HDB BTO projects delayed: What to do?

I know many readers are waiting for my blog on passive income received in 3Q 2021 but it is going to take a bit more time as there are quite a few things I would like to talk to myself about.

In the meantime, I am publishing a relatively short blog on delays in HDB BTO projects which might be of interest to some readers.

The COVID-19 pandemic and the subsequent Delta variant made life really difficult in more ways than one for many people. 

One of the consequences is the longer time it takes for construction work to be completed and this has, of course, affected the completion of HDB BTO projects as well.

Some people need their flats urgently and have decided to buy resale HDB flats instead of waiting for the completion of their HDB BTO flats. 

However, for those who are in less of a hurry, the wiser thing to do is probably to wait. 

The two big considerations would be 

1. financial cost 

and 

2. the leasehold nature of HDB flats. 

Readers who have been following my blog for a long time would know that this is a topic I have blogged about pretty frequently before.


BTO HDB flats, everything else being equal, are the most affordable form of housing in Singapore. 

I would have bought one myself if I could but I did not qualify for one. 

There are plenty of conspiracy theories out there about how the PAP government is out to rob us of our CPF savings by selling us 99 years leasehold HDB flats. 

It always amuses me to read or to hear stuff like that. 

These people are either misled or out to mislead. 

They are either misinformed or malicious.

A 99 years leasehold HDB BTO flat is a good quality housing option in Singapore if we are looking for a home to call our own till the day we die. 

Unless we have very strong reasons for buying a resale HDB flat, wait for a HDB BTO flat. 

Like many things in life, patience will be rewarded. 

If you are new to my blog, you might want to read the following blog which I shared with a reader who contacted me recently: 

When the lease on HDB flats end.

Related posts:

1. Why do I stay in a condo?

2. Not successful in SG unless...

"You mustn't tell people that. 

They will look down on you." 

Keep $20K in CPF OA when taking HDB loan. (Growing CPF SA after OA was wiped out by home purchase.)

Just as I was about to publish this blog, I saw the news hot from the oven.

"Flat buyers will have more flexibility in using their Central Provident Fund (CPF) money, the Housing Board said as it launched 5,101 flats for sale from Tuesday (Aug 28).

"Buyers can now keep up to $20,000 in their CPF Ordinary Accounts (OA) when they take a Housing Board loan. Before, they had to use all the funds in their OA first.

"The funds can be used for their monthly mortgage instalments in times of need and will improve retirement adequacy if left unutilised."

Source:
The Straits Times





........................
Reader says...
Thank you for sharing so freely.

As like many others, I feel inspired and in awe.

I hope to get some advice if possible.

I recently emptied by OA to purchase a flat (on hindsight not such a great move).

Since then OA has been accumulating till it's about 10k now.






I plan to sell in 5-6 years time (depending on market).

Should I already start to transfer all my OA to SA?

Will there be any repercussions upon selling my BTO in 5 years time?

I am sorry if some of these questions look abit directionless.

Never been good with numbers, learning the hard way now.






AK says...
5 to 6 years from now, if you are not at least 55 years old or if you would be 55 but do not have the FRS in your CPF, you would have to pay back the accrued interest on the CPF money you used to purchase this flat.

I don't give advice but I will talk to myself.






If I had a mortgage now, it would not be a good idea to transfer all the money in my OA to my SA because if things do go terribly wrong, the OA money would go some way to pay the monthly mortgage.

I would keep enough in my OA for 12 to 24 months of mortgage payment (or any number of months that I think I might need to find work offering similar pay I had before).






Then, if I am certain I do not need the remaining OA money for any other purpose, I can consider transfering any balance to the SA.

Please remember that OA to SA transfer will not enjoy any income tax relief.

So, if income tax relief is important to you, you might want to do cash top ups to your SA instead.

Fresh funds from you will be required.






The first $7K of cash top up to the SA each year enjoys income tax relief.

Although OA to SA transfer does not enjoy income tax relief, it is financially less demanding as it is simply moving money that is already in your CPF account and not a demand for fresh funds.

Saving more in the SA is a long term plan to help fund our retirement but we should not do it without first considering our circumstances and what might go wrong.








You might want to read this:
Topping up our CPF savings can wait for some.

AK asks HDB-HIP-VERS can eat or not? Baojiak?

Single or married, if we are looking for a home in Singapore, the best value for money option is still a brand new HDB flat (i.e. BTO HDB flat), if we are allowed to buy one, of course.

Heavily subsidised, brand new HDB flats pass the Rule of 15 test with flying colors.

Don't know what is the Rule of 15 test?

See:
Rule of 15.



Singles weren't always allowed to buy new HDB flats.

Although allowed to buy only a one bedder (i.e. 2 room flat), allowing singles to buy new HDB flats is progressive thinking as many more young Singaporeans are staying single.

Space wise, having lived in a shoebox apartment for 4 years now, unless we are hoarders of material goods, I believe there is enough room for a single person in a 2 room HDB flat.

See:
My home is a hut in the sky.





As for HIP and VERS, for those who are not familiar with these acronyms, you are so unpatriotic lor.

Didn't watch National Day Rally 2018, right?

Bad XXX! Bad XXX!

"All Housing Board flats can expect to be upgraded twice during their 99-year lifespan under the newly-expanded Home Improvement Programme (HIP), as part of the Government's public housing redevelopment initiative.

"In a nutshell, all flats will be upgraded when they reach about 30 years of age, and again when they are about 60 to 70 years old."

Read article: 
HERE.


"Under the new Voluntary Early Redevelopment Scheme (VERS), owners in flats aged 70 years and older can vote for the Government to buy back their homes before their leases run out, if their precinct is selected for VERS.

"They can use the proceeds to buy a new flat, while the Government redevelops the precinct. If they vote against such a move, they can continue to live in their flats till the leases run out."

Read article: 
HERE.





Many things have been said by many people about HIP and VERS since NDR 2018.

I was afraid readers might ask me about them and my fear came true.

Why afraid?

Apart from the fact that I am really lazy, I am really unimpressed by HIP and VERS.

To me, HIP and VERS are simply attempts to allay fears of people who happen to be owners of older flats, especially those who might have bought a resale flat that is quite a bit older than they are.

Purely from a value for money perspective, I think it is silly to pay full market prices for much older flats if we have the option of paying a much lower price for new HDB flats which, of course, have fresh 99 year leases.

See:
Affordability and value for money.





HDB flats come with a 99 year lease.

In case you don't understand what that means, it means that we will enjoy them for a maximum of 99 years.

As they age, the remaining lease becomes shorter and shorter.

If we are sufficiently clear headed, it would be quite obvious that HIP and VERS do not address the core issue of a decaying lease.






HIP

HIP simply makes old flats look new again.

The looks are upgraded but the leases are not.

It is like repackaging something with an approaching expiry date to sell to an unsuspecting consumer.

Or imagine an 80 year old granny going for plastic surgery to look young again but it does nothing to extend her lifespan.

Alamak, AK why liddat say?

Bad AK! Bad AK!






VERS

What about VERS?

Surely, it must be a good thing, right?

Well, it is 20 years away and we can't really tell what the compensation quantum is going to be like.

However, we can make an educated guess.

My guess?

VERS is going to be like selling the tail end of the lease to the government (i.e. HDB Lease Buyback Scheme) except that, this time, you get kicked out of the flat.

See:
HDB Lease Buyback Scheme.





You will have to look for a new home.

The monetary compensation from VERS should be higher than selling the tail end of the lease to the government under the HDB Lease Buyback Scheme.

However, the compensation cannot reasonably be expected to be enough to purchase a new home with the same attributes with a much longer lease.

You will most likely have to downgrade or downsize or top up to buy a new home.

What does this sound like?

Sounds like your old home with a much shorter remaining lease which you sold to the government under VERS was less valuable.

See?

It is free market economics.






You cannot reasonably expect to exchange an older batch of produce which is going to spoil soon for a fresh batch that will stay good for some time to come.

Hmm.

Wait, actually, you can.

How?

If you meet a "gong giah" (i.e. "stupid fool" in Hokkien) of a buyer lor.

So, what is the moral of the story?

Look for a "gong giah" buyer lah!

Aiyoh, no lah!

You so terrible!

Moral of the story is don't be the "gong giah".






For some reason, if you are set on buying a resale HDB flat, "bochap" (i.e."ignore" in Hokkien) the hype around HIP and VERS.

They are just noise.

Remember, you must have very good reason to give up the option of purchasing a new HDB flat if you are actually lucky enough to have that option.

Focus on what you need and if only a resale flat will do the job, try not to buy a very old flat.

See:
Buying properties with short remaining leases.






Although you are being a "gong giah", don't be more "gong" than necessary.

See also the related posts at the end of this blog.

OK, I am packing and rushing to the airport to catch the next flight out of Singapore now.

Hopefully, it is going to a country that does not have an extradition treaty with Singapore.

Alamak!

Bad AK! Bad AK!







Related posts:
1. Older flats are problematic.
2. HDB flat is 37 yo but son is 8 yo.
3. $1M for 30 year old flat and now?

Another blog was published earlier today:
CPF SA time and income lost!

Use CPF OA or cash to pay for HDB flat?

This is something I have blogged about many times before but I want to remind readers that I am not telling them what they should do.

It is really up to them.

Take into consideration our circumstances and our beliefs before making a decision.

Your flat.

Your CPF.

Your cash.

There are many questions we must ask but, ultimately, there is one question that would determine if we would have peace of mind and it has to be asked.






Reader says...
I would tink paying for my hdb with oa would free up my cashflow for taking on more risk, ie expanding or going into new biz venture, or picking up financial assets and increasing cashflow.

U share that everyone shld do it within their ability and we do not need to copy their own plans.

My question to is shld i do so? 

As i am at the start of paying for my resale hdb.

Ur advise will be greatly appreciated so i can review my position.






AK says...
Ask yourself if you want more stability or are you ready to stomach more volatility and you will have your answer. 😉


Reader says...
Thanks ak. Always happy to have a small conversation as it was short n simple and not overcomplicating.








Watch the video.







"Rule of 72 is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest.

"By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself." 

Source: Investopedia.




AK is just lazy lah. Shh. :p

Related posts:
1. Pay home loan and hit MS ASAP.
2. Pay home loan and grant fast.

Questions from an investor on HDB and CPF.

Reader says...
I have been following your blog for a few years and am grateful for the nuggets of wisdom that you post on your blog.

I bought a resale HDB flat that is of the same age as me and by the time I fulfill the 5 years MOP, the remaining lease would be 59 years.








In other words, I understand that there would be certain restrictions on the use of CPF for potential buyers of my flat.

(See:
Older HDB flats with remaining lease of less than 60 years are problematic.)








However, I am not intending to sell the flat as I think the lease is sufficient and the flat is big enough.

To pay for the flat, I took up a bank loan with 2 years fixed interest of 1.58% and am currently using my CPF OA to pay my monthly mortgage.






I am thinking since I don't intend to sell the flat, I might as well not repay the accrued interest and continue using CPF OA to pay the monthly mortgage. 

I could use the extra cash to do my own investments.






However, I also wonder if I should use cash to pay the monthly mortgage so that my CPF OA can grow and government can pay me 2.5% interest?

I hope you could shed some light on what would be the best way forward. 

Thank you very much 😊

AK says...
I will try to focus on what is important here if I were in your shoes.

Feel free to ignore me.

I wouldn't use my CPF OA money to pay a loan that attracts 1.58% interest.

I have lost 1% interest right away.








I would use cash to pay the loan.

Even if you do not intend to sell the flat and would not need to repay the accrued interest, it still doesn't make sense to lose that risk free interest.

This is especially if you believe that having an investment grade bond in your investment portfolio is important.






AK does well enough as an investor but he is not a very good investor.

AK needs some certainty in retirement funding and risk free, volatility free CPF helps him to sleep better at night.

If you are a very good investor, please ignore this blog. ;p







Related post:
Free money from the government is good.

Pay home loan and HDB housing grant fast?

Reader says...
I hope you bear with me while I share the info about it - resale flat was purchased at 480k and I got a hdb housing grant of 50k for 1st timer.

My fiancee and myself went for a bank loan instead of hdb loan.

The loan principle I have to service is 384k.






I would really appreciate your advice/guidance to my following questions:

a. I thought of repaying my housing loan using cash instead of cpf.

I think this is still manageable from my side from a cash liquidity perspective since I could save on the chargeable accrued interest (at the point of future flat sale) and at the same time continue to earn the 2.5% int.

What do you think about this approach in terms of pros/cons?






b. I took the housing grant of 50k which I know will be charged accrued interest.

I'm not sure how accrued interest is charged on this 50k but is it considered wise if I try to repay this?

Or in actual fact, it doesn't make a difference because it will net off from the interest that I earned for the OA that continues to reside in my cpf account?






c. If at any point in time I thought of partial loan repayment to my bank, say a sum of 30k in cash every beginning of the year so that principal amount will reduce and I look to repay the full loan in 7 to 10 years.

What do you think about this approach and possibly the risks that go with it?

Many thanks in advance, and I really appreciate your feedback and suggestions.

AK says...
As long as your home loan attracts an interest rate of less than 2.5%, it makes sense to pay your loan with cash instead of using money in your OA.

(I would also add that as long as money in your savings account is paid less interest than the interest paid by the OA, it makes sense to pay your loan with cash.)

If you have no intention of ever selling your HDB flat, you can worry less about accrued interest on OA money used or the grant as long as you hit the prevailing full retirement sum (FRS) by the time you are 55.






By 55, you can withdraw all money from your OA and SA in excess of the FRS.

So, if you were to sell the HDB flat after you turn 55, you could take out all the money which includes the accrued interest you owe your CPF account.

It would be like asking you to put in money only to immediately take it out again.






Partial capital repayment makes sense when interest rate goes much higher.

When exactly to do that?

It is up to you as it should also partially depend on what you feel you could get if you were to invest the money instead.

I remember when I paid the housing loan for my previous home in full, the interest rate on the loan went from 4.1% to 5.1%.

Ouch.






Congratulations on your new home.

Related posts:
1. How to stop accrued interest from growing?
2. Almost 55 and worried about CPF.

Reduce home loan with CPF OA or do OA to SA transfer?

Reader:
I have an existing HDB loan of 270k over 30 years with my spouse and we are deciding whether we should try to reduce the loan amount with our CPF OA or transfer some to CPF SA.

Objective is to pay the housing loan - debt free and to have a good retirement amount at 65 (hopefully to hit at least 500k in CPF).

We are 35 this year and we have around 80k in our CPF OA each with around 30k in CPF SA.

Hope to get your kind advice on this!

AK:
When we use our CPF-OA savings to pay for our home, we stop earning interest from the government. Instead, we have to pay ourselves interest if we should sell our home.

Once we realise this, it becomes pretty obvious that in an environment of prolonged low interest rates, it would probably be a better idea to pay for our home using cash if we can afford to do so. Don't use our CPF-OA savings.

Central to the idea is to receive more interest income for our CPF savings with an eye on achieving a higher level of risk free and volatility free retirement funding.





Before doing any OA to SA transfer, I would keep enough in the CPF-OA to service at least 24 months of mortgage payments. Bad things do happen unexpectedly.



Savings in our CPF-SA receive a base interest rate of 4% per annum.

If you use your OA savings to pay your HDB loan, you are saving 2.6% in interest payment but you will be losing 2.5% in interest income. So, you have a net saving of 0.1%...






Reader:
Thank you so much for the prompt reply and words of wisdom.

I will keep in mind your kind advice and work out a long term plan.

It has been very kind of you to share your knowledge and wisdom especially for many of us who are caught at a junction, not sure what is the best way to move forward and yet we would want to maximise the returns for our efforts/assets/decision. Sometimes, there is really no right/wrong way to make a decision.

Once again, thank you so much for sharing your knowledge selflessly!






Interested in making good use of the CPF to help achieve retirement adequacy? See related post #2.

Related posts:
1. Average HDB household and $1M.
2. 4 ways to boost our CPF savings.

$1m for 30 year old HDB flat and what now?

Reader:
I wonder what you will do if you were me- can you talk to yourself?

I finally sold my maisonette for >$1mil, as it almost hit 30 years old. 

 I had paid up my HDB loan a few years ago, so have this full amount available in cash and CPF.

I have a family of 5 including 2 teenagers and a helper, so am looking for a place to buy.

Although $1mil may sound like a lot, there is hardly any property to buy if I rule out HDB options. 

 My husband and I are in our mid 40s, and our income do not qualify us for BTO nor ECs. Newer resale HDBs may not be the option due to same issue of lease decay and no certainty of SERS...






If I look in the condo space:

- newer 99-year lease condo of at least 1200 sq ft- the location will be outskirts and not within walking distance to MRT station

- older freehold/ 999-years condo of the same size- good locations walkable to MRT stations will be at least $1.8mil at the lowest...





I cannot imagine paying $2mil and above for a property- all the cash (even if I have) will be locked up in ONE property...and cannot use as war chest or emergency fund in the event of unemployment...

What will you do in my case?? I solved one problem of selling off my old HDB, but seemed to have created another one...








AK:
This is why many people say there is no point in property prices going higher if the only property they have is their home. 

They would need a replacement property and it would probably cost the same or more, especially if they are not able to get a new HDB flat (i.e. BTO) as a replacement.






If our home is an ageing HDB flat, it makes sense to consider selling it in view of the lease decay issue. 

However, the issue really becomes more of a problem when the flat has less than 60 years left to its lease. I blogged about this, if you remember. 

I feel that you might have been in too much of a hurry to sell.






For anyone selling their flat and if they need a replacement property of comparable size, they should ask if they qualify for a new HDB flat (i.e. BTO). 

My sister successfully applied for a new 5 room flat and only put up her old 4 room flat for sale after her new flat was ready, for example.





For anyone selling their flat and do not need a replacement property of comparable size, downsizing is the obvious answer. 

A reader shared her family's experience of downsizing and downsizing again, for example. They are quite happy.






Without the BTO option, like you have shared, you are probably not going to find a new similar size property nor one with a much longer remaining land lease selling at the price or lower than the price you sold your 30 year old flat for.

The only reason why I would find myself in your shoes would probably be because I want to leave the family home as a legacy to my children. 

Why sell the flat which has another 69 years left to the lease when I am already in my 40s, otherwise?





However, as I do not wish to be asset rich and cash poor (which is the impression I get when you said you cannot imagine having $2 million locked up in ONE property), I would look for the largest and newest resale HDB flat (i.e. 5 years old) $1 million (or lesser) can buy. 

It might be smaller than my old flat but it would have to do.

Related posts:
1. Downsizing our homes.
2. Problem with older flats.
3. Legacy or location?

CPF-SA savings 10 years from now.

The biggest downside of not being gainfully employed is the lack of mandatory CPF contributions.

To ensure that my CPF savings will become a more significant bond component of my investment portfolio in my golden years, I have been making voluntary contributions.




Checking on my CPF account last night, I wondered how much would I have in my CPF-SA by the time I am 55? 

55 years old. That is also when money from my CPF-SA will be moved into my newly created CPF-RA to fund the annuity called CPF Life.





My CPF-SA savings in January 2017:

$215,862

Assuming that CPF annual contribution limit (now $37,740) remains unchanged in the next 10 years and applying the following allocation rates:

Click to enlarge. Source: CPF Board.

Doing voluntary contributions to the annual limit each year, for the next 5 years, about $8,159 each year will go to my CPF-SA. 

Ratio of contribution to the SA being 0.2162.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

At age 50, I would have $308,588 in my CPF-SA.




For the 5 years following that, about $11,699 each year goes to my CPF-SA. 

Ratio of contribution to the SA being 0.3108.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

At age 55, I would have $441,344 in my CPF-SA.





Of course, all else being equal, the number is likely to be bigger 10 years later as the calculations do not take into consideration the additional 1% interest payable on the first $40,000 in the CPF-SA.

Although it is not $1 million, $441,344 is nothing to scoff at either.





This is why I have told some rather worried readers who are pretty risk averse and who are not investment savvy to seriously consider using the CPF-SA as their primary tool to achieve greater financial security in their old age.

As simple as ABC? 

As simple as CPF.

Related posts:
1. AK showing off his CPF-SA.
2. Average HDB household and $1M.

HDB Lease Buyback Scheme and you.

Reader:

Parents in late 60s considering whether to go for lease buy back on their HDB flat (42 yr old flat) or leave it to children. 

Lease buy back so that parents can increase current monthly pocket money and thus lessen burden. 

Parents are more inclined to stay in flat.

Though selling entire flat can fully monetise the value of the flat, but given that it is already 42 yr old flat, waiting another 10 to 15 year likely will see a drop in property price in the current peak market condition. 

Plus Singapore is a developed n aging economy, gone are the days of more 200% price increase in property prices. 

Lease buy back or wait later to sell? 

Your very honest self talk would be much appreciated here, please. 

Watch this video on Lease Buyback Scheme.

AK:
Most old folks don't like moving house. It is quite normal.

If they need some extra pocket money, selling the tail end of their lease (30 years, perhaps) to HDB is a good idea instead of selling the flat outright and moving out.






Don't do this and keep the flat as a legacy for their children? 

Well, it would mean tightening their belts and burdening their children in the meantime. 

All for leaving behind a property with a very much shorter remaining lease?





If we are cash rich, no issues. 

If we are cash poor, cash comes first. 

Asset? That takes a back seat, especially when it is one that is suffering from accelerated lease decay.





Related post:
My HDB flat is 37 years old.