Applying for a HDB loan – Do it early

If you’ve been waiting for ages to qualify and apply for a HDB flat, the housing development board has advised against last minute loan applications.

Not only does the process help you get a firm grip on your finances, it also helps give you a better idea of how to plan for the future. A HDB loan eligibility letter will tell you how much you are able to loan from the Housing Development Board (HDB) should that option be your mortgage financier of choice. Some buyers may opt for a bank loan instead.


Photo credit: HDB

But if you’re buying a BTO flat directly from HDB, they will require a HDB loan eligibility letter when booking a flat. This is to prevent buyers finding themselves in a bind, unable to acquire sufficient loans after they have already booked a flat. Previously, they were only required to have the HDB loan eligibility letter when signing the Agreement for Lease which could be a number of months after booking a flat.

Though this may not affect those looking to purchase a resale HDB flat, some buyers who may original be considering a BTO flat may change tracks and also consider resale options should they qualify for a higher loan quantum. Will this then be a boost for the resale HDB flat market?

The latest BTO launch in February consists of flats, including larger 3Gen (3-generation) flats, in non-mature estates such as Bukit Batok, Housing and also the mature estates of Geylang. The new McPherson Spring flats in Geylang are situated near the MacPherson MRT station and may be the first to be booked up. For singles who are now able to purchase 2-room BTO flats directly from HDB, those in Housing may be hot property. Applications will close on Tuesday and it may be some time before the next launch in May.

2015’s HDB resale property market

Following the hash of cooling measures implemented and enforced over the last couple of years, prices of resale HDB flats have been on the decline since 2014. The dip may continue this year, and into 2016 but at a manageable rate. A fall of 5 to 8 per cent is expected this year, similar to the last.

Sembawang Breeze HDB

Photo credit: HDB

A look back at the past decade will see a huge and quick rise of resale flat prices since 2006. Some flats were even looking at a 95 per cent rise in prices. Much of the price rise was effected by the COV (cash-over-valuation) system. Since its removal last year, prices have began to fall, though very slightly.

What are the factors leading to this fall in HDB resale flat prices?

  1. A increased supply of BTO (build-to-order) flats
  2. Lowered MSR (mortgage servicing ratio) with a loan tenure period limit of 25 years (down from the previous 30 years)
  3. Allowing singles to apply for 2-room HDB flats directly from HDB instead of on the resale market
  4. Making it easier for second-timers to purchase directly from HDB
  5. A 3-year waiting period for Singapore Permanent Residents (PRs) before they are allowed to purchase HDB flats

Sellers and buyers may have taken 2014 to get used to the new measures and the price adjustments certainly showed as such. But 2015 could be the year where buyers come back into the market as prices become more palatable, and transaction volumes may be boosted by HDB’s scaled-down BTO supply.

For sellers, the dip may not be such a bad thing, yet. The price decline is fairly gentle and with the current prices, they will hardly make a loss, just not as much of a gain as before. It could be a win-win situation for all if the timing is right.

Housing supply to slow down in 2015

The authorities have announced that public housing supply and land sales will slow down come 2015 as the market has showed signs of cooling and stablising after the many rounds of property cooling measures rolled out over the past year or two.

West Terra HDB Bukit BatokPhoto Credit: HDB

The Minister for National Development, Mr Khaw Boon Wan, has commented in a blog post that the supply of new HDB flats will slow by 25 per cent next year. There will only be 4 launches next year, compared to the usual 6 per year. Each launch usually puts out up to 4,000 new Build-to-order (BTO) flats. The rate of successful BTO flat applications has been on the rise as reflected in the few recent launches. More married couples achieve success in getting their new flats, and the authorities have been allowances for couples either opting to apply for a flat with their parents, or for one near their parents. In addition, parents who opt to apply for a flat in a non-mature estate to be near their married children, will also receive priority.

The slight shift in policies may ensure that families remain close-knit and are able to receive help when needed. It may also help with a shift in aging mature estates and introduce a more age-balanced population per HDB estate. Mr Khaw Boon Wan also hopes that the move will help newlyweds plan for a family more efficiently and in turn increase Singapore’s population with a higher birth rate.

In the private property sector, the number of land plots being sold for executive condominiums and private apartments has already been reduced this year, though the industry might see a further reduction come 2015. But will this mean a decline in the building, construction and property industries? Or has the previous land sales and launches been sufficient to keep the industry going for the next few years? Which part of the cycle is the property sector in at the moment and are we set for a boom or lull in the next year?

What does Q1′s slow private property growth rate indicate?

A cooling real estate market? Perhaps. But not by much. Of course, we do have to give the cooling measures time to work. But if we go by the response from the previous rounds, it may not do much. Although the pace has weakened somewhat, a 0.5 per cent growth as compared to the 1.8 per cent jump in the last quarter, private home prices still reached a record high.

QBay Residences

QBay Residences

Private non-landed suburban homes alone showed a 1.7 per cent rise, still a rise, but well lesser than the previous quarter’s 3.8 per cent. Property analysts are expecting further effect from the cooling measures to kick in this year, maintaining home prices at the current levels.

In the HDB flat market, resale flats may expect a fall in demand as singles will be allowed to purchase new Build-to-Order (BTO) flats directly from the Housing Board come July. The bumper crop of new flats being rolled out within the first 3 months of 2013 alone has also taken away the need to purchase from within the resale market. The quota plus the lowering of home loans to 30 per cent of a borrower’s gross monthly pay, 40 per cent if receiving a HDB home loan, has also taken some wind out of the sails. PropNex cheif executive Mohamed Ismail is however still expecting a rise in resale HDB flat prices, of between 4 to 5 per cent.

The Singapore Real Estate Exchange has reported a fall of HDB resale transactions from 4, 635 in Q4 of 2012 to 3, 028 in Q1 of 2013. The median COV prices have dropped by very slightly, from $34, 000 to $33, 000. This may not be quite the comfort buyers are hoping for, especially since resale prices have risen to an average of $457,000.

This could be the time to suss out potential long-term investments in the private property market as many developers are dangling carrots in the form of discounts, rebates and other incentives in order to secure more sales. Recent launches at D’Nest and Urban Vista have also boosted sales. The authorities seem more determined this year than ever to help tame the roaring property lion, but they will need to give property curbs some time to take effect before deciding their next move.

Families benefit from new priority scheme

Before, it’s not often unheard of young couples having to wait years before getting the keys to their new flat. Some even have to wait to get a HDB flat, and then wait some more to live in their selected flat. But now, with a new priority scheme aimed at helping young families with children, the waiting time may be considerably shortened.

HDB's January BTO sales launch. Photo of Keat Hong Colours BTO Flats by HDB.

HDB’s January BTO sales launch. Photo of Keat Hong Colours BTO Flats by HDB.

And more are taking advantage of this, it seems. Up to the full 30 per cent of HDB flats allocated for them in January’s Biuld-to-Order (BTO) sales launch were taken up by applicants who qualify. This means, out of all the young families with children who applied for a flat, almost all will receive one. Named the Parenthood Priority Scheme, it was introduced early this year as part of the government’s push for marriage and parenthood. The scheme stipulates that up to 30 per cent of each HDB BTO launch will be set aside for married couples with children under the age of 16. It is aimed at helping couples set up families more quickly.

Success, however, is limited to the non-mature HDB estates such as Choa Chu Kang, Hougang and Yishun. Mature estates of Ang Mo Kio, Kallang/Whampoa and Tampines saw married applicants with kids applying for almost 80 per cent of the number of flats available. Understandably, mature estates are more popular with HDB flat applicants, regardless of category. These areas often already have established schools, amenities and means of transport, plus applicants may be applying for such areas in order to live nearer to their parents.

Flat allocation under HDB's Parenthood Priority Scheme. Photo by HDB.

Flat allocation under HDB’s Parenthood Priority Scheme. Photo by HDB.

Many applicants are hoping that this new scheme will increase their chances of successfully balloting for a flat, since quite a number have been waiting endlessly for one. For the rest of the applicants, it may be good news that HDB is planning to launch a ‘balance flats’ sale sometime later in the year and it may the lucky year of the snake for some.

HDB flat prices – New versus Resale

Do prices of BTO HDB flats rise in parallel to resale units? No, says the Singapore Government.

In line with their aim to keep new flat prices affordable for first-time buyers, National Development Minister, Khaw Boon Wan, has emphasized that BTO flat prices are in no way linked to the market prices of resale HDB flats.

Tampines Court BTO HDB flats, part of HDB's latest January 2013 launch. Photo by HDB.

Tampines Court BTO HDB flats, part of HDB’s latest January 2013 launch. Photo by HDB.

Addressing concerns that BTO prices may be dancing hand-in-hand with resale HDB flats, which have been on the rise for the past few quarters, Mr. Khaw promises to provide abundant and affordable housing to match the projected 6.9 million population of 2030. He says that as long as ‘property remains hot’, the new pricing policy of de-linking BTO flats to resale HDB flats will continue. It looks like this policy may have to stay for quite some time yet, as market feedback shows that prices are still going strong and have barely shown signs of letting up.
Industry players are not expecting the new HDB flats to take too much away from the resale flat market. SLP International’s head of research Nicholas Mak says that low prices of new flats may ‘effectively slow down the resale market but will not stop or reverse rising trends yet’.  However, Mr. Khaw did mention that although BTO prices will be priced differently from resale flats, there will be differences within its own category. He says HDB will not be pricing its new flats ‘haphazardly’ but instead, buyers can expect prices of BTO flats in mature estates to be up to 40 per cent more than those in outlying suburbs.

This keeping of prices low does come at a price. Taxpayers are essentially paying for the gap between new flats and resale flats. Because HDB purchases land from SLA (the Singapore Land Authority), land prices are based on the prices of resale flats in the vicinity, thus if resale flat prices are rising, land is more expensive, but if new flat prices are still kept low, the amount difference is made up by government subsidies, which indirectly comes from the taxpayers’ coffers.

HDB Door-and-sanitary packages – Are they worth your money?

New BTO flats are being built more quickly, as promised by the authorities, but do you know what you are paying for? Under the HDB Optional Component Scheme (OCS), since last month home owners can choose to have HDB’s list of contractors install extra finishes such as flooring, internal doors and sanitary finishings such as wash basins, taps and shower mixers.

Clementi Ridges new BTO flats launched in March this year. Photo by HDB.

But at an average of $3, 000 for their doors-only package, it seems many are realising that the package could be even more expensive than having an external contractor who charges from $200 to $330 per door. Some home owners think that the packages are overpriced, but others find the convenience offered a viable option. Instead of having to watch over the contractors themselves, the standard-priced package which HDB offers takes care of the basics for them and they have their flat ready to move into more quickly. It also gives home owners who are unable to pay contractor fees upfront, an option of paying for the fittings through their CPF fund or mortgage loans.

According to a HDB spokesperson, all fittings are installed by professional contractors and supervised by HDB’s consultants. The fittings are also covered under the one-year Defects Liability Period.

How to Know You Are Ready to Buy A HDB BTO Flat

Are you and your partner planning to apply for a HDB BTO (Build-To-Order) flat this year? If so, you are not alone – for many Singaporeans, a BTO flat is their number one choice of first home, mostly due to its lower price tag as compared to homes on the open market, as well as the various grants and subsidized pricing offered. However, as a first-time homebuyer, you may find that applying for and selecting a new HDB flat can be an intimidating experience. Below are some helpful tips to help you successfully select the right BTO HDB flat and come out a winner.

HDB Flat Launch. Image courtesy of HDB.

Understand latest HDB Policies & Developments

For those who have not been actively following local property news, it is very important that you start now.  Recent policy changes such as the extension of the MOP (minimum occupancy period) from 3 to 5 years may have significant implications on your decision to apply for a BTO flat. Also remember that the loan term for HDB flats can be significantly shorter than that for private properties: private banks can offer loan terms of up to 40 years, while the HDB concessionary loan is only available for 65 years minus the buyer’s age or 30 years, whichever is shorter. Also, although you may not be thinking of buying a 2nd residential property now, do bear in mind that HDB flats cannot be used for getting a 2nd mortgage to leverage or “cash-out” for financing another property purchase – unlike private homes.

Timing Your Application for A BTO Flat

If after considering all the factors involved with buying a BTO flat, and you still decide to go ahead and apply, bear in mind one of the most critical factors: your timing. To give some background, prior to around May 2011, HDB would usually release smaller batches of BTO units on a monthly basis, a process which would result in a frantic rush where everyone would apply for the next consecutive month’s BTO release, without even knowing if they had been successful in the previous exercise. The good news HDB has since revised the system to put up flats in bigger, less frequent releases, meaning that the applicant to flat ratio has been much improved. This is good to know of course, but how can you use this to your advantage?

Maximizing Your Chances of Getting a Good ‘Q’ Number

While luck certainly matters, there are steps you can take to maximize your odds of getting the best queue number. Although the tangible cost of submitting a BTO application is only S$10, and HDB does not limit the number of BTO exercises you can participate in, the larger, less implicit cost lies in how multiple applications will be used “against” you. In a move to discourage buyers from being “picky”, HDB has programmed its balloting system to place applicants who have rejected an invitation to select a flat more than twice at the back of the queue. Because of this, it may not be advisable to apply for a neighborhood which has been oversubscribed over 10 times for a popular release, as your chances of being able to get a good queue number are very small.  You might be better off applying for another neighborhood to increase your odds of getting a better queue number instead.  Bear in mind that HDB’s offer to you to select a 2nd floor, rubbish-dump facing unit also counts as an invitation, making it even more important you use your application chances wisely.

Use the Tools at Your Disposal

HDB InfoWeb. Image courtesy of HDB.

With over 25,000 BTO flats slated to be released in 2012, make sure you don’t miss out on any of them by signing up for HDB alerts on the HDB website. HDB will send you an SMS or email prior to the release of a new BTO launch, when full details of the units, including indicative pricing, are available.  Keeping abreast of latest releases is even more critical now that the time frame for submitting your application online has been reduced to one week. Many have missed the deadline for a BTO launch by not keeping track of when applications close – make sure you are not one of them.

Your Patience Will Be Rewarded

In your desire to quickly ‘secure’ a new home for you and your partner, the urge to quickly apply for every BTO exercise there is can be overwhelming. However, do bear in mind your goal is to maximize your chances of getting a good flat, not just any flat – which means it pays to wait for the right launch at the right time. In particular, those eyeing popular areas such as Clementi and Bedok might want to wait for new flats in these areas to be released rather than simply applying for every launch and being invited to select a flat for an area you don’t actually want.

The SBF (Sale of Balance Flats) Exercise (Or HDB’s Special “Bonus” Exercise)

Kim Tian Green, Sep 2011 SBF Exercise. Image courtesy of HDB.

For those with a little more patience (and time on their side), it may be well worth your while to wait for the announcement of the SBF exercise. This may be conducted on an annual basis, but really depends on the number of ‘surplus’ flats HDB has built up in its reserve. The key benefit of the SBF exercise is the absence of the 2-3 year construction period, as SBF flats are typically already completed or near completion. The September 2011 SBF exercise was a good example of how good things come to those to wait: units in highly sought-after areas such as Queenstown and Tiong Bahru were released to 1st-timers, who were able to collect their keys to these completed units within 6 months after applying. With the hot competition for SBF completed flats, it becomes even more apparent why it is important that you ‘conserve’ your chances so you can use them at a time when it really matters.

Keeping An Eye on the Competition

Once you have decided you are interested in a particular launch, watch the live updates on the HDB InfoWEB website like a hawk once HDB starts accepting applications. Do not submit your own application yet. Why? Very simple: By identifying the neighborhoods which have the least number of applicants, you maximize your chances of getting a good queue number. Checking the number of applications versus the number of units available on the day before applications close will give you a good idea of what your likelihood of drawing a good queue number is, and help you decide if you should use one of your precious first-timer ‘chances’ during this particular launch.

Scoping Out the Site

Buying a property off-plan, while having the benefit of ensuring you get a brand-new unit, does mean that the buyer has to do additional due diligence because they will not have the benefit of inspecting the actual unit. For example, you will have to rely on materials such as floor plans and the SLA (Singapore Land Authority) announced plans for the next several years to figure out if a 40-storey high-rise will be built on the plot directly in front of a BTO site, or if an MRT or Chinese temple will be constructed near-by. Tip: going over to the nearly existing blocks in the neighborhood and taking the lift up to the highest floors will give you an idea of the view the new flats will have when they are finally constructed.

Choosing Your Unit: Balance Out Your Must-Haves vs. Nice-to- Have

So you have submitted your BTO application – and lucky you – have received a good queue number. What to do next? Before breaking out the champagne to celebrate, bear in mind that your work has just started at this point. Preparing for your selection date involves doing your homework by understanding the features on the different units offered, including potential negatives such as the amount of afternoon sun the bedrooms will face as well as the extent of street noise that will travel up. While going over the pricing list, if the main reason for your preference for a unit on a high floor is for the view, bear in mind that you may be able to choose a unit on the 20th floor vs. one on the 40th floor and yet still be able to enjoy the view you desire. As HDB charges a substantial incremental for higher floors, the money you save may be better used toward other expenses such as paying for your granite kitchen countertops or customized floor-to-ceiling shoe cabinets -  or any ‘what-ifs’ that may come up during the 30 years you will be financing your flat for.

What To Do on Selection Day

As there may be around 8-10 couples selecting their flat that day, be mentally prepared for the possibility that your choice flat may already be taken up by the time you get to the front of the queue. To mitigate the anxiousness you will feel when sitting in front of HDB sales officers and not knowing which remaining unit to select, make sure you show up early for your selection appointment slot, and more importantly, fall in love with 15 units instead of just one or two beforehand. Also bring detailed reference information and photos of each site you’re interested in to avoid panic because the units you had your eye on are all already taken up.

Do you have other tips for first-time BTO flat buyers? We encourage and welcome any tips you may have to add in the “comments” section below.