I think it’s safe to assume that most young Singaporeans own our first home through the HDB BTO scheme. This includes me and my wife.
When I recently read a CNA article following the plight of Ms Lim, who wishes to give up her BTO due to COVID-19 delays, and go with a resale flat instead, my first instinct was to consider whether it made financial sense. My personal conclusion is that it doesn’t – but like most decisions in life, there may be valid reasons beyond just looking at the money.
#1 There Are Financial Penalties Involved
The first reason why I don’t think it makes sense is very straightforward – we’re going to have to pay a financial penalty. For Ms Lim, who already signed the Agreement for Lease (since it was a 2017 BTO), the financial forfeiture is 5% of the purchase price. This can be a nearly $30,000 hit, depending on the actual unit that Ms Lim had chosen in her Eunos Court BTO.
However, in the same CNA article, HDB was also quoted saying that “around 1,700 home buyers cancelled their BTO flat bookings in 2020”. Of this, about 1,300 applicants appealed to waive financial penalties, and about a third of the appeals were successful. Another way of reading this is that a big majority of applicants, about 1,267 of the 1,700 buyers that cancelled their BTO bookings did not get waivers.
Whether a waiver appeal is successful or not, the HDB website states that we can get a refund of the stamp duty from IRAS upon cancellation of our BTO. At the same time, we also have to consider other sunk costs we cannot recover, such as the legal fees.
In addition, any money, time and effort we spent researching and applying for the BTO location and unit we want to buy would also go down the drain. When I purchased my BTO flat, I remember being “overly” excited about the prospect of owning my first home. My wife and I went down to the actual BTO site at least twice to consider the facing of the unit, probable views we would be getting, as well as get a feel of the surrounding estate. We also had to go to the HDB Hub and the lawyer’s office (multiple times) to sort paperwork. Having opted for a bank loan over an HDB loan – and we also met our mortgage broker at least twice.
Read Also: HDB Or Bank Loan: Pros & Cons To Consider Before Deciding On Which Housing Loan To Take
#2 You Need To Wait Out A 1-Year Period To Be Eligible For CPF Housing Grants Again
The HDB website explicitly states that we “must wait out a 1 year period from the date of cancellation of the application before you can apply or be included as an essential occupier for a resale flat with CPF Housing Grant”.
Going back to the CNA article, Ms Lim wished to give up her BTO application to purchase a resale flat instead. The HDB website is quite clear in stating that someone like her would not be eligible for CPF Housing Grants for the next one year. We’re not sure about her income status, but this can be a tough one to swallow, especially for lower-income couples.
Besides the CPF Housing Grant, the 1 year wait period also applies to couples applying or being included as an essential occupier of a new HDB flat, Executive Condominium (EC) unit, resale flat that has been announced for SERS.
Read Also: Will Your HDB BTO Key Collection Date Be Delayed, And Can You Further Defer?
#3 We applied For The BTO Flat A Few Years Ago
For anyone who had cancelled their BTO application in 2020, when the HDB BTO construction delays were first announced, would be eligible for CPF Housing Grants again this year. Buying a flat in 2021 would likely also give them a home much sooner than if they were still waiting for their BTO flats.
However, for young couples (like me and my wife) who applied a few years ago, we would likely be earning more money today. Sometimes (not in our case!), significantly more. This impacts the amount of CPF Housing Grants we will be eligible for.
For example, younger couples in Singapore can actually “game the system” to get a higher amount of housing grants. Since males have to serve National Service (NS), couples can apply for a BTO flat when just the woman starts working – even on a part-time basis. The combined income of the couple would be based on just the woman’s starting or part-time salary. Thus, they will be eligible for a higher amount of government grants, even if they were more than capable of earning over $14,000 once both of them start working full-time. This is not a secret – and since HDB hasn’t done anything about it, it can only mean they allow the practice.
#4 Our BTO Flats Should Have Appreciated In Value Today
HDB claims that our BTO flats are “priced below comparable resale flats nearby”. Since the end of 2017, about the time when Ms Lim from the CNA article applied for the Eunos Court BTO, property prices, in general, have been increasing.
For HDB flats specifically, prices have started increasing since mid-2020 after remaining stagnant for about five years. On average, the “comparable resale flats nearby” our BTO should have increased in price – and hence, our BTO flat should have appreciated in value today.
For me (personally again), it’s hard to stomach the fact that I’ll be giving up a property I’m gaining a lot of value from, to go to buying a resale property that is even more expensive today.
Read Also: Is Singapore Property Market Really In An Asset Bubble Right Now?
Source: HDB
#5 More Rental Flats Made Available To Those Impacted By Construction Delays
For couples who are waiting for their first home, the construction delay is definitely going to cause inconveniences. The 4 to 5 year wait has now become 5 to 6 years or more of total waiting time. In the meantime, we still need a home to live in.
Personally, I’ve chosen to live in a larger home with my parents for now. They’re also helping me take care of my children so that’s been an added bonus.
For those who prefer their privacy or don’t have this option, HDB has stated that it will be helping those affected by the construction delays with more rental flats. While not ideal, it still offers a very affordable option in the interim – instead of cancelling your BTO application to buy a resale flat immediately.
Most recently, HDB announced that they would double the number of flats available for families awaiting the completion of their BTOs over the next two years. This falls under the Parenthood Provisional Housing Scheme (PPHS) – and monthly rents are between $400 (for a two-room flat) and up to $1,500 (for a 4-room flat). An income ceiling of $7,000 will also be introduced to help lower-income families.
This comes on the back of demand already doubling in 2020, compared to 2019. In addition, various news articles also carry stats pointing to an increasing demand for interim rental flats from HDB because of construction delays.
Not Every Decision Has To Be Based On Finances
As mentioned, I think there’s always two sides to any argument. I can see a few reasons why people would want to cancel their BTO applications. I even have close friends who have done it.
One reason could be a change in their family dynamic. I didn’t have any kids or even a plan to have kids when I applied for my own BTO flat in 2017. Today, I have two young children. If anyone in my position had applied for a 3-room BTO – it’s going to be hard to fathom how there will be enough space for the kids and if work-from-home is staying in some capacity for workers.
Given the wider acceptance of work-from-home, HDB upgraders from “poor” locations may be reconsidering the need to move to a city fringe BTO to be closer to town. Their current HDB flat in Pasir Ris, Chua Chu Kang or Yew Tee may not seem unbearable if they can work partially from home.
Read Also: HDB Price Guide: 5 Most Expensive HDB Estates For 2020
Again, for those who already own a HDB flat and had wanted to upgrade to a bigger space or better location, the COVID-19 downturn may have impacted their ability to afford the more expensive home.
Another reason I can see someone wanting to cancel their BTO application is the Minimum Occupation Period (MOP) that we have to serve out after getting our keys. A 9-month to over-a-year-wait will mean that our hopes of upgrading from our BTO gets delayed by the same amount of time. For anyone who initially thought they would compromise, the notion of just buying a resale flat today and starting their MOP immediately could make sense.
Finally, while Singapore is definitely on the road to recovery. There’s no guarantee that a new variant or another COVID-19 wave will not cause further delays all over again. Personally, I’ve been told my BTO will be delayed by around 9 months. This was before the borders were closed to higher-risk countries where some of our construction workers came from – which likely will increase the delays.
Read Also: Here’s Why It Makes Sense To Take The Maximum HDB Home Loan You Can When Buying Your First Flat
