HDB’s new rules and their REAL implications for HDB owners
2019 has turned out to be an exciting year for HDB buyers and sellers.
Earlier in May, CPF announced a number of changes to the use of CPF for home purchase. The new change allowed buyers to purchase older HDB flats as long as the lease left on them lasts the homeowners to the age of 95.
That change dramatically changed the HDB resale market, making older flats more viable and attractive to potential buyers.
Later in September, the Housing Development Board raised the income ceilings for first time buyers of HDB flats, and executive condominiums by $2,000, making HDB homes available to more buyers.
The income ceiling for first time home buyers buying both HDB Built-To-Order (BTO) flats and resale flats was raised from $12,000 to $14,000, while that for Executive Condominiums was raised from $14,000 to $16,000. The income ceiling for singles was also raised from $6,000 to $7,000. All these new income ceilings were also applied to buyers’ eligibility for HDB housing loans.
At the same time, they announced a change in the allocation of grants to first time home buyers. The Additional CPF Housing Grant (AHG) and the Special CPF Housing Grant (SHG) – each offering grants of up to $40,000 – were replaced with the new Enhanced CPF Housing Grant (EHG) with a grant of up to $80,000.
AHG had an income ceiling of $5,000 and the SHG had an income ceiling of $8,500, while the EHG which replaces them has an income ceiling of $9,000.
Previously, first timer families buying HDB BTO flats could enjoy the AHG and the SHG, while first timer families buying resale flats could enjoy the CPF Housing Grant and the AHG. Now, with the new EHG, eligible first timer families will be able to enjoy grants of up to $80,000, regardless of their choice of flat type or its location.
However, in line with the earlier changes to CPF loan use, the full EHG can only be enjoyed by buyers purchasing a flat with a lease that will last them to age 95.
Alfred Chia, CEO of financial advisory firm SingCapital, welcomed the new changes. “The government recognises that the average salary has gone up, and they wanted to expand their grants to benefit more young people.”
“Because the truth is, while people have higher income now, their liabilities have gone up too. So this change allows them to be able to buy a home that is affordable.”
Real life implications of the new EHG
How exactly does the new EHG benefit first timer home buyers? Chia gave an example of a young couple who had just started working and want to buy a BTO 3-room flat in a non-mature estate. The couple have a combined salary of $5,000, a combined monthly CPF OA contribution of $1,150, and combined CPF savings of $18,000. Under the new EHG, they would enjoy grants of $45,000.
Here’s how much they would need to pay for their flat, with and without grants.
|Without Grant||With Grant|
|Mortgage Term||25 years||25 years|
|Monthly Cash Outlay||$0||$0|
With the example above, the young couple, despite only working for a short period of time, would be able to purchase their flat with a monthly instalment of $485 that is fully paid for with their CPF contributions.
What if the couple decided to delay their home purchase by a few years to purchase a larger 4-room resale HDB flat? Assuming their combined salary and monthly CPF OA contribution remained the same at $5,000 and $1,150 respectively, and their combined CPF savings had risen to $45,000, they would now be entitled to a Family Grant of $50,000 for buying a 4-room flat, and the EHG grant of $45,000.
Here’s what they would need to pay for the larger flat now.
|Without Grant||With Grant|
|Mortgage Term||25 years||25 years|
|Monthly Cash Outlay||$461||$30|
The grants allow the couple to purchase a 4-room flat for $30 in cash per month, compared with $461 in cash per month without any grants.
Both examples provide a clear view of how the government is working to help younger Singaporeans afford their first flat.
“HDB flats are now even more affordable with the help of government grants, so young couples can embark on their property journey much sooner,” explained Chia. “With just $18,000 in their CPF, they can already afford a flat. And by working for 2 more years, they can afford a 4-room flat for $30 per month.”
The importance of property on retirement
To be sure, Chia has been advising his clients on retirement planning for decades, and knows just how essential a property can be as part of a good retirement plan. He pointed out that the latest Loan-To-Value and Total Debt Servicing Ratio guidelines encourage property buyers to finish paying for their home loans by the age of 65, for good reason.
“If you have not made enough to retire, by age 65, you would be able to leverage on your property as part of your retirement plan.”
As a supplementary retirement income, Chia explains that property owners could opt to rent out unutilised bedrooms for rental income, sell their larger property for a smaller one that better suits their needs, or they could even take out an equity withdrawal loan for private residential property, or opt for the lease buyback scheme for HDB properties. “That last one will allow you to stay in your flat and still collect some money by selling the tail end of your lease back to HDB.”
Impact on the Singapore property market
Besides increasing the affordability of HDB flats for young people, Chia believes there are other more far-reaching implications.
“These changes will boost the HDB resale market, because it makes it much faster for buyers to get a flat they desire. They don’t have to queue, they don’t have to wait, and they can find a flat anywhere across the whole island,” he said, adding that the now-defunct AHG and SHG had too many limitations and favoured people in the lower income groups.”
“With the EHG, the lower income group continues to get help, but now, people who were previously not eligible for grants, can now get at least $20,000 to $30,000. This can help to bring down their down payment and allow them to own their property faster. And it even gives them a choice of buying a BTO or a HDB resale flat.”
Chia also sees a more stable and sustainable HDB market. “The earlier changes in May helped to preserve the value of older flats, so older HDB owners would have more options to extract value from their property. They can sell, right-size, or rent.”
“The latest change adds to the continuous demand for HDB flats. It benefits people who are buying a property that is convenient, near family, and that they feel is comfortable for them.”
According to Chia, this would also channel some of the demand for private property back into the HDB market. “People who previously weren’t eligible for grants because of their salary would have purchased a private condominium. But now that they qualify for some grants, they might consider a HDB flat instead. This will provide stability to the value of both HDB and private properties.”
“The underlying message is this. In Singapore, as long as you work hard and accumulate cash savings and CPF, you can realise your dream of owning your own property fairly quickly.”