Primary motivation
#1 - need for space
The biggest HDB flats are jumbo flats, typically measuring about 147-199sqm. These are very rare and are typically located in suburban locations.
Next there are Executive Apartments (EA) 141-156sqm and Executive Maisonette (EM) of average 143sqm. Both these layouts are older flat types that are no longer offered. They have been very popular during Covid and have greatly increased in price despite the age.
Currently the largest flat types are 5rm HDBs of about 120sqm. If you need more than what HDBs can offer, the only other alternative is to look in Singapore’s private property market.
#2 - Facilities and status
New and larger condominiums these days have a myriad of facilities on top of the usual 50m lap pool, gym and function room. They include badminton court, basketball court, bowling alley, driving range, boxing ring, concierge services, karaoke, meeting room, herb garden and communal kitchen.
Recently more smart home features are being incorporated that allow your home to be monitored, controlled and automated via a phone application or voice command. Security management apps have greatly advanced as well. Visitors records are now digitalized to so it can be pulled up automatically when the camera recognises your car plate number. A notification will be automatically be sent to your mobile app so you know who is going to ring your doorbell.
With all these fancy facilities and features, your guest will definitely be impressed and recognize how well you have done for yourself. From that weekly tennis session or occasional kids birthday party, your guests will look forward to their next visit.
#3 - Ownership restrictions
HDBs are meant to make housing affordable so there are restrictions to make sure it goes to those who need it. There are requirements during the application and during the first 5 years of ownership called Minimum Occupation Period (MOP).
During the MOP period, you are not allowed to rent the whole flat or sell. 5 years is a long time where your child may have graduated into Secondary School or you have found a new job which is located a distance from where you are.
If you are thinking of applying for a BTO, take note that if you are successful in securing a unit, it will take 5 years to build and another 5 years to complete the MOP. Total of 10 years will be gone where private home owners might have upgraded 3 times during this period.
Couples who jointly own HDB are not allowed to sell their share to their spouse. A method we call decoupling to free up an individual ownership count to purchase a property without incurring ABSD. This is a big reason to sell the HDB for those who can and desire to own two properties.
#4 - price growth
Private property has fewer restrictions which make condominiums accessible to a larger demographic, such as foreigners, singles and investors looking to earn rental income. Demand creates competition which in turn push prices up.
Right from government land sales (GLS), developers bid against one another. They are then launched at new highs which bring the resale market along with it.
Apart the growth rate, the dollar growth is also higher due to the higher overall price of a private property. When a $300k and $3m property both increase 10%, the dollar increase is so much more.
HDB on the other hand has various policies that put an invisible ceiling on price growth. BTOs have been delinked from the resale HDB market and often priced lower than the resale market. MSR also lowers how much one can borrow for a HDB.
#5 - inheritance
Another restriction of HDB is that anyone can only own one HDB flat at a time. If you own a HDB and your parents inherit a HDB to you, one of the two must be sold within 6 months.
If you own a private property and inheriting a HDB flat that was purchased after 30th August 2010 then you would have to sell one of the two properties within 6 months.
If you own a private property and inheriting a HDB flat that was purchased before 30th August 2010, you may keep both properties provided you and your family move into the HDB flat.
In the unfortunate case where the deceased bought the HDB in the last 3 years, the heir is subjected to Seller’s Stamp Duty when selling the inherited HDB.
secondary advantanges
#1 - Power of equity loan
Equity loan or term loan is a financing mechanism where you borrow from the bank based on the mortgage of your property. This is only possible for private housing where your outstanding loan and CPF usage is less than the regulated 75% loan to value ratio. Often when you have paid off your mortgage loan or when the property valuation has increased, there is capital in your property that you can access.
The interest rates are based on mortgage rates and are the lowest compared to car loan, renovation loan or education loan. I have recently helped parents to tap on their dormant capital to purchase property under their child’s name.
#2 - mSR vS TDSR
All loans on HDB flat and EC with MOP are based on Mortgage Serving Ratio. It refers to the portion of a borrower’s gross monthly income that goes towards repaying the property loan and is capped at 30% of the borrower’s gross monthly income.
Private residential properties follow the total debt servicing ratio (TDSR) ruling which refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations and is capped at 55% of the borrower’s gross monthly income.
This is usually means that you would be eligible for a higher loan amount under the TDSR ruling.
#3 - freehold option
Singapore government has ceased to offer freehold tenure for land parcels and has never offered freehold tenure for HDB flats. If you are thinking of inheriting to future generations, you would need to purchase freehold condominium or landed housing on the private market. The land on freehold condominium can be held forever but the reconstruction of the building often entails selling via enbloc. This is why freehold landed housing is so sought after, allowing owners flexibility with what they want to do with the building.
Take note that of the Land Acquisition Act (LAA), a key legislation that enables the compulsory acquisition of private land for public purposes, commonly for the key infrastructure like MRT.
Summary
Despite the numerous advantages, they are reserved for the well heeled due to the down payment and income required to support the loan. Even if this is your first home, my advice is to carefully select a private home with high growth potential if you can afford it.
Take the higher mortgage installments as forced savings while being able to enjoy the comfort of a private home. Our team with decades of experience has formulated a 7-steps framework to select low risk high profit potential properties to assure you.
Contact me today for a 30 mins consultation to assess if you are eligible to purchase a private property and to share with you our proven 7-steps framework.
