In the past, there were many people who bought private properties and made a lot of money when they sold it at a much higher price later. Some bought condominiums while some bought landed properties. Private properties are a good form of investments where we can buy it, rent it out or sell at a higher price later. Previously, I wrote that "Your HDB Flat Is Not Really An Investment". This is different for a private property where private properties are generally considered as an investment asset.
It will be almost impossible for most of us to buy 2 condominiums at once and stay in one while renting the other one out. It is too expensive for most people. Now, if I tell you that there is a possibility that we can buy a private property even if we own a HDB, will you be interested? Yes, you can actually own a HDB and still be eligible to purchase a private property. In this post, I will share with you the different ways of how it can be done and also the restrictions to take note of.
How Can I Buy A Private Property If I Own A HDB?
Fulfilling the MOP
To buy a private property when you already own a HDB flat, the first condition you have to meet is to fulfil the Minimum Occupation Period (MOP). The MOP for HDB is 5 years which means you have to stay in your current HDB for 5 years before you are allowed to purchase a private property. This is only applicable for Singapore citizens.
If you are a Singaporean PR, there is no way you can buy a private property while keeping your HDB flat. You will have to sell your flat within 6 months of acquiring your private property.
Restrictions to take note
While it is possible to buy a private property while keeping your HDB, there are certain cooling measures which the government impose to prevent housing prices from going up too fast.
Loan to value ratio for second property and above
The loan to value ratio or LTV is the amount of loan you can get from the bank for that particular property. If the LTV is 90%, it means you can borrow up to 90% of the price of the property with only 10% down payment.
Here's the various LTV for first, second and third and subsequent properties:
1st Housing Loan:
LTV 80% for loan tenure up to 30 years and till age 65 years old. Minimum 5% upfront cash payment, 15% down payment can be paid by CPF
LTV 60% for loan tenure above 30 years and/or above 65 to maximum 75 years old. Minimum 10% upfront cash payment
For 1st housing loan, it is quite straight forward and not much cash is needed for the purchase. All the examples I am using is assuming the loan is from a bank. If you take a loan from HDB for the purchase of HDB flats, the LTV is 90% with no minimum upfront cash payment.
Let's continue to 2nd Housing Loan:
LTV 50% for loan tenure up to 30 years and till age 65 years old. Minimum 25% upfront cash.
LTV 30% for loan tenure above 30 years and/or above 65 to maximum 75 years old. Minimum 25% upfront cash payment
As you can see, the LTV reduces drastically for the 2nd housing loan. If you own a HDB and buy another private property, you may be subjected to this reduction of LTV. But, there are circumstances where you still can get 80% LTV. I will go more into details below.
3rd and subsequent Housing Loan:
LTV 40% for loan tenure up to 30 years and till age 65 years old. Minimum 25% upfront cash.
LTV 20% for loan tenure above 30 years and/or above 65 to maximum 75 years old. Minimum 25% upfront cash payment.
How To Buy A Second Property and still get 80% loan?
As you can see above, for 2nd housing loan, the LTV reduces to 50% and there is a minimum upfront cash of 25% needed. If you buy a $800,000 private property, this is $400,000 down payment with $200,000 cash needed. There is a way to overcome this.
The key to getting 80% loan for your second property is to make it a first housing loan instead of second housing loan. The keyword is on the housing loan. Simply said, if you own a HDB and have already fully paid off all your loans, then when you get a loan for your private property, it will be considered as first housing loan. The number of loans is taken into consideration for the LTV, not the number of properties. In this way, you can own a second property while still be able to get the full 80% loan.
Additional Buyer's Stamp Duty
Another thing to take note is the additional buyer's stamp duty (ABSD).
Here are the various ABSD for different groups of people depending on the number of properties you own:
1st residential property: NIL
2nd residential property: 7%
3rd and subsequent residential property: 10%
1st residential property: 5%
2nd residential property: 10%
3rd and subsequent residential property: 10%
1st residential property onwards: 15%
Total Debt Servicing Ratio
Throughout my mortgage consultancy work, TDSR is the most confusing part for most people who want to buy a property. This is also the pain point where a lot of people who want to buy a private property find out that they actually can't afford the loan.
The current TDSR is 60% which simply means you cannot use more than 60% of your gross monthly income to service your loans. This is inclusive of all loans from housing, car, credit cards, student loans etc.
From this, we can calculate out the maximum loan eligibility for each individual. This is very confusing for a lot of people and it won't be easy to calculate. If you need help to calculate your loan eligibility for the purchase of a HDB or private property, you can email me at firstname.lastname@example.org. You can also email me if you need to take up a new home loan or refinance your housing loan. I provide this service on a complimentary basis. More details of my service here.
Yes you can buy a private property if you own a HDB. It may be a good investment for those who are thinking to go into property investment. You don't have to sell your HDB and buy 2 condominiums in order to rent it out. Can I buy a private property if I own a HDB? Yes you can!