Budget 2017 - Housing Grants for HDB

A good snapshot of the housing grant changes announced in Budget 2017 by Finance Minister Heng Swee Keat.

(Source: HDB)

Cash Out Home Equity Loans or HDB Flat as Collateral? Nope.

I learnt something new today.  That it is actually possible to take a cash out or credit facility on your home by refinancing it.  People can use this additional leverage when they have largely paid up property and wish to make use of the lower home mortgage rates to pay off either existing loans or even invest in other instruments (e.g. REITs) which might give a higher returns. '

These are quite common overseas, here is a typical example
https://www.hsbc.com.au/1/2/home-loans/products/equity

But also realised that one is also not allowed to take a credit loan out of your HDB flat.  Basically:

"HDB flats can only be mortgaged to banks or financial institutions to finance the purchase. HDB owners are not allowed to use their HDB flat, which has been fully paid for, as collateral to raise credit facilities."

So unless you own a private property, you most probably cannot take a cash out home loan to tap on the low mortgage rates now.

How Much To Get Married (Part 2) - HDB Flat

A few days back, I wrote about the cost of getting married in Singapore. In that post, I gave a brief outline on the items that a typical Chinese couple in Singapore would spend on. One of the big ticket items I identified was one's housing.

For most couples who have just started working and are probably not earning a lot (or born with a silver spoon), they will most probably opt to buy a HDB flat. This is perhaps the cheapest option unless you are willing to rent or stay with parents/in-laws.

When to rent

Some couples might opt to rent a flat or a room instead of buying their own HDB flat. This is usually due to cost considerations or because one is able to get a flat of choice. Others might simply want to be debt free and so choose to rent instead of buy. As a guide, one's mortgage loans (plus other debt payments) should not exceed 35% of the couple's combined salary. Most couples who have been working for 1-2 years should be below the $8000 combined income ceiling and should be eligible for a HDB flat.

In my personal opinion, it does not make sense to rent a HDB flat for long term since the HDB owner will most probably rent it out at a rate much higher than his or her own monthly mortgage payments. For e.g. if my monthly mortgage payment for my HDB flat is $1000, I will definitely rent it out at above $1000. This is common sense and so renting a flat is most probably a short term plan for most couples since it will be more cost efficient to pay the lower mortgage payments compared to the more expensive rent.

Buy A Flat

Buying a HDB flat is most probably cheap if you have money in your CPF. If both couples have been working and have build up sufficient amounts in their CPF-OA, they most probably will have enough to pay the deposit for the flat. Occasionally, some might have to top up the amounts with cash as they might not have sufficient amount of money in their CPF-OA.

In other instances, when buying a resale flat, the owner might ask for cash over valuation. Understand that this ranges quite a bit depending on flat type and location. But as a guide, I don't think that one should be overspending in this area. For me, $20K will be the maximum cash over valuation that I will be willing to pay now. This is because the HDB has just announced that it will be building a huge supply of flats. This flats will be ready probably in 2012 onwards. Based on that, one can expect the prices to come down a bit so if you can afford to wait, do wait. But for me personally, $20K is the maximum cash over valuation that I will be willing to pay.

What do the rest think? Is $20K a reasonable sum to budget for cash over valuation? Or is it too much/little?

How Much To Get Married

A common topic amongst my single friends is the amount of money that they require to get married. Many of them lament that it will cost them a bomb to get married. Big ticket items include paying for the house (cash over valuation), renovation, holding a wedding lunch/dinner @ a hotel, buying the engagement ring and of course other miscellaneous expenses. Some of them reckon that they need as much as $50k and above to get married in Singapore!

Surely there must be a cheaper way to get married in Singapore and still enjoy the perks of all the above. Let's do a rough breakdown of the expenses and perhaps in my next few posts, I can touch on how one might save up on each of the big ticket items.

As mentioned above, the big ticket items are as follows and estimated costs are also shown:

1. Buying a HDB flat (Cash over valuation) = $20-$50k (Rest is usually paid by CPF)
2. Renovation = $20 to $40K
3. Wedding dinner/lunch = $20k to $30k (depends on hotel and no. of tables)
4. Engagement ring = $1k to $10k (depends on the depth of the guy's wallet)
5. Photography + Wedding gown/suit = $1k to $5k
6. Miscellaneous lunches, hongbaos = $1k to $2k
7. Honeymoon = $500 to $10k (depending on where and when you travel)

Anything else to add to the list?

HDB Home Value Will Not Go Down

After contemplating on the option to buy a 2nd property or invest in real estate investment trust (REITs), I have more or less come to a conclusion that investing in REITs is perhaps the more viable option for me now. And that is the reason that I bought some AIMSAMP REITs into my portfolio recently.

I was also heartened to read the news today where Minister Mentor Lee Kuan Yew opined that since 85% of Singaporeans lived in HDB flats, the government would strive to make HDB homes the most valuable possession they own. In his words:

"85% of Singaporeans are living in HDB flats and we intend to keep the values of these homes up. It will never go down."

This was spoken as the MP for Tanjong Pagar GRC announced the 5 year master plan for Tanjong Pagar which includes upgrading programmes. Since I live in a HDB flat, I am glad that the government is committed to making the value of my home rise. In fact, I am glad that I am an owner of a HDB flat as I have witnessed the value of my home increase significantly over the years.

Buy a 2nd Property or Buy REITs?

Should one buy a 2nd property or invest in Real Estate Investment Trusts? I have been thinking about this for sometime. The minimum occupation period for my HDB flat is almost up. That means that I can actually sell my flat in the open market pretty soon. At the same time, I really love the place where I am staying at now. So it is going to be a tough decision.

The remaining mortgage on the HDB flat is now $238,000. Market value based on a similar size flat sold at the opposite block is estimated at $600,000. Bought the flat for slightly over $300,000. Currently monthly mortgage loan is $1096. Right now, I have been thinking about the following few options. Family's gross monthly income is around $5600 (really average!).

Option 1 - Sell the HDB and Buy a Private Property

This will mean selling the HDB flat, giving it up and buying a new private property. It is going to be difficult as I will have to buy a private property that is less than $1mil I guess. If I can only take 35% loan based on family's gross monthly salary, that means the maximum monthly mortgage loan that we afford is around $1900+. As we are still paying for the car we bought, it probably means that we can only afford a mortgage loan of around $1,400. I don't think the banks will be willing to land us to much. I figure that means we can only borrow around $350k (pls correct me if I am wrong). Selling the HDB and buying a private property also means that this does not count as my 2nd property and I am not obligated to set aside the 50% minimum sum in both my wife's and my CPF account. We can probably use the gains from selling the HDB to pay for the private property.

End of the day: I am probably saddled with more debt but have effectively upgraded to a more expensive property. There will be less money to spend as I have to pay more each month for mortgage.

Option 2 - Keep HDB flat, Buy a Private Property to rent out.

This is option 2 which I have been thinking about and which I am leaning towards. But it seems almost impossible to do this. This is because of the following reasons:

1. No money in CPF-OA to pay for it. Will have to use all cash to pay for the downpayment. Even if all assets (stocks + bank accounts) are liquidated, I figure that we only have slightly over $220k. Not too sure how much the bank will actually lend us for the 2nd property but I guess it is around 60-70%.

2. Will also have to rely on cash to pay for the monthly mortgage. That is impossible considering that existing HDB loan is already $1096. It means I can only get around $800 per month more in mortgage loan. Will also have to repay off the car loan so that I can borrow the $800 per month more in mortgage loan for the 2nd property. That leaves very little options for me as I won't be able to find such a cheap property that only costs $800 per month!

Option 3 - Keep HDB and Buy REITs.

REITs are easily liquidated. I also collect dividends. This seems to be a very feasible option with little downside.

Option 4 - Sell HDB and Buy 2 Pte Property

Lately, I came across this strategy which advised to sell 1 property and buy 2 properties. In this manner, you can rent out 1 and stay in the other. Not too sure whether this strategy will work at all cos it will probably mean that I have to buy 2 really small pte property.

Wise folks out there. Any advice on all the options???

Paying Housing Installments With CPF

I visited one of the branches of HDB's office today to start paying a greater percentage of my housing installments using my CPF monies instead of using cash.

I have been paying close to $500 cash with the rest of the housing installments paid by my CPF. However, I decided to use more of my CPF monies to pay for my housing installment so that the amount of cash that I will pay is really nominal now (less than $100). This should free up some cash and provide a little more flexibility for me.

I was surprised at how efficient and how fast the service was. I spent less than 15 minutes there to settle everything even though it was a Saturday morning where one would expect things to be working a little slower.

So now I am paying $1000 per month from my CPF monies for my HDB flat. I don't think I will have much CPF money for the next few years.

For those of you who are unacquainted with Singapore and acronyms like HDB and CPF here is a brief explanation:

1. HDB - Housing Development Board. One of the first few statutory boards established by the Government under the Ministry of National Development to take care of the housing needs of Singaporeans. The high rise apartments or flats that are built by HDB are called HDB flats. Most Singaporeans (around 80%) live in these HDB flats which vary in shapes and sizes, and are distributed across various town centres in Singapore.

2. CPF - Central Provident Fund. Another stat board formed. CPF is a social security savings plan for Singaporean's retirement. Over the years, it has been expanded to allow Singaporeans to purchase their HDB flats and pay for medical bills too. When people refer to CPF in Singapore, they commonly refer to their CPF monies which are kept in this account.

Generate Income from Your Property

A few days ago, I wrote about HDB's Lease Buyback Scheme. I was just exploring the various options that might be available to people for generating income from their biggest asset: Their Homes or HDB flats.

I have been thinking about it for some days and I do feel that the Lease Buyback Scheme ought to be further improved if possible. For one, they should perhaps extend it to all Singaporeans to make it easier for older Singaporeans to liquidate the tail-end lease of their HDB flats. After all, not many people are ready for retirement in Singapore.

Renting Out

Another way that people can generate income from their property or HDB flat will be to rent out the entire flat or rent out certain rooms.

A person is allowed to rent out the entire flat after living in it for a certain number of years. (5 years if subsidised and 3 years if unsubsidised). Approval is required from HDB to rent out the flat. A higher property tax of 10% will be chargeable if you rent out your entire flat.

Alternatively, one can also rent out one or more rooms in your property or HDB flat with no change to the property tax payable.

Generating income from your property during your retirement years is fairly easy. However, one should realise that there are also certain risks and downsides involved:

1. Bad tenants (illegal immigrants, overstayers, people who don't pay rent, tenants who spoil your property).

2. Conflicts when living with tenants.

3. Lack of privacy.

Lease Buyback Scheme

I am not yet over 30 but I guess it will be interesting to explore certain options that are available to me when I pass the age of 62.

The Lease Buyback Scheme or LBS is a new monetisation option to help lower-income elderly flat owners unlock the value of their homes to meet their retirement needs. As it has always been reported in the news, most Singaporeans are asset rich but cash poor. After pouring in alot of their money into buying a house, they are often left with insufficient money for their retirement needs. This scheme will help them to stay on in their own flat.

Under the LBS, HDB will buy back the tail end of the flat lease from the elderly household. On top of the housing value that is unlocked, HDB will provide an additional $10,000 subsidy. Out of the total amount, $5000 will be given to the household as upfront cash. The rest of the money will be used to buy a CPF LIFE Plan to provide a monthly stream of income for life. The household will continue to stay in their flat which will be left with a 30-year lease.

Eligibility

LBS is eligible for Singapore Citizens households who:

• are living in a 3-room or smaller flat
• are at CPF draw down age (currently 62 years) or older
• have not enjoyed more than one housing subsidy in the past
• have not previously owned a 4 room or bigger flat, or private residential property
• have lived in the flat for at least 5 years
• have a monthly household income of $3000 or less
• Do not have any outstanding loan of more than $5000

So am I eligible for it when I turn 62?

Firstly, I do not live in a 3-room or smaller flat so I will obviously not be eligible for it. It seems that this scheme is targeted at the elderly now and from statistics, only 25,000 households are eligible for LBS. This households will be those that fulfill the eligibility conditions stated above.

The amount that a household gets from the LBS depends on the valuation of their homes as well as the remaining lease.

LBS is not the only option for households who meet this criteria. Other monetisation options are also available for those with HDB flats. This might include renting out the HDB flat/room, moving to a HDB Studio Apartment or moving to a smaller, cheaper HDB flat.

For many Singaporeans, a HDB flat is their main asset and it will be useful to know that there are various options to generate income from their flats to meet their retirement needs.

In summary, elderly Singaporeans basically can explore 4 different options to generate income from their flat for their retirement needs. They are:

1. Rent Out Flat/Room

2. Move to a HDB Studio Apartment

3. Move to Smaller, Cheaper HDB Flat

4. Lease Buyback Scheme