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Frightening HDB rules

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If you managed to purchase a new HDB flat, especially a Build-To-Order (BTO) flat, you would have made your first pot of gold. This is because new HDB flats are heavily subsidized and after meeting the Minimum Occupation Period, they can be sold to the open market for substantial profits. So congratulations and lucky you! But there are a few frightening HDB rules that Singaporeans must know. Failing to do so may hamper your financial plan or even worse, damage your wealth.

In this article, I will touch on some of the important HDB rules. Note that the information is based on my best understanding of the rules. If there is any factual error, kindly highlight to me.

Eligibility to buy

Most Singaporeans thought that they are entitled to buy new subsidized flats like BTO, Executive Condominium (EC) and Design, Build, Sell Scheme (DBSS) twice. Actually, they are only half-correct. Yes, Singapore citizens are entitled to buy new subsidized property twice in total but not twice per type of property. This means that if you have bought a new BTO flat, subsequently you are not allowed to apply for BTO flat again. You can only apply to purchase new EC or DBSS.

HDB

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The rationale of this policy is probably to ensure an even distribution of the demands for different categories of subsidized HDB flats. Otherwise, there may be excessive demands for BTO, EC or DBSS. But many Singaporeans thought that they are entitled to a BTO for the second time, which is not true due to this policy.

Singaporeans thought that they can make a second pot of gold through buying a second BTO but sorry for pouring cold water, the government only let you strike gold once. So make sure you fully utilize this one golden chance and don’t mess it up.

But I guess the scary truth about HDB rules is the resale levy and the little known rule on deferred resale levy. Read on to find out more.

Resale levy

Many Singaporeans know that if you sell off your subsidized flat and then buy a second subsidized flat from HDB, there is a need to pay resale levy. But for the uninitiated, I will just cover the rules here:

You need to pay a resale levy in either of these cases:

  • You dispose of your subsidised flat and then buy a second subsidised flat from HDB
  • You dispose of your subsidised flat and then buy an EC from a developer where the land sale was launched on or after 9 December 2013, including those where tenders were not closed, i.e. Westwood Avenue, Canberra Drive and Anchorvale Crescent

You need not pay a resale levy if you are buying any of these:

  • Design, Build and Sell Scheme (DBSS) flat from a developer
  • EC from a developer; where the land sale was launched before 9 December 2013
  • HDB resale flat
  • Private residential property

Depending on the year in which you sell your first subsidized HDB flat and also the type of flat, the resale levy can be a flat or graded rate.

If you sold your first subsidized HDB flat on or after 3 March 2006, the following flat rates apply:

2-room: $15,000

3-room: $30,000

4-room: $40,000

5-room: $45,000

Executive: $50,000

But things become very scary if you sold your first subsidized HDB flat before 3 March 2006. You need to pay the following graded resale levy:

2-room: 10 – 15%

3-room: 20%

4-room: 22.50%

5-room and Executive: 25%

This means that for those who sold their first subsidized HDB flat and then downgraded to resale flat, they need to pay a substantial amount of resale levy if they want to buy a second new flat from HDB.

But the biggest catch is not the amount itself, but the timeline of payment. In this case, HDB classify such transactions as “first subsidized flat being disposed of before taking possession of the second subsidized flat”. Therefore, the resale levy must be paid in cash upon taking possession of the second subsidized flat, instead of being deducted from the sale proceeds upon the sale of the first subsidized flat. Hence, second timer homeowners affected by graded resale levy must be prepared to fork out a large sum of hard cash to settle the resale levy.

Lastly, most Singaporeans are not aware that if the graded resale levy was not paid when the first subsidized flat was sold, it would be considered as “deferred payment” until another HDB flat is purchased. The interest rate is a whopping 5% per annum. So if you purchased a second new HDB flat 10 years after your first HDB flat, the amount of interest on the graded resale levy could be explosive.

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4 Comments

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  1. For 2nd BTO flat, it has to be an upgrade. E.g. If the first time you buy a 4rm BTO, the second time has to be a 5-rm or EC.

    If you opt not to pay the levy when you sell your BTO flat and purchase a resale flat, years later when you apply for a upgraded BTO ( from the first BTO), there is a 5% p.a interest surcharge of the deferred levy. E.g. If you sold a 3-room direct purchased HDB for $50,000, the levy would be 20% of the $50,000. If you chose not to pay after you sold but deferred to the time, you decide to purchase directly from HDB again, the intervening years will cost you 5% compounded interest! Which can be hefty.

  2. Hi Fred,

    Thank you for your comments and these are exactly what I am trying to highlight in my article. Unfortunately, many Singaporeans are unaware of these HDB traps.

    I only found out about all these recently when I purchased my new EC. The agent is a very experienced and kind person who shared with me that many Singaporeans lost a lot of their hard-earned monies because of this ignorance.

    So please help to spread knowledge and do our part as fellow Singaporeans!

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  3. Hi,

    Thanks for educating those who might not be aware of these rules. The resale levy is really an hefty amount.

    What about the new HDB rules affecting seniors? Could you help explain them as well?

  4. Hi Pete,

    Thank you for your comments. As for your request, I will craft an article on how the HDB rules will affect seniors. Please stay tune.

    Regards,
    Gerald
    http//www.sgwealthbuilder.com

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