Welcome to one of the world’s most expensive housing markets. If you’re ready to buy your own house in Singapore, you’re one home loan away from working your butt off your entire life.
On the upside, expensive housing can also mean big pay-offs if you are looking at investing in property.
If you are in that position now, you may be wondering, what’s the difference between buying a private property and public housing such as HDBs?
Private properties in Singapore
In Singapore, residential properties fall into two broad categories: public housing (HDB flats), and private housing. In the context of this article, private housing refers to condominiums, landed property, and executive condominiums (ECs).
Note that executive Condominiums (ECs) are only treated as full-on private properties from the 11th year onward. Before that, ECs are subject to some of the rules of public housing.
Public housing (HDBs) in Singapore
Public housing is provided by the Housing Development Board, and therefore we affectionately call such apartment units HDBs, or HDB flats. Usually you receive a variety of grants and subsidies when you buy public housing and if you have CPF savings, it’s possible to pay with it rather than cough up upfront cash for your home.
1. Home loan restrictions are different for private and public
All forms of private properties, including ECs (even before their 11th year) can only be financed by bank loans (or financial institutions like Hong Leong Finance). There is no HDB concessionary loan and you must take a bank loan.
|Home loan components||Private property||Public Housing (HDBs)|
|Downpayment||Up to 25% in cash||$0 in cash (may be paid via CPF)|
|Maximum loan tenure||25 years||30 years|
|Interest rate||Fluctuating or fixed||2.6%|
Maximum loan: For private housing, you can only borrow up to a maximum of 75% (of the purchase price). For public housing, you can borrow up to 90% (from HDB) and get away with $0 cash down payment (by paying everything via CPF). HDB BTOs are a good example.
Downpayment: Private property buyers need to be prepared to pay an absolute minimum of 5% in cash. Minimum cash requirements can be substantially higher (up to 25%), after considering factors like your CPF balance, Debt Servicing Ratio (DSR), etc. On the other hand, if you have worked for 2 to 3 years, you’d likely have enough CPF savings to put down the downpayment for a HDB BTO and can pay from there.
Option fees: Option fees for HDB BTOs are a flat amount of $2,000 regardless of the unit you are purchasing. This is different from private properties where you pay 1% for the option fee. Best of all, the money will be refunded to your CPF once you exercise your option for your HDB flat.
Interest rates: Home loan packages from banks always revert to floating (fluctuating) interest rates after three to five years. If you buy private housing, you must know the basics of home loan interest rates, and how to refinance regularly to keep them low. Read: Best Home Loans Singapore (2019) – Most Affordable Housing Loans Reviewed
If you’re still confused, the mortgage specialists at MoneySmart can advise you on the best home loan in Singapore for free.
2. Resale restrictions
|Resale restrictions||Private property||Public Housing (HDBs)|
|Minimum Occupancy Period (MOP)||None||5 years|
|Resale levy||None||Between $15,000 and $55,000|
|Seller Stamp Duty (SSD)||1st year: 12%
2nd year: 8%
3rd year: 4%
More than 3 years: 0%
Public housing comes with a Minimum Occupancy Period (MOP). You have to live in the property for five years before you can rent out the whole flat, or sell it. If you think you can leave it empty for 5 years while you are working overseas, the fine print also states you need to be based in Singapore. There is also a resale levy. This reduces the amount of your housing grants (subsidies) when you buy another public housing unit.
For private housing, there is no MOP, but your main worry is the Seller Stamp Duty (SSD). You have to pay this if you sell your private housing within the first four years:
- Sold within the 1st Year – 12% stamp duty
- Between 1st and 2nd Year – 8% stamp duty
- Between 2nd and 3rd Year – 4% stamp duty
- More than 3 years – No SSD
There’s no restriction on when you can sell private property; it’s just a question of whether you can handle the SSD.
3. Freehold versus leasehold
HDB flats are on a 99 year leasehold. For private property, you might find freehold land. It’s also possible for some properties, dating back to the Colonial Administration, to have a 999 year lease.
So far, few properties have come close to the 99 year lease expiry. But if your definition of home includes words like “ancestral”, then private is what you want. Some people also believe in land-scarce Singapore, freehold properties will continually rise in value over their leasehold counterparts.
4. Grants are only eligible for HDBs, not private properties
Obviously, private housing doesn’t come with government grants. But this gets a bit sticky with regard to ECs.
Although ECs are financed by bank loans, and become private on the 11th year, you can still get grants for buying them. Grants from ECs range from $5,000 to $30,000, based on your income level. That’s one of the main reasons for their popularity; it’s the only form of private housing that’s subsidised by the government.
5. Foreigners cannot purchase HDB flats
Foreigners generally cannot buy landed property. Foreigners also cannot purchase HDB flats unless they are marrying a Singaporean.
There is no restrictions on foreigners purchasing condos. They just need to pay a hefty 20% ABSD (Additional Buyer’s Stamp Duty).
Final note: Upgrading to private housing under construction (excluding ECs)
Let’s say you’re upgrading from a HDB flat to a private condo. You have one massive problem: the condo is still under-construction and will only be ready for move-in 3 years later.
In order to get 75% financing for your condo, you cannot have an existing home loan so you will need to sell off your flat (bank loans are capped at 50% if you have an outstanding home loan). That’s a problem, because now you’ll have no flat, and your new condo will only be ready 3 years down the road.
This is why most people avoid upgrading to private properties that are still being developed, no matter how much the developer discounts are. Prepare to rent or move in with your folks until the condo is finished.
Note: As the header of this section states, this problem does not apply when upgrading to Executive Condominiums as banks can grant buyers a “conditional 75%” loan. This means you can be granted the full 75% today for your new EC so long as you sell off your current property within 6 months of the issuance of the EC’s Temporary Occupancy Permit (TOP).
If you need more advice, you can speak to the friendly mortgage specialists at MoneySmart who will help you secure the best home loan in Singapore.