HDB Tighten Rules For Decoupling

In May 2016, HDB announced Housing Board flat owners who wish to transfer their ownership to a family member are no longer allowed to do so except under six special circumstances including divorce and financial hardship.

Previously, owners were not bound by such restrictions when transferring their flat to a spouse or immediate family member.

It’s an open secret that some HDB owners decouple so they can free up one party to buy a Private Condominium with no ABSD and get 80% loan. This way, it allows most middle income citizens to own multiple properties earlier and cheaper. Why is it so?

Now lets calculate how much do you need to buy a second property if you did not decouple your HDB. We use a $1mil, 2 bedroom condominium as an example.

If the HDB owners had decoupled their HDB, their initial capital needed will be as follow (Take it the buyer has an income enough to get 80% loan):

5% booking fee: $50,000 Cash
15% Exercise Fee: $150,000 Cash or CPF
Standard SD: $24,600 Cash or CPF
7% ABSD: $70,000 Cash

Now if you have NOT decoupled and have outstanding HDB Mortgage loan, you are only able to get only 50% loan and need more cash downpayments. Therefore your initial capital you will need:

10% booking fee: $100,000 Cash
10% Exercise Fee: $100,000 Cash or CPF
Balance 30% payable: $300,000 Cash or CPF
Standard SD: $24,600 Cash or CPF
7% ABSD: $70,000 Cash

That’s a total of min $170,000 in cash and $424,600 in cash or CPF! As compare to those who have decoupled, your initial capital increased by $300,000 !!! How long do you need to save the additional $300,000?

Now HDB have close this path for HDB owners to own multiple properties. So whats next?

But first, maybe we should understand why do property owners want to keep their HDB? Is it because of sentimental value? Because they want rental income? or because they foresee their HDB appreciate in value in years to come?

With the Additional Buyer Stamp Duty (ABSD), from the earlier example, we know that for a $1mil property you need to fork out $70,000 cash to the government. So how long do you need to earn back this $70,000 from your HDB rental?

A 4 room flat averagely rents about $2000 per month now. So $70,000/$2000 that’s 35 months. That’s about 3 years! And we need to factor in Agent Fees, no rent period and repair cost. Is it worth the effort? Well its up to individual actually.

Now with 26,000 flat completed in 2015 and 18,000 more new flats to be launched in 2016. Seems like the supply is high to support the demand. I doubt you will see a double digit percentage increase in HDB price as compare to our parents generations. Does it really worth to keep your flat?
If it’s because of sentimental value, then it may well worth it.

So what’s next? what is the next option? If its positive returns you are after, then maybe you should consider Executive Condominiums. Its being priced about 15% to 25% below neighboring condominiums. And it will eventually converted to Private Condominium. Which means you will earn that 25% difference! So lower entry level, higher returns, lower risk! Doesn’t it sound good?

The fact is, due to the property measures. Its getting more difficult to get a loan for EC. Therefore the qualified buyers are lesser now. So developers has began to increased the standards of their EC. Now you will see EC projects with more facilities than the private condominiums!