The newlywed's guide to getting your dream resale flat

Congratulations on getting her to say yes! The “fun” is just beginning. If you thought finding the right time, place and method of proposing was tough, imagine the stress you’ll both go through when you plan your wedding ceremony and fix a place for your wedding banquet. Yet, the biggest decision is yet to come, when you decide where you’re going to stay. That discussion alone might end your marriage even before it begins, especially if he’s hoping to save money by staying near his parents.

But couples in Singapore today find themselves in an interesting situation. With the property cooling measures over the past five years bearing fruit, there’s actually no better time to buy your HDB flat. Why? Because both resale flats as well as new Build-To-Order flats are almost equally affordable. We’ll explain why you newlyweds should choose a resale flat, and calculate how easy it would be to get one today.

Why choose a resale flat over a Build-To-Order (BTO) flat?

In the past, this question made little sense. The inflated Cash-Over-Valuation or COV that used to come with a resale flat overshadowed all the advantages a resale flat has over a Build-To-Order or BTO flat. COV could inflate the price of a resale flat by $100,000 or more. The worst part for buyers? You could only pay this amount in cash.

In 2014, it was reported that median COVs had dropped to zero for the first time in eight years. This meant that resale flats are once again comparable in price to BTO flats.

Here are five other reasons why a resale flat is preferable:

1. You get the keys to the flat immediately without waiting for years

Of course, when we say “immediate”, we’re talking about a process of 6 to 8 weeks. Compared to the 3 to 4 years you have to wait for a BTO flat, however, it’s like getting it in the blink of an eye. Even booking a location for your wedding banquet requires more preparation time than getting your resale flat. It also means that you won’t be pressured into making any big decisions like buying a house too early in your relationship.

2. Renovations for your flat may already have been done

Since you’re technically buying a second-hand HDB flat, you may find that the seller has already done renovations that you like and you won’t need to do too many changes before you move in. This is especially true if the previous owners have done extensive work on the kitchen. Considering how much Singaporeans spend on renovations these days, that’s a lot of savings!

3. Neighbourhood amenities are already in operation

Think of the neighbourhoods that most BTO flats tend to find themselves in, like Punggol or Tampines. The Punggol map, for example, is full of “future roads”, “proposed places of worship”, schools with a “(U/C)” tag for under construction, and LRT stations that haven’t opened yet. You’ve got to use your imagination when deciding if it’s the kind of neighbourhood you want to be living in at the start of your married life.

With a resale flat, on the other hand, the neighbourhood is already established. You know exactly what the traffic situation is like, what kind of schools are in your vicinity and whether the nearby places of worship will be relevant to your needs.

Why is this important? Because these amenities do affect the value of your property, and it is easier to guess how prices will rise in a BTO estate. Yes, prices in Jurong East will probably skyrocket due to the recent exponential growth into a bustling hub of activity, but on the other hand, Punggol has struggled for years to become a self-sufficient town.

4. Extra grant money if you buy a property near to your parents

Did you know you are eligible up to an additional $20,000 in grant money if you live near your parents? If your parents live in an HDB flat, buying a flat within the same town or within four kilometres from them qualifies you for the newly upgraded Proximity Housing Grant (as of Budget 2018).

If your parents live in a private property, then you can contact HDB to check if your resale flat is within that four kilometre radius and therefore earn you the extra $20,000. And if you’re willing to live with your parents, you can now get $30,000 in grants, thanks to the announcement at Budget 2018.

5. You are still eligible for an HDB loan or a bank loan

Whether you’re buying a BTO or a resale flat, you should be eligible for an HDB loan or a bank home loan, if necessary. Choosing between an HDB loan and a bank loan depends on your situation. If you’re the kind where buying a Singapore Sweep ticket is the most gambling risk you’ll ever take in your life, go with the HDB loan. But if you want to have more control over the kind of loan you get, consider a home loan from a bank. Compare home loan interest rates and pick a mortgage package that works for you.

Case Study:

A 4-room resale flat in the heartlands would cost about $380,000 on average, based on figures released last year. How easy would it be for a newlywed couple to afford this amount?

Arthur and Mera are both Singapore Citizens. They have just gotten married and are shopping around for a resale flat. They’ve not spent much time in their careers yet, so let’s assume their combined income is $5,000.

What grants are they eligible for?

Their combined income is less than $12,000. This allows them to qualify for the CPF Housing Grant for Families, which gives them $50,000, since they’re both Singapore Citizens. This is assuming they meet the other criteria for the grant.

If they choose to live within four kilometres of their parents, they will be eligible for a further $20,000 in grant money, bringing it up to $70,000.

Since their combined income is not more than $5,000, they are also eligible for the Additional CPF Housing Grant. This gives them another $5,000.

So their total CPF Housing Grant amount is $75,000.

Due to the grants, they would therefore only need to be able to finance about $305,000 for a 4-room resale flat.

How much can they loan?

If they go for an HDB loan, the monthly repayment is capped at 30% of their combined income. This is known as the Mortgage Servicing Ratio. For Arthur and Mera, that’s $1,500 a month. Assuming they qualify for the maximum loan tenure of 25 years, means they probably can only get a maximum HDB loan of about $330,000.

This is the also about the same amount they can probably loan from the bank. However, the amount a bank can loan depends on their TDSR. Banks might not be able to give you as much if your loan commitments are high.

How much CPF would they need?

Here’s something interesting – if they choose to go for an HDB loan, HDB will wipe out all the funds in their CPF Ordinary Account first before calculating your loan. This is because HDB doesn’t want you to borrow more than you need.

Assuming a total of $75,000 in CPF Housing Grants, Arthur and Mera would not need to have minimum amount in their CPF Ordinary Account to qualify for the HDB loan if they don’t want to pay in cash. However, whatever is in their CPF Ordinary Account will still be wiped out to reduce the amount of the HDB loan.

If they go for a bank loan, they would need to cough up at least 20% of the purchase price as a downpayment. 5% of it must be in cash, so that’s $19,000. The remaining $57,000 can come from the CPF Housing Grants. Note that regardless of how much they get in CPF Housing Grants, they still need to pay 5% of the purchase price in cash.