Buying HDB, DIY (I)

Currently we are waiting for the completion for our HDB purchase. The expected date is June 21st. I have always wanted to share the whole process as (1) I figure it will be helpful for those who want to buy HDB later and (2) I really enjoy the buying process haha (not the bank-robbing part, though). So, here is how to buy HDB, do it yourself. But first, some thoughts about HDB and Singapore economy and politics, as they are inevitably inter-related.

Warm-up: HDB, the Economy, and Politics

First, let us assume that you are eligible to buy HDB from the open market. Looking at the demographics of the readers of this blog, it means probably you are a Singapore PR who will be married soon to another Singapore PR. So, what you can buy is the resale HDB. (I am pretty sure that the government won’t scrap PR’s eligibility, as it will drastically reduce the potential buyers pool.) Next, let us also assume that you can’t afford to buy from the private property market (like me :-)).

For a start, you should consider whether you will be staying here long enough. The minimum occupancy period (MOP) now is 5 years before you could rent out or sell your house. If you think you will still be in Singapore for another 5 years, then it would be reasonable to purchase a house. The cost of renting a whole unit after you are married is just too expensive, unless of course you don’t mind sharing the unit with other friends. For example, the rental fee of a 3-room flat in Queenstown district (see all the districts/townships here) now is around $1,800-2,000/month, while our mortgage installment is around $800/month (which can be fully paid from your CPF Ordinary Account some more; +$150/month for home insurance, property tax, town council fee). So, the difference might be more than $1,000/month. It is different with the situation in Jakarta, where the cost to rent a house is lower than the mortgage installment. In that kind of situation, it makes financial sense to rent a house first while saving to buy a house. You can’t do that here, again, unless you are willing share the unit with someone else. But then some will think that the loss of privacy (if you look it that way, as some would argue that staying together is actually more fun) is more costly than the financial benefits gained by sharing the unit. So it will come to personal preference regarding this matter. We prefer having the whole unit for ourselves and we think we will still be staying in Singapore for another 5 years, so buying HDB is our best option.

Nevertheless, the cost of buying HDB has sky-rocketed recently to infinity and beyond. What also hurts is the change of rule regarding the down payment. Before February 2010, the initial payment was 10% of valuation price + any cash over valuation (COV), but afterwards it is 20% of valuation price + COV. For example, the valuation price of our unit is $335,000 and the COV is $30,000. So, under the old rule, the down payment is $33,500 + $30,000 = $63,500, but now it is $67,000 + $30,000 = $97,000. (There are other costs aside from this, more on those on the next posts.) The 20% of valuation price can be paid partly (at most 15%) by CPF, so it helps, but still there is this additional cost of $33,500 (not a small amount, surely) which you need to pay upfront if compared to the old rule. Looking from the government’s perspective, the new rule does make sense. It’s one of the various measures to cool down the overheated market, aside from other measures like ramping up the BTO supply and increasing the MOP (from 3 years to 5 years). HDB shouldn’t be seen as a piece of investment which you can play with. It should truly serves its purpose of being a home where you can stay and build your family.

(The measures look like to be finally working now. The resale price index increase has been moderating for the past 2 quarters, and the COV has also dropped down. The minister said that “the market is heading towards a soft landing but we have not landed yet.” On one hand, the government wants to stop the price inflation madness. On the other hand, they don’t want a hard landing. So, they ramp up the BTO supply but pegging its price to the market rate. For me, it is expected that the house price will increase. But, the increase rate should be similar to the general inflation rate, unlike what has been happening for the past few years. For example, the resale price index is 115.1 in Q3 2007 and 187.2 in Q3 2011 — a 62.6% increase in 4 years or 15%/year. The rental fee for our unit in Jurong West was $1,600/month in 2007 and $2,400/month in 2011. It’s a 50% increase in 4 years or roughly 12%/year. The Consumer Price Index (CPI), on the other hand, is 93.2 in 2007 and 108.2 in 2011 — a 16% inflation in 4 years or roughly 4% inflation/year. Indeed, one would argue that the “actual” inflation rate should be less than 4%, as it was also marked up by the housing inflation rate. The housing inflation is way, way above the general inflation rate, and there lies the main problem. The government does need to make the housing inflation rate to be reasonably similar to the general inflation rate. Otherwise, even Singaporeans won’t be able to afford the public housing anymore.)

Moreover, another recent development has also complicated the matter, which is the tightening of the government’s ultraliberal immigration policy. International students who are public universities (NTU, NUS, SMU) graduates used to receive an invitation letter to apply for Singapore PR upon their graduation. What we simply need to do is to find a job and then we will be guaranteed a PR. Now, it is no longer the case. Starting from the 2010 batch (curiouser, curiouser, one year before the election year), the invitation letters were no longer given. Now, the international graduates need to work for 6 months first with Employment Pass (EP) before they could apply for PR. From the Singaporeans’ point of view, the former policy is indeed ultraliberal and too generous, although I could see how the government could justify it, as the international students are bonded 3 years (and for some it’s 6 years if they take the Sembawang’s scholarship) anyway to work in Singapore, and hence it is reasonable to give them the permanent residency. So, being a PR, one of the prerequisites to buy HDB, is no longer assumed for those international students studying in public universities (and we are not even talking about those studying in the private universities, for whom even finding a permanent job can be very difficult now). From what I observe, NTU/NUS/SMU graduates still hold some benefits as their PR applications will still be approved anyway, but still the new policy adds some factor of uncertainty to the situation. From the beginning you have been made to consider whether you want to stay here for a long period or not.

Hence, what has been pretty much given as a norm a few years ago (a typical middle-class immigrants’ aspiration: graduate from uni, work for a few years, get married and buy a house) has become more difficult to achieve. The immigration policy has been tightened, and the HDB price has become less affordable. (Unless of course you are sure that you want to become a Singapore citizen and open up more options for getting a house, which you should do anyway if you have decided that Singapore will be your home for the rest of your life. PRs are basically agnostic, right, wanting to keep all options open.) So I guess you really need to make sure that you want to commit at least five more years living here before looking for an HDB for our home after marriage (to be fair, it’s a chicken-and-egg problem, you can also say that since we have bought HDB anyway, we might as well stay here for another five years). Otherwise, the cost might be simply too much such that other options will be better (e.g., renting a unit alone, sharing a unit together with friends, leaving Singapore altogether and settle down elsewhere).

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