In the Budget Statement today (20 Feb 2017), Finance Minister Heng Swee Kiat announced huge increases in housing grants for those who are buying their first HDB homes from the resale market.
The CPF Housing Grant has been increased to $50,000 for couples who purchase four-room flats or smaller from the resale market, and to $40,000 for those who buy HDB flats that are five-room or bigger.
Together with the Additional Housing Grant (AHG) for lower income families and the Proximity Housing Grant (PHG), first-timer families may claim up to a shockingly high $110,000 in grants, and for first-timer singles, up to $55,000.
But are these grants really FREE money? Or is there a catch somewhere? We examine some implications of getting these grants.
1. The Grants are Not In Cash
First, these grants are not given as cash, but rather disbursed into your CPF account. Hence, a buyer will still need to fork out that minimum 5% in cash for that resale flat (if taking a bank loan), and the rest as a combination of CPF and cash.
2. You Need to Return All the Grants Plus Accrued Interest
Most important to know, you need to return the grants back into your CPF account when you sell the HDB flat, PLUS ACCRUED INTEREST (at CPF rate currently 2.5%) over the duration of your occupation in the flat. This is on top of ALL the CPF monies used for your flat purchase (PLUS accrued interest). Hence, even if your HDB flat has appreciated in value, don’t be surprised when you are left with little or no cash proceeds when you sell your flat. This may pose an issue if you need the cash to pay for your next property, or if you need cash urgently by selling your flat.
3. CPF Charges You More Than the Bank Does
CPF charges you 2.6% currently for the grant amounts. If you are eligible to borrow from the banks instead, they are actually charging you way less – currently around 1.3 – 1.7% for most banks. That’s why some buyers would rather borrow from the bank than take the CPF grants. They pay less interest and get back higher cash proceeds when they sell their HDB flat.
4. You Can’t Use the Grants for Monthly Repayment
For those smart alecks out there who think they could outsmart the government by having the grants sit in their CPF accounts and earn interest on them – sorry to disappoint, but the government is smarter than that! You are only allowed to use the grant monies to offset the cost of the property right at the start. This also means that the interest on the entire grant monies start to accrue from day one. Obviously, one cannot use the grants for monthly mortgage repayments.
5. You May Face a Hefty Resale Levy When You Buy a New Flat
If you sell your subsidised flat in future to buy a BTO, Sales of Balance Flat (SOBF) or Executive Condo (EC), you may be slapped with a resale levy of up to $50,000. So if you are planning to upgrade in future, do keep this in mind. But of course, do note regulations change all the time in Singapore, so you never know.
6. You May Tie Down Your Parents/Married Child Too
If you take up the Proximity Housing Grant for buying an HDB flat near your parents’/married child’s home, your parents/married child must remain in the same town or within 2km of your flat for the next 5 years. This might cause them to miss opportunities for upgrading or downsizing to another property, effectively tying down your parents/married child for the next 5 years as well. All for just $20,000 of CPF money, which you need to pay back including accrued interest, by the way.
While the headline figure of the $110,000 grant looks super generous and sexy, it may well come with a price tag. At 2.6% per annum, these low income families may need to fork out an additional $33,000 in accrued interest after just 10 years, on top of the $110,000 grants that they need to return to CPF when they sell their homes.
Just to make it absolutely clear, we are NOT complaining about the grants at all. After all, who doesn’t like free money? Neither are we saying that one should not take up the grants. Some advocate that one should always take the money first, talk later – but it should really depend on your own unique situation.
In short, we should be aware of the fine print before we take up any grants. If unsure, we should talk to our trusted banker or property agent!
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