example, a couple may think that a 3-room flat is sufficient space for them in the next 5 years. They may rationalise that they can always upgrade in the future if they need more space.

This type of planning is perfectly sound. However, some couples may not realise that there is a resale levy payable should they sell and buy another new HDB flat. Had they realised this earlier, they might have very well chosen a different option from the outset.

(3) Bank VS HDB Loan

For the past few years, bank loans have been the talk of the town. Everyone thinks taking a bank loan is better because of the lower interest rates offered.

However, as interest rates began rising in 2022, the banks’ SORA interest rate packages have also started to climb. Despite the teaser low initial rates, bank loan packages are subjected to market volatility and might be pegged higher after the lock-in period. On the other hand, the HDB housing loan, which though it is a floating rate package, has been kept at a fixed 2.6% interest rate over 20 years.

Additionally, homeowners will need to pay a downpayment of 25% when they take a loan from a bank. However, if you take a HDB loan, you would only be required to pay a downpayment of 15% instead.

(4) HDB Grants

You want to maximise the amount of grants that you are entitled to when you are buying your first BTO flat. Let’s get straight into it.

Enhanced CPF Housing Grant

Source: HDB

What You Need To Know:

– Maximum average household income ceiling of $9,000 for First-Timer (FT) Families and $4,500 for Singles.

– Depending on the income, grant amount varies from $5,000 to $80,000 for FT families and from $2,500 to $40,000 for singles.

The thing to note is that to be eligible for these grants, either you and/or your spouse/fiance(e) must have been in continuous employment for the past 12 months, and be employed at the time of submission.

So, for example, if either of you are still studying or have started working for a period of less than one year, then you would NOT be entitled to the grant even if your household income falls within the income ceiling.

If one of you has already started working for a period of more than one year while the other is still in school, you would then be entitled to the grant. That means HDB would see the income of the one individual as the total household income.

(5) No Backing Out

A property purchase is probably the biggest risk that anyone takes. Once you have paid the downpayment for your BTO, you cannot back out of the purchase without forfeiting your deposit, which is equivalent to 5% of the purchase price of the flat.

This is common practice for all property purchases, including private properties. However, being unable to complete the purchase may not necessarily be something you can control. For example, if you or your fiancée decide not to marry, you will be unable to form a family nucleus. In such cases, HDB may allow some flexibility upon appeal to form a family nucleus with a different partner; otherwise, you may have to give up your flat.

The article was first published on 7 March 2016 and has been updated with the latest information.

The post 5 Things You Must Know Before Buying Your First HDB BTO appeared first on DollarsAndSense.sg.

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5 Things You Must Know Before Buying Your First HDB BTO