There’s been a lot of griping by HDB flat owners this year, and who can blame them? For years, we’ve assumed HDB flats are retirement assets – and now that bubble has been burst. Well don’t make the same mistake! Here are some resolutions to keep to for the new year:
1. You will consider the remaining lease when before buying an old flat
The Selective En-bloc Redevelopment Scheme (SERS) dream is dead. Only five per cent of housing estates qualify for it.
Now we know that most of us will just get the Voluntary Early Redevelopment Scheme (VERS) – a “meh” scheme that will give you just market value (read: too little money) for your old flat; and even then, only if the majority of owners there agree to it.
So do yourself a favour, and consider the remaining lease before you buy – even if it’s in a fantastic mature location like Queenstown. Flats that are past the 40 year market are not likely to help your retirement much, if you’re buying in your 30s or 40s.
2. You will not even think about selling your flat, and then giving the proceeds to your children while you move in with them
This is a good way for elderly Singaporeans to end up homeless.
Never, ever, give all the cash from your selling your flat to your children; and never assume you can move in with them and get along. If a squabble starts and you’re kicked out from the flat, you could be left without a roof over your head.
If that happens, it’s very difficult to get the money back from your children. The legal proceedings will be long and expensive, with no guarantee of success.
We’re sure you love and trust your children, but just don’t do this. They’ll get their inheritance eventually.
3. You will not overstretch, and sell your flat to buy a condo you can’t really afford.
The world economy is not in great shape right now, and it’s a really bad time to take big risks. In particular, note that home loan interest rates are going to rise significantly: two more interest rate hikes are planned in America in 2019, and this will make the monthly repayments less affordable.
On top of that, remember that maximum financing from a private bank loan is now 75 per cent (or even les, if you buy while your flat loan is still outstanding). That means a bigger down payment, with climbing interest rates.
Stick to the old formula for prudence: avoid upgrading if your eventual home loan obligations – with your other debts – would take up more than 40 per cent of your monthly salary.
4. You will only prepay your home loan after consulting a financial adviser or wealth manager
We’re aware that the sooner you pay your flat loan, the less interest you’ll end up paying. But that alone is not a good reason to rush repayment.
If you empty out your savings to speed up your flat repayment, what are you going to do in an emergency? What if you get retrenched, or are medically unable to work? You can’t pay for lunch by telling the chicken rice man you have no cash, but “hey I have a fully paid-up flat!”
Do you really want to end up having to sell your flat, because you decided to lock all your money in it and become asset-rich / cash-poor?
There are situations where it might be okay to rush your home loan repayment – but the considerations are not simplistic. You need to take into account your liquidity issues, and whether it’s worth doing it given the low interest rate (2.6 per cent per annum for HDB loans).
Ask a financial adviser or wealth manager first. Don’t read an internet article about repaying your home loan early, and imagine it applies equally to everyone.
5. You will not do that ridiculous “trick” of locking one room, and then renting out the whole flat; and you will stop it if you’re doing it
If you lock up one room, you’re not technically renting out the whole flat, right?
That clever bit of sophistry is not okay with HDB, no matter what some people may have told you. And the possible consequences of doing it are severe – even if HDB doesn’t confiscate your flat, you’re going to end up in legal issues when you need to suddenly kick out tenants, who have signed a lease with you (it’s your fault for taking tenants when you’re not allowed to).
The costs of getting caught are so high, it’s not worth the extra rent you’re making.
6. You will not resort to in-store credit or bizarre in-house financing when you renovate
A lot of HDB owners decide to revamp their homes for the new year. That’s all well and good, but watch the use of loans.
If you must borrow money to renovate (we always suggest you just save up for it), always use a reno-loan first. This is specifically designed for renovations – it’s typically capped at $30,000, or six months of your income (whichever is lower), and can be obtained at a rate of around five per cent per annum. Check with loan comparison sites, and you may find an even better deal.
But don’t use bizarre in-house financing loans, which may use rest-rates or administrative fees to become more expensive than you imagine. And as for in-store credit, watch out: you may be able to walk out with your furniture at $0 down today, but you could face effective interest rates as high as 48 per cent per annum (more than twice your average credit card).
7. You will get home content insurance at last
Your flat comes with basic fire insurance (you’re paying for it, whether you want to or not). But home content insurance is optional, and can be cheap as $50 to $70 per year. What does it do that fire insurance doesn’t?
- Covers the loss of items in your house, like appliances and furniture, if a fire starts (fire insurance doesn’t cover this)
- Covers you for losses from burglary, including the replacement of your locks
- Third-person liability coverage – if your house floods or catches fire and wrecks the neighbouring unit, you may have to pay for the damages. This insurance will cover you for it.
- Covers temporary storage and accommodation costs, if your flat is burned down or otherwise unliveable
And much, much, more. This for a two-digit figure a year. Do yourself a favour and buy it, if you haven’t already.
8. You will not use unofficial handymen or contractors
Your cousin may be handy with a wrench, and charge $50 less than a licensed contractor – but don’t let him fix your kitchen pipes. You can be prosecuted for using unlicensed handymen or contractors (and when the damage gets worse, it’s quite likely HDB will find out).
As for big renovations, like installing false ceilings and such, there’s something else you should know:
Any damage caused by your contractor is claimed from their insurance, not from your home insurance. If you hire an under-the-table contractor with no valid insurance, and they wreck your flat, there is no insurance pay out. You can try to sue the contractor if you want, but that probably just costs you even more money.
9. You will make sure you keep updated with the URA master plan
If you’re about to buy a flat, or you’re thinking of selling at some point, make sure you check the URA master plan.
This will let you know about the upcoming developments in the relevant neighbourhood. It’s important to pay attention to the future, not just what you immediately see in the area: the amenities you want may be around the corner, such as new train stations or nature parks. These are likely to affect future values, and should impact your decision to hold on to the flat or to buy in the area.
If you’re uncertain, just call a property agent – most of them won’t charge you anything for a quick rundown of the area.
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If you liked this article, 99.co recommends Flat owners: What you must do before your 99-year HDB lease runs down and HDB SERS and other dangerous property assumptions people make
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