My apologies for this very long article (and any mistakes I’ve made – this is based completely on my own experience), but I’m trying to make it as informative as possible for any Permanent Residents who might be considering making the same investment.
When one relocates to Singapore, one of the first things that becomes blatantly obvious, is that there is a ‘process’ for everything. Now this can be a good thing – as a six sigma advocate, I find that good process is a basic requirement in managing change. It can also be a frustrating thing, because following process through Government departments can take a long time – I am not criticizing anyone or any process here, I am just pointing out that there are many good opportunities to remove waste (muda) out of many of the current processes… from application for Permanent Residency (I think that process added a couple of points to my ever-increasing blood pressure) to buying a car (gotta love that COE), to our latest endeavor, purchasing a resale HDB apartment.
One of the greatest benefits of becoming a Permanent Resident in Singapore, is the ability to be able to purchase a resale HDB apartment (the flat must be at least 5 years old before a PR can purchase it). However, as far as I am aware, there is no formal documented procedure on how to go about this… there is help available from various sources, but nothing that pieces together the full ‘front-to-back’ process. So this article is my attempt to assist current or future Singapore PRs in their journey to purchase their own HDB apartment.
PURCHASING A RESALE HDB APARTMENT IN SINGAPORE - THE PROCESS
STEP 1: Determine Your Budget and Specifications
Just as with any major purchase, it is critical to do your homework. Determine what apartment you are looking for – for example - how many rooms; built-in size; with or without a balcony; low, medium or high floor; corner block; preferred location, age of the apartment block, renovated or not, near MRT / shopping centres amenities, etc etc.
A couple of hints here – in Singapore the terminology is a bit different to many other countries… if you see a listing that says ‘5-room’, it means it will most likely have three bedrooms (not five), and a ‘4-room’ will have two bedrooms, etc. If you look at older blocks, there is a good chance that the elevator will not stop on all floors – not only is this an inconvenience, but as a PR, when they upgrade the elevators, you will be required to pay a ‘bomb’ of a cash outlay. We opted for an apartment that had just hit the five year old mark. It was fully recently renovated (‘zen’ style) and is built in a ‘condominium-style’ – that is, it is a five-room with a hallway feeding the bedrooms, as well as an elevator stop every floor, and only four apartments on each floor – it is referred to as a ‘point block’ and adds very nice privacy.
To get an idea of pricing per size, number of rooms and location (also including some real estate contact information), it is good to look at a couple of quality websites, such as http://www.propertyguru.com.sg/ or http://www.iproperty.com.sg/hdb/
Also, remember Singapore is small in terms of square kilometers, so be sure to be open to various locations – the closer you get to the city centre, the more you will be paying obviously.
STEP 2: Financing
Once you have decided on your budget, you may (or may not) require a loan from a financial institution to mortgage your property once you have found it. Most banks and institutions in Singapore will offer up to 80% of the property value (or sale price, whichever is lower). Some banks even offer up to 90%. The remainder (deposit) will need to be paid by cash. Also, if you end up securing a property that is ‘over valuation’ (eg. valued by HDB at $450K, but you are buying for $470K – $20K over valuation), the over valuation amount will also need to be paid by cash.
By all means, shop around the banks to get the best deal (interest rate etc), but be sure to look at all features of the mortgage offerings (for example, many banks will offer as a part of their package, a subsidy off the legal fees that you will incur later in the process).
After going through the process myself recently, I strongly recommend OCBC – they were very competitive, extremely responsive and offered an overall package and service that was a ‘step above the rest’ - http://www.ocbc.com.sg/personal-banking/loans/Lns_Prl_MortgageBluePrint.shtm ... be sure to note that when you have engaged an estate agent and the sale is almost determined, they will try and ‘push’ their own affiliated bankers to you (they get a commission on this business) – once again, by all means check it out and compare to others – you may find that the ease of having the estate agent act on your behalf to organize everything is beneficial or convenient.
Once you have determined your ‘preferred’ bank (you are not locked in at this stage to any institution), get the bank to give you an ‘in-principal’ approval for your budgeted loan amount. (Unlike many other countries. Once a bank gives you this in-principal, it is highly likely that there will be no problems having the loan approved when the time comes). The bank will require a copy of your IC (and your partner’s IC) along with your CPF statement (and transaction history) – which can be accessed online from the CPF website, using your singpass… http://www.cpf.gov.sg/
Step 3: Engage a Property Agent
This may be easier said than done. Although it could be considered that ‘every man and his dog’ has a license to be a property agent, undoubtedly you will find many that are unresponsive, or not ‘attuned’ to your requirements. To start, perhaps you should try contacting some of the bigger companies (eg. DWG) and engage one of their people… or look at the links above (iProperty and PropertyGuru) – they are packed full of agents and contacts.
I strongly recommend that you engage more than just one agent – we worked with about four or five so as to keep the options open and increase the viewing and selection of apartments available. The property agent gets paid only if they make a sale – the agent that is working for you when you secure a property for purchase, will charge you 1% of the sale price (+7% GST) as their fee. (just for information, the seller will generally have to pay their own property agent 2% (+7% GST) as their fee).
As an aside – we were extremely fortunate in that one of the agents that we engaged (and the one that found us our ‘dream’ apartment fitting our specifications), was a ‘friend of a friend’ who went out of his way to go above and beyond what we expected in terms of service (throughout the entire process).. I think this kind of agent is a rare breed indeed and maybe difficult to find.
Step 4: Select a Property to Purchase
OK – Let’s go shopping !! The agents should provide you with a schedule (preferably many apartments in one day) for viewing of various flats… this is where the specification and your requirements are very important. Be sure that the agents do not take you to view apartments that do not fit your specification – we wasted much time looking at apartments that were just not suited to us – too old, not corner blocks, out of our budget range etc…
I strongly recommend that you look at as many apartments that fit your requirements as possible. Only then will you be able to get a ‘baseline’ in which to compare the prices and locations, etc.
Once you have found the property that you want to purchase, the next stage will be the seller providing you with an “Option to Purchase” (OTP).
Step 5: Option to Purchase (OTP)
To receive the OTP, a fee is payable (maximum of S$1,000) and the OTP will have an expiry date and time in which the OTP needs to be ‘exercised’. Essentially the OTP is the seller’s offer to you to buy the property at the price agreed and set out in the OTP. Once this is received and the fee paid, the seller cannot offer the property to any other potential buyer.
To proceed, the OTP needs to be exercised before the expiry date. This is done by the buyer and seller both signing the final page of the OTP (acceptance). A fee is also payable at this stage (maximum of S$5,000). Once the OTP has been executed, the buyer and seller are bound in a legal agreement for the purchase transaction.
NB: The OTP expiry time is usually one week from the time that the option is offered by the seller. This time should be used to finalize the loan or mortgage at the bank. A copy of the OTP (and official valuation) needs to be furnished to the banking institution and the loan will go through the formal approval process. Once approved, the bank will provide you with a “Letter of Offer”. This will also have an expiry date, and once signed will also become a legally binding agreement to accept the loan. When exercising the OTP, the seller or their agent will request to see a copy of the banks “Letter of Offer”.
NB: All fees paid in the OTP process will form a part of the deposit. That is (for example only), if you are borrowing money from the bank for a $400K (valuation = sale price) property and the cash (deposit) amount is 20% ($80K) - If you have paid $1000 when receiving the OTP and $5000 when exercising, the balance of the deposit to be paid is $74K. Remember, if the sale price is more than the valuation price, then the difference must be paid in cash along with the deposit. When looking at apartments to purchase, the seller will generally show you the official valuation report, and the price of the apartment will be described in terms of over or above valuation. For example, it may say the price is $450K ($10K over valuation or $20K under valuation etc). There are a number of factors that will effect the purchase price versus valuation, and usually this is negotiable to some extent.
Step 6: Applying for HDB First Appointment
Now comes the first of the extended waiting times. Once the OTP is successfully exercised and the bank’s “Letter of Offer” has been accepted, the agent will help you to apply to HDB for what is known as “First Appointment”. This is a meeting at the HDB Resale Office with both the sellers and the buyers, in which HDB will determine the legalities of the transaction and the eligibility of both parties to enter into such a transaction (and approve or reject the application accordingly).
The waiting time for “First Appointment” (once the application is received by HDB) is usually around 8 to 10 weeks.
Step 7: Engaging a Lawyer
There a couple of options here. Either you can source your own legal representation, or you can choose to utilize HDB’s services for the legal work. In our case, we engaged a law firm recommended to us by the bank (the fees which were subsidized by the bank as a part of the mortgage package). It is the responsibility of the buyer to pay legal fees for both themselves and the bank. Generally, legal fees should be around $2,000 to $2,500 (including all associated fees etc, but not including stamp duty on sale or mortgage). OCBC gave us a subsidy of around half of that amount.
Step 8: HDB First Appointment
Once your date comes up, your agent will accompany you, along with the seller and their agent. The process is very straight forward, and really just involves singing of a lot of documents and agreeing on a ‘second appointment’ date (or ‘hand over’ date). Officially, this should be 8 to 10 weeks later, but if both the seller and buyer agree on an earlier date, and the legal representatives agree that they can meet this date, HDB can approve the same (we brought ours down to just 5 weeks).
Usually around the time of the first appointment, the estate agent will probably expect their payment (agents fee), because this is also about the time that their work is done. If you have secured yourself a good agent, they will make themselves available for further assistance or questions you may have (for example, how to secure ‘season parking’ at your new HDB block, etc).
Step 9: Meeting With Your Lawyer
Your legal representative would already have prepared all the documents required for execution – from their engagement through to signing of the mortgage documents for the bank. They will also assist in working with CPF on your behalf should you have decided to use any of your CPF normal account funds for the legal fees or deposit, or if you are using the funds monthly to subsidize your mortgage payment (which is allowed).
The lawyer will also draw up a ‘financial plan’ which will outline when all payments will need to be made – payment will be to them and they will disperse the monies accordingly.
Step 10: HDB Second Appointment (Hand Over)
The time finally arrives… your lawyer can attend the second appointment on your behalf. Once it is complete, the keys will be handed over. Congratulations! – you now own your own resale HDB apartment!!
One thing to remember, is that if you have opted to use CPF to subsidize your monthly mortgage repayment, they will require that you take out HPS (home protection scheme) – more or less, this is insurance should something befall the mortgagees. CPF will contact you directly for this, and it should cost around $1,000 maximum (depending on amount borrowed, heath status, etc – same as any insurance).
So there you have it – PRs can buy a HDB apartment in Singapore – as long as you follow the process and your apartment is at least five years of age!!