What Is Cash Over Valuation in HDB (COV)
TLDR Cash Over Valuation (COV) in HDB resale flats occurs when the purchase price exceeds HDB's valuation. COV cannot be...
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TLDR
Homeowners may downsize from private properties to HDB flats for various reasons, such as financial benefits and lower maintenance costs. Downsizing can be challenging, with common pitfalls including not arranging short-term housing and misunderstanding loan and grant eligibility. Temporary accommodation options include renting, co-living, or staying with relatives. Private property owners must wait 15 months before buying an HDB resale flat and may face stricter loan requirements. Understanding the rules around CPF housing grants and HDB loans is crucial for a smooth transition. Strategic planning and informed decisions are key to navigating the property market effectively.
There’s no place like home, but sometimes homeowners want to downsize and reevaluate their living arrangements. From executive condos to landed properties, there are countless motivations behind the decision to trade in for an HDB flat.
Perhaps the kids have flown the coop, leaving behind a spacious yet unnecessary abode, or maybe those fancy condo amenities are no longer worth the hefty monthly fees. And let’s be real, who wants to pay for a swimming pool they haven’t dipped their toes in for years?
But fear not, for downsizing also brings its own set of advantages. For instance, Singaporeans residing in a property with an annual value of S$21,000 or less are eligible for GST vouchers. (And let’s face it, the majority of private properties boast a value much higher than that).
Yet, the transition from a posh property to a humble HDB flat can be daunting. To ensure a smoother process, it’s important to avoid some common mistakes. So before you start packing, take note of these blunders to steer clear of any moving madness.
1. Refusing To Set Up A Short-Term Place To Stay
Prior to the implementation of cooling measures in September 2022, this was the norm for those seeking to purchase directly from HDB.
In order to be eligible for such a transaction, one would need to first sell off any local or overseas private properties they owned. Only then could they embark on the journey of acquiring a flat through the Build-to-Order (BTO), Sale of Balance Flats (SBF), or open booking options provided by HDB.
Of course, this also meant enduring a lengthy waiting period, where one would have to sell their existing property 30 months before even being able to ballot for a BTO flat. And if luck was not on their side, it could take an additional four to five years before they could finally move into their new home.
Thankfully, those opting for the SBF or open booking route may have the opportunity to snag a completed flat and skip the long wait.
(However, if one had their sights set on a short-lease 2-room Flexi flat or Community Care Apartment from HDB, the 30-month wait rule did not apply. In this case, they could sell their private property within six months of receiving the keys to their new home.)
Regardless of the route taken, the time bar meant that temporary accommodation was inevitable. Whether it be renting or staying with family, one would have to find a temporary living arrangement while their property was being sold and their new home was being prepared.
For those moving from private property, many opt to purchase an HDB resale flat to avoid the hassle of moving twice. They could sell their property and then immediately move into their new home without the added stress of temporary accommodation and renovations.
However, the winds of change blew in with the September 2022 cooling measures, altering the game plan for private property owners looking to purchase an HDB resale flat. The new measure required a 15-month wait, forcing them to sell their property first and find temporary accommodation in the meantime.
(Do note that this measure does not apply to those aged 54 and above who are downgrading to a 4-room flat or smaller. It is also a temporary measure put in place to regulate the demand for HDB resale flats.)
If you find yourself subject to the 15-month wait and are not willing to wait for the measure to be lifted, here are a few temporary accommodation options to consider.
Temporary Housing Options to Explore
Rent
When embarking on a new chapter in life, renting often takes the top spot as the initial choice. It’s a wise decision for those on the move, providing an opportunity to acclimate to the new environment while searching for a permanent abode.
However, with rental prices soaring to unprecedented levels, it’s crucial to do your due diligence before putting your current home on the market.
Take a moment to research the going rate for rentals in your desired locale and property style. Knowing your budget and being prepared to pay for your ideal rental is key.
Co-Living
Explore the option of co-living as an alternative to traditional rentals and revel in the perks of utmost flexibility. Unlike the customary one or two-year leases, co-living grants you the liberty of a minimum three-month stay. Embrace the convenience of hassle-free living with fully-furnished units and inclusive utilities.
Move In With Your Parents/ Child
While the most economical option may be to live with your relatives, the feasibility of this choice ultimately hinges on your familial dynamics and the availability of sufficient space within their abode.
2. If You Just Need To Meet The Total Debt Servicing Ratio (TDSR) Requirement
For those dreaming of a new home and seeking a housing loan, be prepared for stricter requirements when purchasing an HDB flat. Private property may offer more flexibility, but with a 55% TDSR limit, your total monthly debts must not exceed 55% of your household income. This includes not just your housing loan, but also car loans, personal loans, and credit card debts.
However, if your only loan is for the home, you can comfortably allocate 55% of your monthly income to the housing loan, potentially increasing your borrowing power.
On the other hand, if you’re eyeing an HDB flat, be mindful of the 30% MSR restriction. This means your monthly instalment cannot exceed 30% of your household income, resulting in a lower loan amount. But don’t let that dampen your spirits, as owning a cozy HDB flat is just as rewarding.
3. Purchasing The Hdb Resale Flat Shortly After The 15-Month Period
Listen to me carefully, for this is a crucial mistake that may impact your chances of obtaining CPF housing grants and HDB loans. If you have your sights set on these, brace yourself for a 15-month wait before you can purchase a resale HDB flat with the added benefits of these grants and loans.
The Only Housing Grant Available Is The PHG, As Other CPF Housing Grants Are Not Accessible
One of the greatest perks of purchasing an HDB resale flat is the opportunity to receive up to S$160k in grants if it’s your first foray into subsidized housing. These grants include the coveted Family Grant, Enhanced CPF Housing Grant (EHG), and Proximity Housing Grant (PHG).
However, if you’re transitioning from a swanky private property to an HDB resale flat, you’ll have to exercise patience for 30 long months before indulging in the Family Grant and EHG.
Thankfully, there’s no time limit for the generous Proximity Housing Grant. So, if you haven’t been blessed with it before and your new humble abode happens to be within a 4km radius of your beloved child or parents, brace yourself for a delightful S$20,000 from this grant.
It Is Not Possible To Apply For The HDB Housing Loan
Singaporeans have the privilege of securing up to two housing loans from HDB, and currently, the HDB concessionary loan holds a higher appeal compared to bank loans. This is due to its alluring interest rate, which is tied to 0.1% above the prevailing CPF OA rate (which currently stands at 2.5%). In this prevailing era of high interest rates, a mere 2.6% may seem negligible, but in reality, it is remarkably low, especially when contrasted with the 4.5% fixed home loan rates that banks are imposing these days.
However, similar to the eligibility for CPF housing grants, individuals who own private properties can only avail the HDB loan if they purchase an HDB flat 30 months after divesting their private property. While it is uncertain whether interest rates will plummet in the next couple of years, which may make bank loans more enticing, it is always advantageous to have another alternative apart from relying solely on bank loans. This is particularly advantageous for those who prefer consistent monthly payments without fluctuations.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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