Can HDB owners buy another private property? Yes you can!
Guest post by Coftea
Being an aspiring HDB cum private property (or properties!) owner, getting the facts right on this subject is important. If a HDB owner can purchase another private property, what are the prerequisites and restrictions? After researching the truths online via official sources, I realised there are 3 major misconceptions which I hope I can provide some insights to.
Hearsay 1: You cannot buy a private property when you already have a HDBThis misconception seems to stem from 2 policies enforced by the Ministry of National Development (MND) as part of the cooling measures for the HDB market.
The first policy dates back to 2010 national rally when it was announced that concurrent ownership of both HDB flats and private residential properties within the Minimum Occupation Period (MOP) is disallowed. Private property owners who bought a HDB will need to dispose their private property within 6 months. But the reverse is not true. What the news doesn’t emphasize is that MOP is only applicable to HDB and that if one has fulfilled HDB's MOP (set at 5 years currently), you can still buy a private property! Definitely no concurrent ownership within MOP.
The second policy in 2013, a move aimed to protect Singaporeans, dictates that Permanent Residents (PR) owning HDB must sell their flat if they purchased a private property in Singapore. Yeah, so dual ownership of HDB and private property is disallowed for PR only.
As long as you are a Singaporean, fulfilled your HDB’s MOP and have plenty of money, there is theoretically no limit to the number of private properties you can own.
Hearsay 2: You must fully repay your existing HDB loan to buy a private propertyWe know that our government has measures in place to prevent us from over leveraging on our investments, but this isn’t one of them. However, the belief that there is a restriction to the amount of loan one can borrow is correct. Again, this misconception might be due to 2 policies, enforced by the Monetary Authority of Singapore (MAS) to reduce the risk of loans.
First, every one of us is tagged with a ratio called the Total Debt Servicing Ratio (TDSR), which must not exceed 60%. In simple terms, the amount of money you fork out monthly to service all your existing loans (car, student, credit card, etc.) cannot exceed 60% of your total income in the same period. There are comprehensive and complex rules that dictates how your bank assesses your existing loans and income which are beyond the scope of this article, but the takeaway is that your existing HDB loan will lower the borrowing limit for your next purchase.
Second, even if you do not exceed your TDSR, there is another loan limit called the Loan-to-value (LTV) limit. It is a percentage of the property price (or value) and starts at 80% for your first housing loan, decreases to 50% for the second and 40% for the third and subsequent loans. These figures assumed that your loan tenure does not exceed 30 years and extend beyond 65 years of age.
Hearsay 3: CPF money cannot be used to buy the private propertyI believe many people mistrust the CPF board. Some view it as an organisation whose sole function is to keep as much of our hard earned money as legally and morally allowed, and use it to fund secret government initiatives. No matter what the conspiracy theories are, the fact remains that CPF money can be used to fund more than one property.
The catch is you can use CPF to fund your first property up to the Valuation Limit (VL), which is the purchase price or value of the property at time of purchase. It is possible to wipe out your CPF for your first home, HDB or private. However, for your second and subsequent property, you can only use the excess savings in your Ordinary Account (OA) after meeting the Basic Retirement Sum (BRS). BRS is raised annually to keep up with inflation and stands at $80,500 now. Fortunately, the savings in Special Account (SA), including those used for investment can be considered to fulfil the BRS requirement.
So yeah, contrary to conspiracist beliefs, money in CPF is useful. When you have enough for retirement, it still can be used to pay down a second property.
Buying another private property after a HDB may be financially challenging, but it is definitely legally allowed. Does owning a private property together with a HDB flat sounds reasonably attainable now? Some say yes others say no.