New HDB grants announced

The government just announced two new measures to make public housing more affordable and accessible to more Singaporeans. First, is the raising of income ceilings of eligible buyers for HDB and ECs, the second, is the merging of the Special Housing Grant (SHG) and Additional Housing Grant (AHG) into the new Enhanced Housing Grant (EHG).

The first measure of raising the income ceiling makes the newer HDB projects nearer the city more affordable. Which helps us connect the dots considering that the government has made a commitment to offer more units in mature estates including the much anticipated Greater Southern Waterfront (GSW) project in the near future.

I foresee that these units will increasingly be filled with the semi-affluent sections of the population. Also, it allows the government to raise prices in these areas thereby allowing the HDB to reap the full economic benefit of these plots as well as avoiding the issue of the ballot “windfall”, where lucky bidders were able to buy under priced properties in good locations.

The unintended consequence is that because of affordability issues, these areas will become enclaves of the higher middle income and encourage stratification of society. One could also argue that poorer households of these developments would sell their units anyway, leaving the base case unchanged.

For the second measure, given that the grant payout quantum are low compared to the overall cost of buying homes, I don’t expect it to have too much of an impact on the resale market.

But given that BTO prices are not expected to move upwards immediately especially in non-mature estates, I suspect the earliest beneficiary of the EHG would be the mature/resale estate market.

It remains to be seen how much more the prices in the RCR regions are able to appreciate given that so much of this would trickle down into the central area and already mature estates.

Affordable Housing

This month will mark the 2nd year since I applied for my BTO. Having just visited the location and seeing the building at mid-stage of completion, I wanted to pen down some thoughts regarding my financial housing journey.

For us, our future home was in a mature estate with a good location and was thus “expensive” for a BTO. I remember being quite anxious about the overall quantum we had to pay, since we had only just started working.

I had calculated that based on our combined salary then, even after CPF deductions we would be facing a negative cash outflow when the house arrived. Yikes!

Desperate to avoid this, I formed a plan to rein in our mortgage by increasing our down payment. Our goal was to bring the monthly mortgage payable to under our monthly CPF-OA contribution.

During this time I read many commentaries online that advocated either paying down as much as possible or paying down as little as possible and investing the rest. There are well written pros and cons to both, but like any advice, you have to tailor it to your own situation and personal circumstances.

For me the second strategy made more sense, as a fully paid off home has no cash flow, and there are many ways to save on interest in the future including partial payments. Besides, the interest savings on a BTO is not as significant, especially if you intend to flip it at some point. Thus, I had to strike a balance between paying down and reducing the mortgage and keeping enough dry powder to constantly invest.

To do so, my rule was to treat only the asset price of the house as the investment component. Thus we paid for the option fee, stamp duty and optional components in cash. I remember at the time this meant a having to make difficult decisions for fund allocation.

Looking at our finances right now, our combined CPF-OA balances equate to about 13% of listed value of the home. Which should mean that we are on track to paying off close to 25% of the value of the house when it arrives (including 5% already paid). Based on this figure, it would also bring our monthly mortgage to below our CPF-OA contribution with some change to spare.

Along the way, it really did help that we experienced wage growth which allowed us to grow the CPF-OA contribution, but this does not detract from the fact that we had a plan and stuck to it.

While I always advocate for couples to buy homes within what they can afford, I think it’s also important to have game plan on how to afford something and looking at the value of the item rather than the absolute price.

Understanding the value of what you are buying is also very important. I know of couples who bought relatively cheaper flats but are dragging their feet moving in as the location is not as prime and with fewer amenities in the vicinity.

Homeowners can retain up to $20K in CPF-OA when applying HDB loans

The latest news that homeowners can elect to retain $20k in their CPF-OA when applying for a HDB housing loan, is to me a welcomed move.

Previously, homeowners had to completely use up their OA balances, before being able to take a loan with the HDB. This meant that not only are they left with minimal buffer space in their CPF, they also miss out on the additional 1% interest from the first $20k in the CPF-OA.

Some may ask, why bother to retain the money in the OA when you can be paying down the loan and avoiding the interest? I think that an immediate advantage is to let the first 20k sit in the OA garnering an additional 1% of interest, while funneling the rest into the SA, where it earns an additional 1.5%.

The new rules are a boon for soon-to-be homeowners like myself, who see the SA as a cornerstone to their retirement plans. In fact, if you continued to funnel everything above the first $20k into the SA. I’d reckon that the FRS would not be too difficult to achieve.

Repaying the housing loan (Part II)

I pared down a small chunk of the amount outstanding on the CPF housing loan. While not as much as the previous amount in March, it is nonetheless a significant amount and would otherwise mean that the hitting the investment target of setting aside 50k for the year would likely be out of reach.

This was not an easy decision to arrive to, as it would thus make the following year’s target of 75k that much harder to achieve. Also, there is still another small sum required to fund the SA top up for the year. These two put together would mean the likely investment amount set aside for the year end would stand closer to the 40k mark instead of 50k.

On the flip side, this would mean I have repaid almost 2/3 of the amount borrowed on the house. If everything goes according to plan, I calculated that we stand to save more than 40k over the life of the loan. Also, the 5% in paid up home equity will allow more cash to be returned should we want to move or sell our place in future.

It’s never easy to make tradeoffs. But I know that a dollar saved is a dollar earned. Given the poor outlook for the year, valuations still look rich. I’ve narrowed my sights to a few counters which I think can bring genuine return over the long term and would be hoping to add more if the opportunity presents itself.

Property cooling measures ABSD rises and LTV raised

The recent announcement of the increase in ABSD left many prospective homebuyers in shock. The news last night was rife with homebuyers who flocked to showrooms to secure a house. On paper the ABSD increase by 5% means that prospective buyers would have to pay more for the same unit if they waited for one more day.

I guess the anxiety and FOMO led to herd mentality forming, because when I thought about it again this clearly did not make sense.

At a stroke of a pen the government just made it a buyers’ market again. On what genius should buyers still be beholden to developers selling at S$1500psf in Serangoon North? Prices are instead going to start sliding towards more reasonable levels again.

If I were a developer, I would be more worried than a homebuyer who is on the lookout for a second property. This especially with the STI falling on the fear of trade war, investors have many more options at their disposal if they have ready cash on hand.

Moving forward, it is uncertain how much developers and resellers would allow prices to slide. While there is some clear demand, prices are clearly too high in the governments books. For now, we should see a convergence in prices between HDB and private property, which has been long overdue.

Repaying the CPF Housing Loan (Part 1)

CPF Repayment of House

Its done..

I repaid half of what I took from the CPF to pay for the first 5% + Stamp duty. Its quite a hit on my wallet, especially since I paid 75% of the total bill. But I’m sure the money + interest will come in useful again when the key collection is here. At 2.5% this was higher than the banks savings interest rate, prevailing SSB or short-term instruments that were available, so while I am cognizant that the returns are low, I’m glad I tried my best. Also, the extra 1% under 20k goes to feed the SA account.

I also coerced/forced my girlfriend to do the same with her withdrawn amount. She paid down >90% of her outstanding. Hopefully, we will both be able to cross the line smoothly come key collection day in 3 years time.

The amount was quite a significant one and might well affect my ability to meet the portfolio targets set out for the year, but heck, it wasn’t money I was prepared to lose.

What we learnt when applying for BTO under MGPS

This post was updated on 19 Sept ’18

The MGPS or Multi-Generational Priority Scheme is a HDB scheme which allows married/engaged children and their parent to book within the same BTO project. 

Through this priority scheme, we were able to book a unit in what most would consider the best BTO project for the year, despite the intense competition.

While the process was relatively straight forward, there isn’t a whole lot of detailed information available on the web. This meant that we had to go through quite a number of phone calls and emails with the HDB.

Here was what we learnt..

#1 Extra special balloting chance

Under the MGPS scheme both you and your parents will be allotted with one combined MGPS queue number. This is in addition to the 2 individual queue numbers that you would have gotten if you balloted separately.

The MGPS ballot is entirely separate from the general ballot. which means you are only competing with other MGPS applicants.

#2 Only pre-selected units are available

There is a finite number of units set aside for MGPS participants. The units will be spread across different blocks and will consist of both high and low floors.

Should you choose to proceed under the MGPS scheme, you can only choose amongst these pre-selected units and hence there is a real possibility that you might be left with low floor units even though the BTO balloting has yet to start.

To be successful both you and your parents must be satisfied with their units, which can sometimes be an issue. My advice is not to look at the site plan before the list is unveiled to prevent disappointment.

#3 Scheme is for both married and soon-to-wed applicants


One point of confusion for us was the marital status at point of application. In the HDB website on priority schemes it stated that the scheme was meant for married children and their parents.

After some clarification, we were told that you do not have to produce a marriage certificate at the point of application. Applicants under the fiancé-fiancée scheme need only to produce a marriage certificate at point of key collection.

#5 Shared Queue Number

If you do choose to exercise your MGPS option, this queue number is now shared between both couples throughout the flat process.

Which meant that all major milestones (signing option, lease agreement, etc..), must be done with both couple’s present. In other words, schedule your time well.

#6 Resale Levy

The HDB imposes a resale levy to ensure a fair allocation of subsidized housing. As previous owners of a HDB flat my parents had to pay a resale levy which must be paid either in cash or CPF and does not contribute to the value of the house.

It would be good to discuss who should bear the cost of levy, especially if the older couple had no intention to downsize.

#7 Other points to consider

I noted that there were a handful of withdrawals from the scheme even though they were placed ahead of us. While I will never know why they chose to withdraw, it probably underlines the complexity of executing such a scheme.

It would be prudent to speak to all parties involved to understand what their concerns are. Don’t assume everyone has the same set of priorities when looking for a flat and as always practice financial prudence.

Happy house hunting!

Signing agreement of lease

As mentioned we signed an option for the BTO in August and had just a few weeks ago signed and paid for the lease agreement. While we had to sign the lease a month earlier as due to scheduling issues, a few things did catch me by surprise.

You cant extend the date of the signing of the lease. The lease document must be signed 4 months from the execution of the option. So in our case, signing up under the MGPS scheme meant we had booked a house earlier than the other residents, which meant less compounding of CPF by likely 3 months.

The other surprise was the higher than expected stamp fees. In our case, it worked out to be about 40% of the overall value of the down payment.

Total Fees

  1. Down payment = 5% x Price of flat
  2. Legal fees = (30 X 0.9) + (30 X 0.72) + ((Price of flat/1k) X 0.6)
  3. Stamp duty = (180K X 1%) + (180K X 2%) + ((Price of flat -360K) X 3%)

By simply looking at the formulas for the stamp duty we can see that, the higher cost of the property the higher the stamp fee is likely to be. The step is increasing and has no upper limit.

As stamp duties and other miscellaneous cost are considered expenses. (i.e. do not add towards the value of the flat) one must wonder how much more risk property owners who own a second property take on, as they have to pay ABSD on top of the regular stamp duty which I calculate to be >2.5% of the value of the house.

All that money for a document that most people would not spend time reading.

Home ownership

We applied for a BTO this week and boy has it been such an enlightening experience. Like most other first time home buyers in Singapore, our main choices were between resale or BTO application, in the end, we opted for the latter.

Frankly, prior to this BTO exercise, I have not been looking much at the property scene. While most of my peers would have already had some experience with flat applications, property was very new to both of us. Like any other form of investment, there is a learning curve involved and here are my takeaways..

1. Finding and paying for value

Like any other asset, physical property depreciates, (even freehold property). That is why many investors look for “site potential”. Other than location, are there any plans for the site that can increase the attractiveness of the property (proximity to future transport nodes, expressways, schools, etc…).

For most of us, our home would form the bedrock of our net worth in the future. Overpaying for what can become fleeting attributes is foolhardy and will potentially have a negative effect on one’s net worth in the long run. Paying a premium for good views or proximity to parents may not necessarily be recognized by future buyers or renters.

We do not know with any degree of certainty if or when the government will lift cooling measures and what property prices will be like when that happens. But we do know how much loan we are taking for the flat by purchasing it today. You shouldn’t be paying $1.1 for something worth $1 today, much less something worth $0.50 in the future.

Action Point: “We decided against a resale flat as the lease of these properties were shorter and would unlikely be worth much when we ourselves retire. The lease remaining on the house would be the last life buoy.”

2. Opportunity Cost

For first time home owners, the maiden property purchase can feel like “big game hunting with only one bullet”. The problem is controlling your emotions and resist aiming for the sky and everything in it. So many conversations on online forums centers on the minimum level of income required to finance the mortgage, unsurprisingly future appreciation in price is almost always used to justify higher mortgage payments.

“Money spent today would comes at a cost tomorrow”. Not being able to invest and grow your capital today due to housing loans means having a smaller capital snowball to work for you in future. Knowing that property is both non-income producing and non-liquid would mean that you should diversify your other investments to supplement your property.

Action Point: “We decided to pick a 4 room against the larger 5 room flats, as it would translate into a lower monthly mortgage payment. We were also fortunate as the project we ultimately picked only had 4 room and smaller units.”

In conclusion, when buying property, it helps to be unemotional about things. Consider all angles instead of merely proximity or hype. The location must make sense to you, do your research, walk the ground and don’t rely on familiarity. Remember we are only looking for a return on the capital paid, so focus on value today rather than potential gains in future.

Second, don’t overstretch the budget. Recognize that property should only form part of your investment universe and not all of it. I think the government has enacted unpopular but prudent measures in ensuring that mortgages are limited by the MSR and TDSR to prevent people from consuming easy credit and inflating housing prices.

Ultimately housing like any other investments requires some common sense and an astute money mind. Lets just hope I get a favorable number :X