Welcome to the world’s most expensive housing market. If you want your own house in Singapore, then you are one home loan away from rationing individual bee hoon strands. On the upside, expensive housing can also mean big pay offs. Check out MoneySmart’s primer on private vs. public housing, before making your purchase:
Defining Private Property
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:
- Landed Property, and
- Executive Condominiums
Executive Condominiums (ECs) are only treated as “fully” private properties from the 11th year onward. Before that, ECs are subject to some of the rules of public housing.
The most notable differences between private and public housing are:
- Home Loan Restrictions
- Resale Restrictions
- Possibility of Freehold
- Eligibility of Grants
1. Home Loan Restrictions
All forms of private housing, 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. (We discussed bank loans vs. HDB loans in another article). To recap, the differences to expect are:
Down Payment And Cash Requirements:
For private housing, you can only borrow up to a maximum of 80% (of the purchase price). For that, you 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.
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. Option fees for HDB BTOs are also 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 once you exercise your option.
Home Loan Interest Rate Structures:
Banks don’t provide perpetual fixed rates, because of complex financial reasons like “So…What are you going to do about it?”
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.
If you’re still confused, the mortgage specialists at MoneySmart can advise you for free.
While public housing can give you a perpetual fixed rate (through HDB loans), do note that the HDB loan has been more expensive than bank loans over the last 5 years. HDB’s current rate is 2.6%, compared to an average of around 1.7% among banks.
2. Resale Restrictions
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 – 16% stamp duty
- Between 1st and 2nd Year – 12% stamp duty
- Between 2nd and 3rd Year – 8% stamp duty
- Between 3rd Year and 4th Year – 4% stamp duty
- More Than 4 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. For details on how freehold affects property values, follow us on Facebook.
4. Eligibility of Grants
Obviously, private housing doesn’t come with government grants. Right?
Eh, kind of. 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.
Final Two Key Points to Note
Landed Property and Foreigners
Foreigners need the government’s permission to buy landed property. This comes from the Land Dealings (Approval) Unit (LDAU). 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 15% ABSD (Additional Buyer’s Stamp Duty).
Upgrading to Private Housing Under Construction (Excluding ECs)
Let’s say you’re upgrading from a HDB flat to a private condo. And 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 80% 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 80%” loan. This means you can be granted the full 80% 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).
So whether you are upgrading to a private or executive condominium, you can speak to the friendly mortgage specialists at MoneySmart who can ensure that you secure the best home loan that’s right for you.
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