The commitment to buy a home is probably one of the largest, if not the largest, financial commitment in your lifetime.
You want to make sure that you make all the right moves in getting a home.
You do not want to be regretting about choices you make back when you were in your 20s or 30s.
Among the options of getting a home, getting a resale flat is one option that is popular among those who want to stay near their parents and/or want to avoid the waiting time of a Build-To-Order (BTO).
To guide those who are interested in getting their own home via the resale flat route, here are some considerations, regulations, and grants to consider.
1. Are you eligible to get a resale flat?
The first thing to consider is whether you and your spouse are eligible for a resale flat. Every Singaporean/PR couple is only allowed to own one HDB flat under your name. Thus, if you currently own an HDB flat (be it resale or BTO), you will not be eligible to buy another one.
On top of that, if you already own a private or overseas property, you will also not be eligible. The only way to be eligible is to sell your current property within 6 months of the resale flat purchase, be it whether you currently own an HDB, private or overseas property.
Estate specific eligibility – Ethnic integration policy (EIP), Singapore Permanent Resident (SPR) quota
Apart from your general eligibility, you also need to check for estate specific eligibility.
The Ethnic Integration Policy (EIP) mandates that every estate/block needs to fulfill a balanced mix of the various ethnic communities, i.e. Chinese, Malay, Indian and Eurasian.
According to HDB, this is to preserve Singapore’s multi-cultural identity and promote racial integration and harmony. If the EIP isn’t fulfilled after you purchase your resale flat, then you will not be allowed to buy the flat in the first place.
For the Singapore Permanent Resident (SPR) quota, it applies to Non-Malaysian PR households. For each estate, there is an SPR quota of 5%. Within each block, there is also an SPR quota of 8%. If either SPR quota criterion isn’t met, you will not be able to buy the flat as well.
2. Debating between waiting time and cost
The greatest debate about getting a resale flat is whether the reduced waiting time is justified by the cost. In order to get a resale flat, you will need to pay 20-30% more than a BTO.
Instead of having to wait 3-5 years for a BTO, you will get your keys to the resale flat in about 6-8 weeks. This allows you to have much more time to make a decision about buying a resale flat with your spouse-to-be without being pressured into buying a house too early in your relationship.
Furthermore, renovation might already have been done for you by the previous owner. You don’t even need to spend time waiting for your renovation to be completed.
3. Choosing your desired resale flat
Making the choice of your desired resale flat isn’t like shopping on Taobao or Amazon. Not only do you have to make sure the resale flat is of the utmost quality, you also need to make price comparisons to ensure you get the best value.
To compare prices, there are a few sources you can refer to. The Resale Flat Prices e-Service is one of them. It allows you to reference the past transaction prices of HDB flats over the past 2 years, according to the flat area and flat type. This allows you to shortlist areas that are within your budget. It also helps you to ensure that you aren’t overpaying for your flat compared to similar flats in the same area.
4. Housing grants for resale flat
The Singapore government wants to help every Singaporean fulfill the dream of owning our own home. Thus, a number of grants were introduced to help make public housing more affordable.
If you and your spouse are both first-time homeowners, you will be eligible for the family grant. For 4-room or smaller resale flats, you will be able to get S$50,000 from the family grant.
For resale flats larger than 4-room, S$40,000 will be the amount of grant you will receive from HDB. The grant amount will be directly deducted from the seller’s selling price. Your home loan will reflect the amount after deducting the grant.
Additional CPF housing grant
To help families with lower income, HDB also introduced the additional CPF housing grant. The amount of grant from the additional CPF housing grant is dependent on the combined income level of your family. In order to qualify for this grant, you need to be employed for at least 12 consecutive months before the flat application. You must also be gainfully employed during your application. Unlike the CPF housing grant, there is an income ceiling where your total monthly household income cannot exceed S$5,000.
Proximity housing grant
As Singapore’s population ages, more care will be needed for the elderly. To encourage families to live closer to each other, the proximity housing grant was introduced to help you afford resale flats that are near your parents.
In Budget 2018’s announcement, proximity housing grant will be available if you purchase a resale flat within 4km of your parents’ place. It will also be extended to you if you will be living with your parents in the resale flat.
For extended families going to live together, you will be able to get S$30,000 in the grant from the proximity housing grant.
For singles looking to buy a resale flat with your parents, you will be eligible for S$15,000 in proximity housing grant.
5. Negotiating a price for your resale flat: Cash overvaluation
For every HDB flat, there will be an official valuation to determine what is a reasonable price to pay for the resale flat. The price is dependent on the current market and condition of the home. However, if a seller decides to sell above the valuation, it means that there will be a cash overvaluation.
For example, if the official valuation of a 5-room flat in Queenstown is S$600,000 and the owner decides to sell it at S$650,000, there is a cash overvaluation of S$50,000. Since HDB home loan or a bank home loan will only lend you based on the official valuation (i.e. S$600,000), you will need to pay the S$50,000 in cash.
6. Agreeing to an option to purchase
Once you have successfully negotiated (read: bargained) a price with the owner, he/she will then offer you an OTP. (P.S. An OTP is an option to purchase, not a one-time password.) There is a standard OTP contract for resale of HDB flat that can be downloaded from here. In the OTP contract, you will state the following key details:
- Option date
- Flat address
- Purchase price (Resale price of the flat)
- Option fee
- Option expiry date (21 calendar days from the option date)
- Names and NRIC numbers of all the sellers and buyers
In order to secure an OTP, you will need to pay the seller an option fee, which can range between S$1 and S$1,000. The option fee amount is an agreement between you and the seller. Once you’ve paid the option fee, the seller is not allowed to give someone else an OTP until yours expires according to your option expiry date that is stated in your OTP contract, e.g. in 21 days’ time.
If you decide to forgo your option to buy, the seller will confiscate you option fee after the option expiry date passes. He/she will also be able to sell the flat to someone else after the option expiry date.
7. Property agent fees you need to take into consideration
While there are no regulations to guide how much you have to pay as commission to your property agent, it is a common practice to pay 1-2% of the final transaction price of the resale flat. In addition, you will need to pay an additional 7% for the commission for the GST component.