HDB or Private Property For Your 1st Property

Most Singaporeans have bought or have plans to buy a HDB flat.

After all, all Singaporeans are entitled to a substantial amount of subsidies and grants when purchasing their first HDB, provided they meet certain conditions.

Why, then, are there still some who choose to forego the chance benefit from these perks and opt to purchase a private residential property instead?

Even if you had already purchased a HDB flat, should you switch up to a private residential property?

In order to answer these questions, we need to compare the pros and cons of these 2 types of property.

First of all, in most cases, it would be more sensible to purchase a HDB flat as a first residential property.

Unless you have already exceeded the income ceiling, purchasing a HDB flat has quite a few attractive upsides.

1. Subsidies and Grants

HDB flats are heavily subsidised by the Singapore government.

Be it Build-To-Order (BTO) or resale flats, Singaporeans receive substantial support from the government to purchase their first homes.

This makes home ownership for Singaporeans, especially young Singaporean families, much easier, compared to citizens of other countries.

2. Minimal cash outlay

If you take up a HDB loan for your HDB flat, you may get a Loan-To-Value (LTV) of up to 90%.

In other words, you will be able to take a loan of up to 90%, as compared to only 75% for a private residential property.

The remaining 10% can be paid using your CPF, allowing you to complete your purchase with essentially little or no cash outlay.

3. Affordable HDB prices

By design, being a public housing scheme, HDB flats will always be more affordable, compared to private residential apartments.

Again, this helps make home ownership easier for Singaporeans who are still in the midst of building their careers and financial standings.

On the other hand, there are limitations to the benefits that HDB flats provide.

Minimum Occupation Period (MOP)

Once you purchase a HDB flat, apart from a 1-room flat, you will be subjected to a 5-year MOP wherein you are prohibited from purchasing another residential property.

This means that by purchasing a HDB flat, you will be rendered ineligible for any residential investment opportunities for the following 5 years.

For those who are looking to build their assets through property investment, the opportunity costs arising from this 5-year MOP could be huge.

Not to mention, if you selected a BTO unit, the 5-year MOP will only start when you collect your keys.

Depending on the BTO project and the timeline of your purchase, this lock-in period could well be closer to a decade.

Capital Appreciation Ceiling

There are always 2 sides to a coin. as HDB flats will always be more affordable than private residential apartments, assuming all other factors are identical, the room for capital appreciation of a HDB will also be constrained by private residential prices.

Family Nucleus required before the age of 35

Before the age of 35, Singaporeans are only able to purchase a HDB flat if they fulfil the criteria of a family nucleus.

This puts aspiring young investors in a dilemma.

They have to decide if they should wait to form a family or reach the age of 35 to enjoy the grants, or invest in a private residential property in order to not miss out on the opportunity costs.

An elaborate timeline and investment plan will be required if they want to enjoy the best of both worlds.

This is why there are those who choose to forgo the benefits of a HDB flat completely and go straight into private property investments.

By doing so, they have the option to draw equity from their private properties and expand their portfolios quicker, a feature that is not available for HDB flats.

For private properties, redevelopment, or en bloc, is covered under the Land Titles Act.

This means that private property owners are able to exercise control over any possible en bloc decisions for their property.

They are able to decide on the sales price that they are looking for, if and when the majority of the owners decide to put the property up for en bloc.

For a HDB, redevelopment is done through either the Selective En Bloc Redevelopment Scheme (SERS) or the Voluntary Early Redevelopment Scheme (VERS).

For SERS, the government has full control and authority to dictate the price and process.

For VERS, it is only voluntary if that particular area has been designated by HDB for the scheme.

On top of that, there is also the possibility to top up the lease of a private leasehold property back to 99 years, subject to approval from the Singapore Land Authority (SLA).

Find out from our expert on which property should you get for your investment property.