Depending on where you are on this matter, spending over a million dollars on an HDB resale condo can either be a ridiculous idea or make perfect sense.
Given the recent headlines, buyer sentiment could point to the latter.
In April 2021, record sales of $ 21 million homes were sold in one month, leading to $ 74 million homes this year alone. This is especially high when you consider that transaction prices have shown an upward trend for ten consecutive months.
Why do buyers pay top dollars for an HDB apartment over an apartment of a similar price?
Reasons why million dollar homes are in demand
Measures for real estate cooling (present and future)
Those with their ears down may have got wind that cooling measures could hit the private housing market at some point in the near future. While nothing specific at the time of writing, it is substantial enough to draw people into the resale HDB market.
It’s worth noting that when the last wave of cool-down measures went into effect in July 2018, the value of the bank loan (LTV) dropped from 80 percent to 75 percent (assuming the buyer doesn’t have an outstanding home loan). As a result, the initial down payment increased to 25 percent.
BTO construction delays
Yes, waiting for the keys to your BTO may have taken a little longer. Due to labor shortages, BTOs experience widespread construction delays that can last up to a year or more.
In order not to be one of the many disappointed couples who have been let down, the resale market may be just the thing for getting out of your in-laws’ home.
ALSO READ: Our HDB Condos Resale Journey: $ 700 + k home at SkyTerrace @ Dawson
Hefty Condo Down Payment
As HDB prices rise, the prices for condominiums are also trending upwards. Younger couples (especially first-time home buyers) may not have the cash to conveniently afford the required 25 percent down payment.
For example, a low range condominium of $ 1.2 million typically means a down payment of $ 300,000, of which five percent or $ 60,000 must be paid in cash.
In comparison, buying an HDB apartment with a 10 percent down payment that can be paid through CPF is much more forgiving.
What is a million dollar apartment?
Smaller deposit of 10%
Lower conservation costs (<$ 100)
Lower mortgage payments
Lower legal fees
Lower stamp duties
High floor, mature property
Appreciates slower
Appreciate faster
High 25% deposit
Higher protection costs (> 200 USD)
Higher mortgage payments
Higher legal fees
Higher stamp duties
Wide range of premium facilities
Middle floor, distant neighborhood
Let’s assume that:
- The HDB condo was purchased with an HDB concession loan for $ 1,000,000 while the condo was purchased with a bank loan for $ 800,000
- The HDB concession loan is tied to an LTV of 90 percent and the bank loan is tied to an LTV of 75 percent
- HDB will act for you on your home purchase and your down payment will be paid in full through your CPF savings
- The legal costs to purchase the apartment are approximately $ 2,000
Loan Amount:
- For HDB = $ 1,000,000 x 90 percent = $ 900,000
- For condominium = $ 800,000 x 75 percent = $ 600,000
ALSO READ: Real Estate Market Update for 2021 Q1: Prices for new start-up condominiums and HDB apartments are rising again
Down payment costs:
- For HDB = $ 1,000,000 x 10 percent = $ 100,000 (can be paid via CPF or cash or both)
- For condos = $ 800,000 x 25 percent = $ 200,000 (of which five percent or $ 40,000 must be paid in cash)
Total Buyer Stamp Duty (BSD) payable:
- For condo = $ 1,800 + $ 3,600 + $ 13,200 = $ 18,600
| Purchase price or market value of the residential property | BSD rates (on or after February 20, 2018) | quantity |
| First $ 180,000 | One percent | $ 180,000 x one percent = $ 1,800 |
| Next $ 180,000 | Two percent | $ 180,000 x two percent = $ 3,600 |
| Another $ 640,000 | Three percent | $ 440,000 x two percent = $ 13,200 |
All the money spent on buying an HDB apartment = Resale Request Administration Fee + Value Request Handling Fee + Fire Insurance + Reservation Fee + Title Search Fee = $ 80 + $ 120 + $ 7.13 + $ 64.45 + $ 32 = $ 303.58
Total Cash Spend Required to Buy a Condo = Five Percent Down Payment + BSD + Legal Fees = $ 40,000 + $ 18,600 + $ 2,000 = $ 60,600
ALSO READ: 10 Cheapest New Startup Condos In 2021 For Families
Conclusion
Buying a property is no small matter. Whether it is an HDB apartment or a condominium, the route you take should ultimately depend on why you are buying the property in the first place.
If you are buying it as a home only to plant your roots and raise a family, the cheaper option will give you more room in your budget and significantly less financial burden in the future.
However, if you think of your property as a nest egg that you will eventually sell in the sunset years and downsize to a smaller home, then private property may be a better option as these tend to be upgraded faster than their HDB counterparts.
ALSO READ: The Cheapest HDB Resale Homes To Buy If You Are 30 Years Or Under
This article was first published on SingSaver.com.sg.
