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HDB Fresh Start Housing Scheme: Does It Make Financial Sense For People Staying In Public Rental Flats To Buy Their Own 2-Room Flat?

From renting to owning a home (again)

We all love a good rags-to-riches story. In 2020, Singapore was ranked first in Southeast Asia and 20th globally for social mobility. Part of this can be attributed to our public housing policies.

For lower-income families applying for HDB flats for the first time, HDB does provide generous support to allow them to own their homes. First-timer households can receive $80,000 under the Enhanced Housing Grant (EHG) if their gross monthly household incomes are less than $1,500. However, such generous support is not applicable to those who are buying from HDB for a second time.

What happens if due to some unfortunate circumstances, you lose your HDB flat and have to rent from HDB instead of owning your HDB flat? Can you start afresh and get back to homeownership?

In this article, we examine one of HDB’s housing schemes, the Fresh Start Housing Scheme, which is meant to uplift second-timer households who are living in public rental flats and assist them to own their own homes.

Read Also: Complete Guide To Renting A HDB Flat Via The Public Rental Scheme In Singapore

What Is A Second-Timer Household?

Second-timer households, in HDB parlance, refer to households who have utilised HDB’s housing subsidies. This can be buying an HDB flat directly from HDB (i.e. a BTO flat), taking the CPF Housing Grant to buy an Executive Condominium (EC) unit, Design, Build and Sell Scheme (DBSS) flat or an HDB resale flat, or receiving Selective En bloc Redevelopment Scheme benefits or HUDC estate privatisation benefits.

Read Also: 4 Things You Need To Know Before Buying And Upgrading To Your Second HDB Flat

What Is The Fresh Start Housing Scheme (Fresh Start)?

Recognising the difficulty and lack of support for second-timer families who are living in public rental flats, Ministry of National Development (MND) introduced the Fresh Start Housing Scheme (Fresh Start) in 2016. Fresh Start aims to help these second-timer households with young children living in public rental flats. As these households have previously used HDB housing subsidies, they are no longer eligible for the Enhanced Housing Grant. According to HDB, an average of close to 2% of rental households move on to become HDB home owners each year, or about 4,500 households over the past 5 years. Fresh Start aims to help them with grant support and integrate financial assistance with personal responsibility and social support to help them achieve HDB ownership.

Specifically, Fresh Start allows eligible second-timer households to:

#1 Buy a short-lease 2-room Flexi and 3-room BTO flat.

Fresh Start applicants can buy the more affordable short lease 2-room Flexi BTO flat usually reserved for seniors above 55 years old, instead of the usual 99-years lease. For example, a 99-years lease 2-room Flexi BTO flat costing $100,000 would only cost about $60,000 with a 45-years lease, based on the pricing for Sembawang Sun Sails. However, the shorter lease must still cover the youngest owner or spouse-occupier until the age of 95 years old. The lease options range from 45 years to 65 years and you must be at least 35 and below 55 years old to apply. Additionally, there is a Minimum Occupation Period (MOP) of 20 years imposed for flats bought under Fresh Start.

[Update] As announced during the Committee of Supply 2022, the Fresh Start scheme is now extended to 3-room flats. This means that applicants especially those with larger family sizes have a more spacious housing option. The lease options and 20-year MOP requirements remain the same for applicants who choose the 3-room flat type. This is still being implemented and HDB will announce details in the future.

#2 Take up an HDB Concessionary Loan.

Fresh Start applicants can take an HDB Concessionary Loan, subject to credit assessment. This applies even if they won’t be eligible to take the HDB Concessionary Loan under normal circumstances.

#3 Pay a maximum of $30,000 for HDB Resale Levy

As Fresh Start applicants are second-timer HDB applicants, they are also subject to the HDB Resale Levy which is paid upon taking possession of the second flat. Usually, the resale levy ranges from $15,000 to $55,000 depending on the flat type. For Fresh Start applicants, the levy is capped at $30,000 and will be adjusted lower depending on the lease chosen.

#4 Receive the Fresh Start Housing Grant of $50,000

Fresh Start applicants also receive a housing grant of $35,000. However, this is not a windfall. The housing grant will be disbursed in tranches and into the applicants’ CPF accounts. The first $20,000 lump sum will be disbursed just before key collection. The remaining amount of $15,000 may be disbursed equally over 5 years after key collection.

[Update] As announced during the Committee of Supply 2022, the Fresh Start Housing Grant will be increased from $35,000 to $50,000. Eligible applicants will receive the first disbursement of $35,000 into their CPF Ordinary Account at key collection. The remaining $15,000 will be disbursed into their CPF Ordinary Account in equal tranches over five years after key collection. This will take effect from the May 2022 HDB BTO sales launch.

#5 Receive priority allocation in HDB sales launches – Build-To-Order (BTO) and Sales Of Balance Flats (SBF)

Fresh Start applicants also get priority in BTO and SBF launches under the Tenants’ Priority Scheme with up to 10% of 2-room Flexi unit allocated for this priority scheme. This allocation is shared with other eligible applicants under the Tenants’ Priority Scheme.

To qualify for Fresh Start, the household must have one child below 19 years old, one applicant or spouse in stable employment for a year, been renting an HDB public rental flat for at least one year and the gross monthly household income cannot exceed $7,000. Please refer to HDB’s website for the specifics.

Is It Worth To Continue Renting Or Buy A 2-Room Short Lease Flexi Flat Under Fresh Start?

Assuming you are eligible to apply for Fresh Start, you are probably paying the highest tier of rent under the Public Rental Scheme which is $205 to $275 a month for a 2-room flat for second-timer households.

Let’s assume you are eligible for Fresh Start and have an income of $1,500 and you buy a 2-room BTO with the shortest lease of 45 years at $60,000 under Fresh Start.

Flat Price $60,000 (shortest lease of 45 years)
Resale Levy $30,000 (levy cap)
Housing Grant $20,000 $35,000 (first disbursement of Fresh Start Housing Grant)
Total Amount Needed To Pay* $70,000
Maximum Loan $51,000 (85% LTV for HDB Concessionary Loan)
Monthly Mortgage Payment $250 (for 25-years tenure, within MSR)
Shortfall $70,000 – $54,000 = $16,000

With the resale levy of $30,000, you will need to pay $90,000, excluding other costs like stamp duties and legal fees. The maximum loan you can take is $51,000 with a 85% Loan-To-Value limit under HDB Concessionary Loan. This means you are short of $4,000, even after applying the $35,000 from the first disbursement of the Fresh Start Housing Grant. However, to complicate matters, you must pay the resale levy in cash. This means that you need to have sufficient cash savings to repay the levy. The Fresh Start Housing Grant can only be used to pay your down payment or loan through CPF.

Under the HDB Concession Loan, a loan of $51,000 will be about $232 in monthly loan payments for a 25-years loan tenure which is within the Mortgage Servicing Ratio (MSR) for an income of $1,500.

Assuming that you have sufficient savings and/ or CPF monies, buying a flat under the Fresh Start Housing Scheme may make more sense because you are able to pay the monthly mortgage with your CPF and thus leave more cash in hand for your daily expenses.

However, the stumbling block may be the cash savings (of up to $30,000) needed to pay the resale levy, even if you can afford to service the mortgage and pay the downpayment through CPF (and the Fresh Start Housing Grant).

Fresh Start Housing Scheme Is Not The Only Housing Support For Second-Timer Households

While the Fresh Start Housing Scheme is more generous for eligible second-timer households, these same second-timer households also can tap on the Step-Up CPF Housing Grant.

While the Step-Up CPF Housing Grant amount is $15,000, much lower than Fresh Start’s $35,000, you gain a lot more flexibility as you don’t have to meet the strict requirements of Fresh Start.

For example, one of the requirements of Fresh Start is qualifying for the Letter of Social Assessment (LSA) from the Ministry of Social and Family Development (MSF). According to HDB, “to qualify for the LSA, the family will be assessed based on (i) family stability, (ii) employment stability, (iii) ability to manage their finances well, and (iv) regularity of school attendance for all children below 16 years old.” As the LSA is valid for 1 year, the family will also have to be reviewed annually by MSF to renew their LSA. This will continue until 5 years after key collection as each disbursement of the grant is subject to successful annual renewal. The assessment may entail “face-to-face interviews with MSF officers and this may include following up with Action Plans where necessary”.

Additionally, if you are a household without children below the age of 19, you are not eligible for Fresh Start. However, you are eligible for Step-Up CPF Housing Grant. You can refer to HDB’s website for the eligibility.

Furthermore, Step-Up CPF Housing Grant recipients are not subject to the 20-years MOP imposed by Fresh Start. They can sell their flats after the usual 5 years MOP.

However, second-timers choosing to use the Step-Up CPF Housing grant may take a longer time to accumulate the funds needed to buy their flat. They can only buy the more expensive 99-year 2-room BTO (not the short-lease) and need to pay a larger down payment (25%) if they are no longer eligible for HDB concessionary loan. They may also be hit by a larger resale levy as there is no levy cap for Step-Up CPF Housing Grant recipients.

Using the Fresh Start Scheme Counts Towards Your Quota Of HDB Housing Subsidies

Every Singaporean has 2 chances to enjoy HDB housing subsidies. Having already lost your first housing subsidy, this makes this second housing subsidy even more precious. Whether you choose to buy your second flat under Fresh Start Housing Scheme or with the Step-Up CPF Housing Grant, you would have enjoyed two housing subsidies and will no longer be eligible to buy another subsidised flat from HDB.

Regardless, moving from public rental flats to homeownership is a huge step. Don’t rush to be a homeowner only to lose it again. Slow and steady will get you on the path of homeownership as well.

Read Also: Guide To HDB 2-Room Short-Lease Flexi Flat For Retirees

This article was originally published on 19 January 2021 and updated with new information

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