Housing in Singapore
- Jul 18, 2020
- 17 min read
Updated: Jul 21, 2020
A T00 kid's notes on housing
Disclaimer: content has been summarised from moneysense.gov.sg, moneysmart.sg, 99.co, singsaver.com.sg, asiaone.com, dollarsandsense.sg, seedly.sg, icompareloan.com, sgpropertyreviews.com. Links to all 16 articles are listed at the end of this post.
Contents:
1. Types of Houses in Singapore
• HDB
• Condos & Apartments
• Landed Property
2. Comparisons Between Types of Houses in Singapore
• HDB
• ECs
• PCs
• EC vs PC
• Landed
3. Summary of Property Prices by Type in Singapore
• Why Resale is more costly than BTO
• Private Condominiums vs Executive Condominiums (PC vs EC)
4. Housing Fees
• Option Fee
• Down Payment
• 3rd-Party Fees
• Recurring Payments
• Summary of Costing for Examples
5. Housing Loans
• HDB vs Bank Loans
• Why max. LTV of 75% & 90% is not guaranteed
• Fixed Rate Vs Floating / Variable Rate
• Questions To Ask The Bank
• Prepayments
• HDB Loan Eligibility Letter
• Property Loan Fact Sheet
• Refinancing
• If You Cannot Pay
• How Lenders Assess How Much You Can Borrow
1. Types of Houses in Singapore
HDB
2-Room flats are tailored for smaller & less affluent households. Includes a bedroom, living room, kitchen, bathroom & storeroom. Compared to its private counterpart, it can be seen as a 1-bedroom apartment, just a lot cheaper.
3-room flats are have a living area, a master bedroom & attached bathroom, another bedroom, a common bathroom, a kitchen, a service yard & a storeroom. It is a viable option for families with a child that are on a budget.
4-room flats are ideal for young couples starting a family. They offer an intimate & cozy living experience. It is basically a 3-room flat +1 bedroom & is available in a variety of layouts tailored to preferences.
5-room flats are a more spacious variation on previously mentioned flats, with an additional dining area.
3Gen flats are for multi-generational families. Compared to 5-room flats, it has an additional bedroom & bathroom. Some caveats include the fact that 3Gen flats are not dual-key (units where owners essentially have 2 self-contained living spaces sharing a single foyer & address) Rooms are smaller despite a larger floor size compared to 5-room flats. Your parents must be registered occupiers & thus they cannot have any properties to their name. 3Gen flats can only be sold to other multigenerational families & you cannot rent out rooms during Minimum Occupancy Period (MOP).
Design, Build & Sell Scheme (DBSS) Flats were introduced by HDB in 2005. They fall somewhere between larger HDB flats & an Exec Condo. Caters to those affluent enough to buy / rent better HDB flats, yet are not ready for private housing.
Executive Condominiums (ECs) start off as public housing units, then phase into private housing after 5 years of ownership. Tailored to those who can afford more than an HDB flat but find private property a little out of reach. Shares most of design & facilities of a private condo, issued by HDB making it cheaper. Highlights include an extra space, ideal for a study room / alternative television corner. Some come adorned with a balcony.
Condos & Apartments
Private Condominiums can be regarded as the liberated & relatively unrestricted brother of exec condos. Home to recreational facilities & are the go-to option for those who are looking for private housings yet find landed properties either too expensive / too much maintenance.
Apartments are similar to condos yet tends to be part of smaller developments & are home to less generous provisions of communal & recreational facilities. Generally more affordable than landed property & condos yet more expensive than subsidised HDB flats.
Walk ups are a particular type of condo / apartment that does not have a lift. They are built low to reduce inconvenience.
Landed Property
Terrace Houses are a row of similar houses joined by a common boundary. While joined, each Terrace House is a property in its own respect & has its own walls & roof.
Conservation Houses constitute historically significant houses which have been renovated & conserved to fit within the urban fabric of modern Singapore.
Shophouses reflect a rich mix of Chinese, Malay & European architecture. Often 2 to 3 stories high, they are conserved terrace houses with historical significance. They can be found in neighbourhoods like Katong, Little India, Emerald Hill, & Chinatown.
Bungalows have a min. plot size of 400 sqm. Detached (no other estate is linked to it) adding privacy & exclusivity. 4 types / “classes”: 400 sqm to 550 sqm is class 1; 550 sqm to 700 sqm is class 2; 700 sqm to 1000 sqm is class 3; & 1000 sqm to 1400 sqm is class 4. Anything above is in the Good Class Bungalow class.
Good Class Bungalows have a min. 1400 sqm, often encompassing large gardens, swimming pools & other luxury facilities.
Semi-Detached Houses are partially attached on one side to any number of other units. E.g. semi-detached bungalow houses & semi-detached terrace houses (aka corner terrace).
Town Houses are a hybrid between a condo & landed property. Has characteristics of a landed terrace house, but shares common facilities like swimming pools, gyms. Either part of a lager condo establishment / an entire estate, they offer both privacy, spacious living & convenience of facilities.
Cluster Homes are a hybrid that combines the privacy & spaciousness of landed properties & the convenience of condo-style facilities like pools, gyms. Cluster developments can be home to terraces, semi-detached housing, bungalows, a mix of these & share facilities within their developments
2. Comparisons Between Types of Houses in Singapore
HDB
Loans
Biggest difference between HDB & bank loans is Loan-To-Value (LTV). Bank loans may look cheaper with lower interest rates but down payment is 25% compared to 10% for HDB loans.
Income Ceiling
Income ceiling is only for those who use HDB loans & housing grants. No income ceiling for resale HDB flats if bank loans finance it.
MOP
Live in the flat for 5 years. You can rent out a room or two, but not the entire apartment.
ECs
Grants
Still eligible for CPF housing grants, assuming income is low enough. 1st time applicants who are SG citizens applying as a couple can get $10,000 to $30,000 worth of CPF housing grants if combined incomes are $12,000 & below.
Reselling
After privatising, flats are no longer are bound by HDB restrictions on selling. From 6th to 10th years, ECs are sold like regular resale flats; only Singaporeans & PRs can buy them. 11th year is when ECs go “fully private” & can be sold to foreigners & companies, opening up a range of prospective buyers.
Bank Loan
Arrange for your own bank loan. Bank loans have lower initial interest rates, but fork out more for downpayment and/or cash/CPF portion, since you can only borrow a max. of 75% as opposed to 90% for HDB loans. Note: 75% is theoretical max., but if you already have other loans like car loans you might not even be allowed to borrow that much due to Total Debt Servicing Ratio (TSDR). Not forgetting Mortgage Servicing Ratio (MSR) of 30%; a % of your salary that you can use for your home loan repayment.
PCs
More options in terms of location & lease
All ECs have a 99-year lease, but private condos can be 99-year, 999-year or even freehold. ECs are usually located at “ulu” locations like Sengkang, Sembawang, Punggol etc while private condos can be located anywhere.
Loan
Only apply for bank loans. LTV is 25% cash/CPF and 75% loan; pay at least 5% in cash. Banks are known to be less lenient than HDB; do not expect any mercy if you run into any financial issues & problems with repayment.
“Freehold”
Dependent on URA’s masterplans: if plans for an MRT line coincide with your property location, you’ll be reimbursed, at best.
Other factors may put your freehold property at risk, too:
1. The possibility of en bloc sales 2. Location: A leasehold condo in a superior location (e.g. near Newton MRT) would trump a freehold condo in, say, Boon Lay. 3. Additional Buyers Stamp Duty (ABSD): If you’ve purchased your freehold condo but haven’t sold your existing home, you may need to pay ABSD. In some cases, you could apply to have this waived.
EC vs PC
Landed
Pros
Limited supply of land & long-term demand on an uptrend thus, highly sought after.
Free to choose architectural design of the house.
No mandatory maintenance fees.
Own the land & have control over quality of roofing & plumbing works on upper floors rather than worry about plumbing issues of your upstairs neighbour.
Detached houses have the luxury of space for building a garden/pond/waterfall/car porch & significant distance from your neighbour.
Choose between 99- year, 999-year lease or freehold.
Cons
Maintenance & renovation can be costly
Susceptibility to pests & stray animals
Low rise & may not enjoy as good an air flow / views
Larger cash outlay
If you do not drive, it can be inconvenient
Things to Look Out For
Age & Condition
Some owners sell old houses at attractive prices. "Fixer-uppers" are properties of poorer conditions. Investors tend to target such houses as there is more space for price negotiation & as there is opportunity to take joy in transforming the house. “Property flippers” focus on increasing property value & making profit. It can be advantageous (in terms of potential profit) when you purchase a property that needs some work rather than one that is already presentable. Best purchases you can make are the ones that appear the worst; those in need of an aesthetic makeover. To know if an aesthetic makeover is all that is required, take note of the following points below.
Location
Note which amenities like MRTs are close by. Is it near a major highway / busy street with restaurants & pubs? Take time to do proper research by visiting at different times of the day & getting to know the neighbourhood.
Foundation
Avoid those with suspected / weak foundation. Costly in terms of time & expenses. For property built on a strong foundation of concrete, only possible work required is leveling. Properties with a lack of strong foundation usually have visible weaknesses e.g. cracks, unaligned walls, window frames & doors.
Soil Condition
When was it built? Did owners use it for piling / footing? Bay areas are made up of clay & mud hence, land condition is not great, & costs may be incurred for installing “Sheet piling” for earth retention & excavation support & deep piling for pillars. Thomson / Upper thomson has soil that is very soft & thus construction is costly. Simply ask around the neighbours for an indication.
Moisture
Most likely to be present in basements. Look out for leaks & mould. Small cracks are not too concerning but if it leaks, mould growth may result. Costs associated with resolving moisture issues are not low.
Roofing
A roof's lifespan is up to 20 years. Fixing roofs is costly & the amount depends on its age & condition.Spot for leaks / stains. Common sight with roofs losing its colour can be fixed with a quick clean using a chemical agent / bleach. Issues faced with roofs may be solved by simply placing a new layer over the current one. With constant leaks, roofs tend to be the culprits. With attics, check directly under the roof to see if there are any problems.
Plumbing
Check if all toilets, taps, water heater & pipes are working normally. For older homes, examine roots on plants & trees to see if they might result in future piping issues.
Most importantly, never leave out the sewage system. The sewage system is underground and it can turn out to be one of the biggest problems of your house.
Fixtures & Appliances
Home fixtures & appliances will experience usual wear & tear after a period of time. E.g. doors, windows, walls, air-conditioning, kitchen appliances etc.
Pick what’s the most economical solution to your problem. E.g. re-painting your wall is more practical than replacing it
Electrical Wiring
Test if switches & electrical units are working normally. They face wear & tear problems too.
Fixing electrical wiring issues does not come cheap as it requires technicians to build wires into the internal structure of your house.
Infestation
Termites etc.
Water Pressure
At ~ 20 / 25 above mean sea level (AMSL), water pressure from PUB is insufficient. A water tank & water pump at higher levels would cost around $20,000 to $30,000.
Levels
Find the number of floors allowed under the landed planning region. Land zoned for 3 floors allows for 3 floors + attic. Land zoned for 2 floors allows for 2 floors + attic.
Conclusion
Develop an eye for detail in properties. If you feel that you lack the knowledge of how to identify promising properties, seek professional help. Always ensure that your contract includes a clause which states that an agreement will be reached only after your property professional reports back to you with a satisfactory review.
Process
1) Find your private property and negotiate prices
If you’re buying an older or landed property, you might want to get some valuations done on it so you can be sure you’re not getting ripped off. Banks sometimes offer free desktop valuations, but these can fluctuate greatly, so ask for at least two or three. Use any excuse to drive down the price—dated renovations, a bad view, poorly maintained premises and so on.
2) Secure the Option to Purchase (OTP)
Not sold using a standard-form Option to Purchase (OTP) or Sales & Purchase Agreement (S&P). Thus, seller is free to write their own contract, / use their agent’s. It’s also possible for sellers to dispose of their properties with only one contract. However, the most common method to buy property is still to secure an OTP.
Before procuring an OTP, pay ABSD (Singaporeans who already own at least 1 residential property)
To obtain OTP, pay an option fee, typically 1% of purchase price. Afterwhich, the seller is not allowed to sell property for a specified duration, usually 2 weeks.
Appoint a lawyer after making an offer for the property
Conveyancing lawyer is needed for the paperwork involved in purchase & home loan. Includes lodging a caveat with the Singapore Land Authority to register your legal interest in the property, reviewing the option to purchase, liaising with the bank’s lawyer to ensure smooth disbursement of loan. Lawyer needs to be on the panel of lawyers of the borrower; bank if a loan is taken.
Your lawyer will make sure you exercise the option in a timely fashion.
It is possible to get your lawyer to coordinate the sale of a current property with the purchase of a new one in order to reduce or remove ABSD liabilities.
Before committing to any property on loan, get an Approval-in-principle (AIP), a conditional approval for a loan. AIP is obtained 3 to 5 working days after submitting all required documents.
3) Get a good home loan with competitive interest rates
Take note of how much cash you have on hand and in your CPF account. Make sure the bank is able to lend you the balance, otherwise you’ll have to raise more cash.
Main regulation constraining how much banks can lend you is the Total Debt Servicing Ratio (TDSR): you can’t be paying more than 60% of your income in loan repayments.
4) Exercise OTP & pay down payment
Before the deadline on OTP, exercise it to officially become a buyer of the property. Pay the balance of downpayment, usually comprising 4% of the purchase price. Check the terms of your OTP if unsure.
5) Wait for completion
Seller & buyer should agree on a completion date to ensure that there is enough time for the seller to move out, and the agreed fixtures or furnishings are left behind in good condition. There might also be a formal valuation of the property during this period.
In the lead up to completion, your lawyer will be bugging you to submit the documents and money needed to successfully complete the sale.
This means you will have to prepare the cash portion of your payment (this should be at least 15%, and might be more depending on how much CPF you’re using and how much your bank loan is) and other sums such as Buyer’s Stamp Duty (BSD), Additional Buyer’s Stamp Duty (ABSD) if any, and legal fees.
3. Summary of Property Prices by Type in Singapore
Why Resale is more costly than BTO
Home prices tend to appreciate over time. Moreover, with no wait time for resales (e.g. 2 to 3 years for BTO flat to be finished) more amenities may be built around the flat since it has been around longer.
Note that resale flats may have a premium on top of actual flat price "Cash Over Valuation (COV)" which varies from $0 to $50,000.
An extreme case: a maisonette in Bishan sold for a COV of $250,000 in 2014 at $1.05 million.
Private Condominiums vs Executive Condominiums (PC vs EC)
As a rule of thumb new ECs are ~ 20% cheaper than an equivalent PC. Price difference falls to ~ 9% after Minimum Occupancy Period (MOP) of 5 years & narrows to 5% after a total of 10 years.
4. Housing Fees
Option Fee
Used to reserve desired property
Down Payment
Pay with CPF OA / cash / both
E.g. 3-room BTO flat at $180,000 has a down payment of $18,000 paid from CPF OA / cash / both. 2-bedroom private condo at $900,000 has a down payment of $225,000. At least $45,000 must be paid in cash. Remaining can be paid with CPF OA / cash / both.
3rd-Party Fees
Valuation
To professional appraiser for valuation report on property
Legal (Conveyancing fees)
Conveyancing fees new HDBs: $0.90 per $1k for 1st $30k of property value, $0.72 per $1k for next $30k of property value, $0.60 per $1k for remaining
(Enter price in HDB legal fee calculator to calculate)
For non-HDBs, fee varies from $1,100 to $3,000 depending on bank loan rate. Request to use a cheaper law firm than the bank’s default choice. If you use a mortgage broker, they will usually try to find a cheaper law firm for you.
Conveyancing fees can be paid from CPF if using HDB’s default law firm. If not, ask the firm if fees can be paid via CPF.
Stamp Duty for Agreement for Lease
Tax to government for registration of mortgage. 1% for 1st $180k, 2% for next $180k, 3% for next $640k & 4% for remaining. Use Stamp Duty Calculator from Inland Revenue Authority of Singapore website
Home Insurance Premium
Cover property against fire & other damages. Basic mandatory fire insurance for HDB flats is from Etiqa at $1.50 to $7.50 depending on size of flat for a 5-year premium.
Comprehensive home insurance policies cost from $45 to $700 per annum insuring you against damage to furniture, renovations, personal belongings, temporary accommodation & storage costs (needed in event of fire), & third-party coverage (if fire is your fault & your neighbour’s house burns down, you may be held liable for damages).
Recurring Payments
Home Loan Repayments
To be paid monthly
Maintenance, Conservancy Charges & Utilities
Utility charges for power, water & gas. HDBs will also have monthly service & conservancy charges to town councils while condos / privates have monthly maintenance fees
E.g. 3-room BTO flat fees are $45 per month. 2-bedroom private condo fees of $250 per month.
Property Tax
Determined by home’s Annual Value (AV), annual amount from renting out property (higher for rented out property as opposed to living in the owned property). Check Inland Revenue Authority of Singapore
E.g. AV of three-room flat to be $14,400 & tax payable is $512 per annum. AV of 2-bedroom private condo to be $36,000 & tax payable is $2,240 per annum.
Mortgage Repayments
HDB flats mortgage interest rate is always 0.1% above prevailing CPF OA rate. 2.6% per annum caa 2020. Private property mortgage rate fluctuates but is ~ 1.8% per annum since 2008.
E.g. 25-year loan for both sample properties. Loan for 3-room BTO flat is $162,000 (after downpayment), thus repayment of $735 per month for 25 years. Loan for the 2-bedroom private condo is $675,000 (after downpayment), thus repayment of $2.8k per month for 25 years.
Summary of Costing for Examples
5. Housing Loans
HDB vs Bank Loans
LTV is amount that can be borrowed to finance homes. LTV ratio of 75%: can borrow up to 75% of property value / price, whichever is lower.
Why max. LTV of 75% & 90% is not guaranteed
1. Outstanding Home Loans
With 1 outstanding home loan, LTV of 2nd home loan is capped at 45%. With 2 outstanding home loans, LTV of 3rd home loan is capped at 35% (Assuming loan tenure of 30 years / less)
2. Remaining Lease on Property
Properties with 36 to 40 years left have max. LTV capped at ~ 60%. Home loans are usually not possible for properties with 35 years / less. Cannot use CPF funds for properties with 30 years / less
3. Location & State of Property
LTV limit decreases for abroad properties / undesirable locations. LTV limit decreases for properties that are run down / major defects (e.g. condo with residents that are currently suing developers for defects)
4. Your Age & Loan Tenure
Caa Jul 2018, max. LTV for private properties is 55% if loan tenure exceeds 30 years / if loan tenure + your age extends beyond 65. Max. LTV for HDBs is 55% if loan tenure exceeds 25 years / if loan tenure + your age extends beyond 65. If you take a private home loan at 35, ensure repayment of the full loan amount before turning 65 to enjoy a higher LTV of 75%
5. Credit Score
Maintain a good credit score by repaying home loans, credit card loans, personal loans etc, on time.
Fixed Rate Vs Floating / Variable Rate
Fixed
Rates are fixed for only initial 3 to 5 years of loan tenure. After fixed rate period, i/r convert to variable rates. I/r will be pegged at a discount below financing institution’s board rate / floating rate, based on SIBOR / SOR.
They are preferred in times of financial stability & high i/r environment. The borrower knows with certainty how much to pay. This is most suitable for those who cannot accommodate sudden upswings in monthly cash-flows & those who are avid planners / risk averse.
As financiers need to hedge their future risks by providing you a fixed rate for several years, i/r for fixed-rate packages tends to be more costly than for floating- rate.
E.g. of interest structure for a fixed rate loan:
Floating / Variable
I/r fluctuate during entire duration of loan.
They are preferred in low i/r environment. Tip: Time loan commencement such that when i/r begins to inch up, already get out of the lock-in & claw-back period: refinance to a fixed-rate loan at a lower exit cost.
Floating rate packages always involve more i/r volatility. Mitigate this by opting for a longer tenor SIBOR / SOR. E.g. 12-month SIBOR / SOR rates are revised every 12 months, thus you get a fixed rate for a year.
Conversely, consider an i/r capped loan which safeguards against unexpected spike in rates. E.g. Bank A’s mortgage loan cap sets a 1.50% p.a. limit on interest, so 1.50% is the highest interest paid even during a high interest rate environment.
3 types:
Interest rates pegged at a discount below Board Rate
Interest rates pegged at a margin (spread) above SIBOR
Interest rates pegged at a margin (spread) above SOR
E.g. of SIBOR
Questions To Ask The Bank
1. How the reference rate is derived
2. How often this interest rate may be reset
3. Under what circumstances the rate is changed
4. What special features, if any, apply and if these will be removed or amended later
Prepayments
Reduce monthly payments & save on interest over the long run. Check if there are any penalties by making prepayments. E.g. Assuming i/r rises to 5% p.a & remains for remainder of a 25 year loan for $800,000, a prepayment of $40,000 saves $30,150.
HDB Loan Eligibility Letter
To find out if you are eligible for an HDB loan and the maximum amount you can borrow, you will need to apply for an HDB Loan Eligibility (HLE) letter. It helps you plan for your home purchase by giving you information on how much you can borrow, the monthly repayments, the amount of cash you need and other terms and conditions.
Property Loan Fact Sheet
Bank provides you with a property loan fact sheet before you sign up. It highlights how possible increases in interest rates will affect your monthly instalments, and contains the key features of the loan, including: Loan amount and tenure, Total repayment amount, Lock-in period, Interest rate and repayment schedule, Rate change illustration, Effective interest rate, Penalty fees
Refinancing
Switch from existing home loan to a new lender with lower interest rates (aka repricing / conversion at current bank). Save money, particularly if lock-in period is over. Note that HDB flat buyers are not allowed to refinance existing bank loan with an HDB loan.
Steps:
1. Check With Your Current Bank
Ask your existing bank for repricing options. Any fee for terminating my current housing loan package e.g. penalties within the lock-in period, claw backs, additional legal fees or conversion fees? Lock-in period for the new housing loan package? If so, how long is it and what charges are involved?
2. Compare Loan Packages
Updated repayment schedules for the various packages – check the interest payable.
The advertised rates and effective interest rate (EIR) for the packages. Banks are required to provide you with a residential property fact sheet to explain the key features of the loan package. Ask questions such as the penalty fees for early loan repayment, or bundled products, such as mortgagee interest policy, and compare with other loan packages to understand the differences.
3. Read Fine Print
Read T&Cs. Check the CPF Housing Withdrawal Limit applicable to you when you refinance your housing loan
If You Cannot Pay
Approach your mortgagee quickly (HDB may be able to better advise you on alternative options, while the bank may help you restructure the loan). In case of a loan default, HDB or the bank has a first charge and the CPF Board has a second charge on your property, if CPF savings have been used for downpayment or to service the loan. If you fail to make the home loan payments when they are due, the first charge allows HDB or the bank to sell your home and use the sales proceeds to pay off what you owe the bank. The CPF Board is entitled to the remaining sales proceeds to recover what has been deducted from your CPF OA. If you are using CPF to service your housing instalments, it makes sense to pay off the loan by the CPF withdrawal age of 55, due to the lower CPF contributions from age 50 onwards. With lower contributions to your OA, you may have to use more cash for the loan repayments.
How Lenders Assess How Much You Can Borrow
1. Mortgage Servicing Ratio (MSR)
Indicates proportion of your gross monthly income that is used to service your mortgage
MSR = Monthly mortgage repayment / Gross monthly income
Monthly loan instalment must not exceed 30% of your gross monthly income. This applies if you are buying a HDB flat, or EC where the minimum occupation period of the EC has not expired.
2. Total Debt Servicing Ratio (TDSR)
Indicates proportion of gross monthly income used to service all your monthly debt repayments.
TDSR = Total monthly debt payments / Gross monthly income
Total monthly debt commitments (e.g. mortgage payments, car payments and credit card payments) should not exceed the TDSR threshold of 60%.
3. Loan-to-value (LTV) limit
Determines the maximum amount you can borrow for a housing loan
LTV = Loan amount / Property value
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