There are several aspects to consider when getting your first HDB flat (whether BTO or resale) and the activities listed below are by no means exhaustive:
- Choosing a HDB BTO or Resale flat
- How to choose your HDB unit
- Getting a HDB loan or a bank loan
- Opting in or out of CPF Home Protection Scheme
- Working with an interior designer you can trust to renovate your unit
However, one of the least thought about considerations is the manner of the home ownership. Ironically, its consequences (mainly financial) could be more severe than any of those considerations listed above. It was only in 2020 that Heartland Boy learnt about the possibility of adopting a Single Owner and Essential Occupier scheme for a BTO HDB flat. This is one of the manner of holdings that has little public awareness but with potentially significant monetary advantages for a couple. In this article, you will find out more about the Owner And Essential Occupier Scheme as well as the pros and cons of choosing this holding manner.
What Are The Manner Of Holding Available For Your HDB Flat?
A) Joint Tenancy
Each of the co-owners together own the whole interest in the flat and the right of survivorship applies. Upon the demise of any joint owner, his interest in the flat would automatically be passed to the remaining co-owners.
Each co-owner holds a separate and distinct share in the flat where the right of survivorship does not apply. Upon the demise of a co-owner, his interest in the flat will be distributed according to his Will (if any) or in the absence of a will, in accordance with the provisions of the Intestate Succession Act.
Source: HDB Website
A) Joint Tenancy and B) Tenancy-in-common are the 2 types of holdings available if there is more than 1 owner of the property. However, what if there is only 1 owner for the property? Is that possible for a couple (whether as husband and wife or fiancé-fiancée) applying for a BTO or resale HDB unit?
C) Single Owner And Essential Occupier
Between the couple, one is a single owner of the HDB unit while the other is an essential occupier. An essential occupier is a family member who forms a family nucleus with the applicant to qualify for a flat from HDB. As information on HDB’s website regarding this holding manner is not easily available, Heartland Boy got a written reply from HDB to confirm his understanding.
Note that to qualify for this scheme, couples must first list one of the applicants as the single owner and the spouse/fiancé as the essential owner during the flat application as shown in Diagram 2. In addition, the usual eligibility conditions to purchase a HDB flat will apply.
Cons of the Owner And Essential Occupier Scheme
1. Cannot use Essential Occupier’s CPF
Being listed as an essential occupier and not as an owner means that the essential occupier’s CPF funds cannot be used to fund the purchase of the HDB flat. This includes not just the initial downpayment but also the monthly mortgages (if any). This could be stressful for the couple’s finances from the cashflow perspective.
2. Burden of getting a loan falls on the Single Owner
Likewise, only the Owner’s income can be assessed in determining the amount of loan provided by HDB/bank. With only a single source of income, the amount of loan disbursed by the bank could be significantly lower and this would mean a higher downpayment required.
3. No Legal Ownership Right For Essential Occupier
While the essential occupier’s CPF funds cannot be used to finance the HDB flat, there could be a mutually agreed behind the scenes financial arrangement between the couple for the essential occupier to pay with cash instead. However, even if the essential occupier has paid cash with it, he or she still has no share in the HDB flat.
4. MOP Still Applies For Essential Occupier
Note the mandatory Minimum Occupation Period (‘MOP’) regulation applies whether you list yourself as an essential occupier or owner of your HDB flat. In other words, both owner and essential occupier must fulfill the MOP before purchasing their next housing.
Pros of the Owner And Essential Occupier Scheme
Even with the numerous disadvantages in choosing the Owner+Essential Occupier scheme, they could be outweighed by the advantages afforded for some couples.
5. Essential Occupier Not Required To Pay ABSD
The Additional Buyer’s Stamp Duty (‘ABSD’) was first introduced in 2011 and revised in 2013 and 2018 as part of Government’s cooling measures to curb rising residential property prices in Singapore. (Source: SRX) Based on prevailing rules, the ABSD rate is 17% on secondary home purchase for a Singapore citizen. (as at 16 Dec 2021)
Under the eyes of the law, the essential occupier is not a home owner. After the essential owner completes the MOP (Point 4), he or she would be considered a first-time property owner when buying a private property. If the private property is valued at $1,000,000, the ABSD saved would be $170,000. That is very significant tax saving! With $1 million almost being the floor price these days for a private property, the ABSD saved could be disproportionately high (and worth it) when compared to the difficulties listed from Points 1-4.
6. Eligible For A Higher Loan Quantum
Without being a property owner, the essential occupier would obviously not be allowed to take up a property loan for the HDB flat in the first place. This has been reiterated under Point 2 earlier. The advantage is that the essential occupier, with no existing housing loans to speak of, would then qualify for a higher loan quantum (capped at 75% of LTV for loan tenure of 30 years or less) as opposed to the maximum 55% limit for a second property loan when making a private property purchase.
Heartland Boy’s Home Ownership For His BTO
Readers might be curious whether Heartland Boy opted for a Owner And Essential Occupier combination or the more conventional Joint Tenancy/Tenancy-In-Common ownership holding manner for his own HDB BTO flat. He went for the Joint Tenancy ownership structure, only because he DID NOT KNOW that the Owner and Essential Occupier scheme was available when he balloted for his BTO unit in end 2014. If the Heartland Couple were to buy a second property without disposing their current HDB apartment, they would be slapped with a hefty 17% tax bill on the purchase price of the second property based on existing property regulations. That is a huge price to pay for ignorance. Heartland Boy is particularly embarrassed at messing this up because he sets a higher level of expectation on this given that he is from the real estate industry.
Therefore, with the benefit of hindsight, the Heartland Couple would have plonked for the Ownership and Essential Occupier holding structure in a heartbeat. While they are living in regret today, Heartland Boy enquired with HDB if it is possible to amend their ownership structure to the owner and essential occupier scheme.
Unfortunately, only extenuating circumstances (eg: divorce, separation, financial hardship, health conditions) would be considered for HDB to grant a change in ownership status. Should the conditions be met, the fees involved are likely to be minor (stamp, registration and conveyancing fees) compared to the future 12% saved. ($120,000 on a $1 million property). One must also be mindful that ABSD is under the purview of Inland Revenue Authority of Singapore (IRAS) and HDB is unable to comment on this issue for those who wish to amend their existing HDB ownership structure.
One thing he did make amends was converting from HDB loan to bank loan during a low-interest rate environment caused by Covid-19. As a result, he saved $14,000 simply by refinancing. If you want to learn more about the housing loan that you will be able to get given your current financial circumstances, try this free refinancing tool from Property Guru. Play around with the various permutations to learn about affordability and budget. Highly recommend trying this activity before making any decision on your next home.
In conclusion, do weigh the pros and cons carefully before deciding which holding manner for your HDB flat (both BTO and resale) best suit your family circumstances. The financial as well as emotional issues need to be carefully considered because there is no one best solution for every household.
If you would like to obtain the best mortgage package available in the market, do work with a professional mortgage consultant from PropertyGuru Finance.
*PropertyGuru is an affiliate partner of Heartland Boy and he earns a small fee for every successful referral.