Can Private Property Owner Buy HDB?
Housing & Development Board (HDB) flats are subsidised public housing which is deliberately regulated in order to keep them accessible and affordable to the masses. In fact, according to the Housing Board, more than 80% of the population in Singapore are housed in more than 1 million flats extended across 3 estates and 24 towns.
Therefore, before you buy an HDB flat –be it a Resale or a new Built-To-Order (BTO)–you will notice that there are some eligibility conditions that you have to meet which includes income, age, and property ownership.
But, can an HDB owner buy private property? The short answer is yes, HDB flat owners can buy private property. However, having said that, there are several conditions that can make many practical issues. Here are some things to consider when buying private property while owning HDB.
Considerations for HDB Owner to Buy a Private Property
Based on the report of iCompareLoan, 5,000 households disposed of their private properties in the last 8 years to keep with the Government policy requirement to dispose of private homes when buying HDB resale flats.
In response to questions with regards to this policy during a Parliament session, the Minister for National Development said that:
“Since the policy was introduced in Aug 2010, slightly over 5,000 households have disposed of their private properties when they purchased flats from the resale market. In the last 3 years, about 1,200 households appealed to retain their private property. Of these, HDB acceded to about 300 appeals after considering the specific facts of each case, taking into account factors such as the owner’s share in the private property, and the reasons why the private property cannot be recovered for his or her own use.”
The policy was enacted as a counter-measure as Singapore’s strong economic growth, high liquidity, and low-interest rates continued to strike home prices up in 2010. This raised concerns about a property bubble. Mah Bow Tan, the Minister for National Development then justified and added that “the very low-interest rates that are being seen in the present are not sustainable in the long run.”
To make this policy clear, Seedley Reads clarified that:
If you’re planning to purchase a BTO, you have to ensure that all “occupiers (fiancé, spouse, family, relatives, etc.) and applicants listed in the flat application do not own other property locally or overseas, and have not disposed of any within the last 30 months.” Except, as mentioned by PatkoProperty, for one possible scenario. A single elder or an elderly couple (more than 55 years old) can purchase a two-room flex BTO flat but it must be bought with short term lease.
For a resale flat, if you or any individual listed in the resale flat application “owns a private unit either overseas or locally, you must dispose of all private properties within or before six months of the resale flat purchase.”
Other key considerations as well as rules and regulations, as listed by PropertyGuru and CPF Board, to follow when you want to buy a private property while owning an HDB include:
Minimum Occupancy Period
When the policy was introduced, many had argued that a fairer, more efficient way would be to re-examine the Minimum Occupation Period, specifically for those who are not acquiring any government grants to buy an HDB flat.
The policy may disadvantage a few groups of people–for instance, an elderly couple who would like to purchase a 3-room resale HDB flat to settle while they rent out their private property unit for passive income. Fortunately, the government of Singapore prepared a list of schemes to help the older owners.
As you can see, you are required to comply with the five-year Minimum Occupation Period (MOP), when you buy an HDB resale flat from the open market or a BTO unit directly from the HDB. Within this duration, you are not allowed to:
- Acquire any private property, either abroad or in Singapore
- Dispose of the resale HDB flat or BTO unit via the open market
- Rent out the entire residential property.
The MOP begins from the date when you receive the keys to the resale flat or BTO unit. It excludes any period when owners did not live in the property, like when there has been a violation of the MOP or when the whole property is rented out.
However, please bear in mind that you risk getting the HDB flat compulsorily acquired by the government or paying fines of up to SGD 50,000 if you flout the MOP rules.
This also applies when purchasing Executive Condominiums (ECs) for the first time. Buyers are required to comply with the 5-year MOP. After that, it can be sold to Permanent Residents (PRs) and Singapore Citizens. After ten years EC will be privatised and can be sold to foreign investors. Resale ECs’ buyers don’t have to comply with the MOP rule.
Citizenship or Residency Status
If you’re a Permanent Resident (PR) wondering, “can I buy a private property and if I own an HDB flat?” the answer is no.
As stated by the HDB, even if they have fulfilled the MOP, PRs who won an HDB flat and their important family members who occupy the unit must dispose of their HDB flat within 6 months of purchasing an off-plan or completed residential property in Singapore.
Even when buying HDB resale flats, private property owners, together with their fiancé, co-applicants, spouses, and any occupiers listed in the resale application, must dispose of any existing interest or ownership in any private residential property within 6 months from the completion of the resale flat’s purchase.
Only Singapore Citizens can own HDB and private property at the same time. But before they’re allowed to buy a private residential property, they still need to comply with the MOP. They also cannot do it the other way: to purchase private housing first then an HDB flat, as they are required to sell the private property after completing their purchase of an HDB unit.
Buyer’s Stamp Duty (BSD)
Whether you are a PR, Singapore Citizen, or foreigner, you are required to pay Buyer’s Stamp Duty when you buy a private property in Singapore. This tax will be computed depending on the property’s market value or the purchase price stated in the document to be stamped, whichever is higher.
If you gained a monetary discount on the selling price, it will be taken into account when calculating the BSD, given that the net price still reflects the actual market value of the property. Please note that the cash discount must be stated in the instrument to be stamped, otherwise, it will not be taken into account when calculating the BSD.
For example, assuming you bought an SGD 1 million private condo, you need to pay a BSD of SGD 24, 600. The breakdown will be:
SGD 1,800 (for the first SGD 180,000) + SGD 3,600 (for the next SGD 180,000) + SGD 19,200 (for the next SGD 640,000) = SGD 24,600.
Although this is a large amount, there is another more expensive BSD that you will certainly have to bear if you intend to keep a private condo and an HDB flat at the same time.
Additional Buyer’s Stamp Duty (ABSD)
The Additional Buyer’s Stamp Duty (ABSD) was originally introduced on 8 December 2011 by the authorities to rein in the strong property demand by foreign buyers and Singapore Citizens. Another reason for its imposition is to let home prices increase sustainably along with economic fundamentals and to maintain the affordability of residential properties for locals.
Here are the various ABSD rates for different groups of people depending on the number of properties owned:
- 1st residential property: –
- 2nd residential property: 7%
- 3rd and subsequent residential property: 10%
Singapore Permanent Resident
- 1st residential property: 5%
- 2nd residential property: 10%
- 3rd and subsequent residential property: 10%
- 1st residential property onwards: 15%
Given the ABSD rates above, a Singapore Citizen who currently owns an HDB flat, but wishes to buy a private property costing SGD 1 million needs to fork out an ABSD of SGD 120,000 (12%). If you plan to own a third property priced at SGD 1 million, you have to spend another SGD 150,000 (15%). Those are quite large sums compared to the BSD of just SGD 24,600.
Total Debt Servicing Ratio (TDSR)
The Monetary Authority of Singapore introduced the Total Debt Servicing Ratio (TDSR) framework to avert home buyers from loaning too much to finance a property’s purchase. The rules apply to all residential mortgages granted by all financial institutions in the city-state, including moneylenders, banks, insurance firms, and others.
Under the TDSR framework, home-buyers can only loan up to 60% of their gross monthly income. The cap also takes into account all outstanding debts you have like personal loans, student loans, car loans, and credit card balances. Banks even include small financial obligations such as monthly payment for appliances and gym memberships, when computing the amount it can lend for a home purchase.
Basically, your monthly housing loan repayments including ALL of your other monthly financial obligations cannot exceed 60% of your monthly income.
For instance, if you have no existing debts and your monthly salary is SGD 10,000, then you can spend up to SGD 6,000 to service your monthly instalments for a housing loan. But if you currently spend SGD 2,000 to repay outstanding debts, you can only borrow up to SGD 4,000 if you wish to buy a private property.
In another scenario, as you just sold your private condo, you will now have access to any HBD housing grants (except perhaps for the proximity grant). This is even if the applicant has not got any housing grants in his life before.
The primary condition for any HDB Housing Grant (singles grant, family grant, enhanced housing grant) is not just the different income ceilings but also the fact that owners must NOT have sold any private property within the thirty months of the resale purchase. It is clearly stated in the terms and conditions on the CPF housing grant page.
Loan-to-Value (LTV) Ratio
As you cannot qualify for an HDB loan (again since you just sold your private property), you’ll need to be getting a bank loan. If your age is 55 years old or more, this might be a problem as the limit on bank loans are 65 years old. It’ll be a pretty short tenure and monthly payment may be high.
The Loan-to-Value or LTV is the amount of loan you can acquire from the bank for that certain property. If the LTV is 90%, you can borrow up to 90% of the property’s price with only a 10% down payment.
If you have an outstanding loan on your private property, purchasing your HDb flat also meant that your LTV is going to be affected. You will not qualify for a full 75% loan. You’ll need CPF and to have a lot of cash for the initial payment.
Therefore, the very prudent thing to do is to clear off your loan and your private property prior to buying an HDB private loan. This is why several financial experts always advise that all home loans are cleared at the age of 55 years old.
To give you a breakdown, here’s the different LTV for first, second, third, and subsequent properties:
1st Housing Loan
80% LTV for loan tenure up to 30 years and till 65 years of age. Minimum 5% upfront cash payment, 15% payment can be paid through CPF.
60% LTV for loan tenure above 30 years and/or 65 and more (max. 75 years old). Minimum 10% upfront cash payment. Maturity occurs when the borrower is more than 65 years old.
It is quite straightforward for 1st housing loan, and not much cash is needed for the purchase. All the examples used here are assuming the loan is from a bank. If you apply for a loan from HDB for the HDB flats’ purchase, the LTV is 90% with no minimum upfront cash payment.
2nd Housing Loan
50% LTV for loan tenure up to 30 years and till 65 years of age. Minimum 25% upfront cash.
30% LTV for loan tenure above 30 years and/or 65 and more (max. 75 years old). Minimum 25% upfront cash payment.
Evidently, the LTV decreases drastically for the 2nd housing loan. If you own an HDB and purchase another private property, you may be subjected to this depletion of LTV. But there are cases where you can still get an LTV of 80%.
3rd Housing Loan
40% LTV for loan tenure up to 30 years and till 65 years of age. Minimum 25% upfront cash.
20% LTV for loan tenure above 30 years and/or 65 and more (max. 75 years old). Minimum 25% upfront cash payment.
As you can see, it’s not a really simple solution of just buying a private property while owning an HDB (or vice versa). It may sound easy on paper but is not similar when in practical terms. But if you can, and you meet the eligibility criteria, then you’re going to profit slightly with respect to selling your HDB flat and ending up with a new private property.
The clearest way to doing so would be a fully paid HDB which is sold for good cash proceeds and positive profit. A good property agent will be able to guide and help you in negotiating with the private property’s seller for your benefit and planning your HDB sale.
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