5 Common Myths of HDB Flat Ownership
1. Renovating your flat before selling will give a net profit Although renovating your flat before selling generally helps boost the value of it – properties that look new and clean are easier to sell - spending too much on it will make it a negative expected value (-EV) decision. When you renovate to sell, only choose a no-frills renovation focused on cleaning up minor but easily observable flaws, paying more attention to the kitchen and bathroom areas. This is not the time to hack down walls or install new furniture and appliances, as the future owners’ tastes and preference will likely differ from yours. For a professional advice in touching up your property for selling, contact a professional interior design company. (* Expected Value is a mathematical concept that when applied to this context, lets you know if the average return per dollar you invest in the renovation will be greater or lesser than a dollar. A -EV situation would mean that for every dollar you spend on renovation, you will generally see a less than one dollar increase in the sale price due to renovation.)
2. It is not possible to pay housing loan instalments solely with CPF
Almost 80% of BTO homeowners pay nothing in cash for their monthly loan instalments, and are able to fully utilize their CPF account. When you are setting a budget for a first-time property purchase, a good rule of thumb is to ensure that your monthly loan repayment will be under a quarter of your household income. Anything less, you will probably be choosing too long of a housing loan tenure and losing money to interest. Anything more, you will probably have to dig into each month’s pay check to pay the loan off, stifling you in utilizing the money for other more profitable ventures and increasing your opportunity cost.
3. It is easy to secure a significant profit from selling your flat due to generally rising property prices
Thinking that it is easy to make profit by buying at a subsidized price and then selling at full price is wrong. Firstly, you cannot have your cake and eat it; similarly, you cannot pocket the grants that helped you defray your purchase cost years ago. Any potential profits to be made will be slashed by returning of the grant amount. Although these grant amounts do go back into your CPF account so they are technically still yours, some people may be put off by the fact that the money will be locked up for a while. On top of that, you need to consider that your next purchase will not be discounted with first-time buyer grants. Even if you had made a profit after paying back the grants, your next purchase will not be as affordable as it was for your first property. Finally, any profit you had made would also be eaten into by something called the Resale Levy. This is a bill that you would need to foot for your next house, if it is a BTO. The fixed resale levy amounts are as follows: (Adapted from hdb.gov.sg)
4. Thinking that you should max out CPF grants for your first property
As mentioned in the previous point, CPF grants have to be returned to your CPF account upon sale of the house. Do not underestimate the effects of compounding over a long period – a $360,000 BTO flat fully (and hypothetically) paid for in full using your CPF funds and grants will require you to return an eye-whopping $670,835.65! This will easily wipe out any profits potentially made from the sale of the house. *If the sale price is less than the amount calculated to be returned, then that excess will not be needed to be returned to your CPF account. 5. The Proximity Housing Grant (PHG) does not require long-term commitment
The PHG offers a grant amount of up to $30,000 for households, and $15,000 for eligible singles, who are purchasing a flat near their family. However, many fail to take note that there is a Minimum Occupancy Period (MOP) of five years to commit to if this grant is taken up.
And no, squabbles and quarrels with the in-laws, or souring relationships, do not constitute an exemption to this rule.
We hope that this article has provided our readers with greater clarity when it comes to home ownership. Through education and providing you an easier way of understanding common property and home ownership questions, we hope that you will be well-equipped to make substantiated and logical decisions for all your housing ventures.