The Finance

ASSI's Guest bloggers



How to follow comments in ASSI? Click here.

singaporeanstocksinvestor.blogspot.sg Webutation

Singapore Business

Business News

The Edge Singapore

Gold and Silver

Recent Comments

Recent Comment Widget

Financing the purchase of a HDB flat, new or old.

Thursday, July 31, 2014

I revealed in my last blog post that I have been exploring HDB's website and there is really plenty of useful information for anyone who is thinking of buying a flat, new or resale.

One question that some might wonder is whether they can afford a flat. Another question some people might wonder is how much of their CPF-OA money can be used to pay for a flat.

I would like to share what I have found with anyone who might be interested:

"Some measures of housing affordability use the Home Price-Income ratio (HPI), where a figure of 6, for instance, would indicate that the property being purchased is priced at six times the buyer’s current annual income.

"In Singapore, HDB uses the Debt Servicing Ratio, or DSR as a more accurate indicator of actual housing affordability. The DSR refers to the proportion of the monthly household income set aside for housing instalments.. This measurement takes into account interest payments, which the HPI does not. It is calculated on an assumed 30 year loan, and the figure would rise if the loan tenure were shortened.

"HDB’s commitment to Singaporean households centres on the provision of new BTO flats. A typical first-time home buyer of a new flat in a non-mature estate used on average, less than a quarter of their monthly income (at the point of application) to pay for their housing loans. This means that most buyers are able to pay for their monthly instalments using CPF, with no or minimal cash outlay. 

"For example, a buyer, with a lower monthly income of $2,500 may opt for a smaller 3-room flat in a non-mature estate, to be financially prudence. This buyer will only need to come up with a very minimal cash outlay of $4 for the monthly instalments."

Click to enlarge table.
Source: HDB speaks.

Actually, it is all about being financially prudent. Some people had trouble with money because they overstretched their finances, over-consuming on housing, and it usually happens during the boom years because stories of how people made tons of money selling properties would be plentiful. Being greedy at the wrong times and getting the purchase of a property wrong is likely to tie us down and hold us back for a long time.

Of course, it really doesn't pay for us to keep up appearances. Living below our means might not be glamorous but, financially, it will give us a lot less to worry about.

What about the amount of CPF money we are allowed to use for the purchase of a flat? Generally, there is less of an issue, if any, when purchasing BTO flats with fresh 99 year leases or resale flats with remaining leases of 60 years or more.

The problem is with the purchase of flats with remaining leases of less than 60 years. In fact, for flats with remaining leases of less than 30 years, CPF money cannot be used in their purchase at all.

I have a found a very nice info-graphic to help explain this:

Click to enlarge.

Source: Using CPF for a property.

So, as conventional wisdom goes, if we are considering the purchase of a resale flat, try to avoid very old flats especially if we want to keep the option of reselling the flat open. If our flat should have a remaining lease of less than 60 years by the time we want or need to sell, it could be more difficult.

Searching for solutions to a reader's predicament has led me to learn quite a few things and I hope you have found this blog post useful too.

Related post:
Retiring comfortably with a HDB flat.

Retiring comfortably with a HDB flat.

Wednesday, July 30, 2014

A recent comment by a reader with a predicament led me to searching the internet for possible solutions. While unsuccessful, I came across an info-graphic by HDB which I find very good. So, I am sharing it here:

"If I sink my money into my flat, how will I be able to retire comfortably?"

Source: HDB Speaks.

I also wish to say that if we do the right things, we could possibly retire a millionaire without ever having to monetise our HDB flat. See:

1. Retiring a millionaire is not a dream.
2. What is $1 million at retirement?
3. $1 million in retirement funds.

If we want something badly enough, we will work towards it. If we are determined, our chances of success will be higher. Believe it.

Other related posts:
1. Housing and the CPF.
2. Buying an apartment: Considerations.
3. POSB HDB Loan: Peace of mind.
4. Balancing returns, risks, facts and fallacies.
5. Retiring before 60 is not a dream.

Bloggy Award