Friday, November 12, 2010

My HDB Purchase

I have selected a HDB flat last month, and paid an option fee of $2k. It's a build-to-order flat that costs $325.8k, and should be ready in about 2013. This is indeed a very big expenditure over the long run, and it makes me wonder how am I going to service the loan without much stress.

Extrapolating the growth of CPF savings from me and my girl's accounts, I estimate the total CPF savings to be sufficient to cover about one third of the cost by mid 2012. Basically, that leaves $200k to be serviced, still a substantial sum. In addition to that, I estimate that another $50k (at the minimum) might be needed for renovations. That puts it at a total of nearly $400k. I will need to plan financials when the time comes. For now, it shall remain as that.

I seriously wonder how most young Singaporeans are going to survive well into retirement with housing prices rising faster than the median salary. Is there any point being asset rich and cash poor?

While I know I'm ahead most of my peers, the total initial cost estimation is still at best, stifling. Guess this is what we can expect if we want to stay in a bustling city state with most amenities within tens of minutes of driving distances away.

At the moment, I have two choices crossing my head, and I've not much idea which is the best approach.

1) Allow HDB to deduct all of CPF OA amount
It will reduce the absolute loan amount, but nothing is left in CPF for a long time.

2) Use some CPF funds for CPF investments first, before letting HDB deduct the remaining amount. This will result in an overall increase in debts.

I'm unsure if number 2 would be a better choice. Granted, I could transfer most of my money into SingPost and SPH, yielding me 5% to 6% per annum. This appears to be more profitable when compared to the 2.6% interest being charged by HDB. It's slightly riskier, but in the long run, it might be more worth it.

Anyone has any thoughts? I have not run any simulations yet, but I'm still for number 2 at the moment. Afterall, it's a marathon and we have to think far ahead.

Additional Thoughts:
I have done this before for my CPF Education Loan. My spare funds were used to enter SPH and the market instead of paying my loan asap. The difference between yield and interest has benefited me much like how a bank benefits from issuing fixed deposits.


  1. Are you treating it as a dream home to live in or just an investment for future returns?

    Read? http://createwealth8888.blogspot.com/2010/09/will-you-try-to-pay-off-your-housing.html

  2. depends on how secure is your income.

  3. Hi cw88,

    It's not a dream home nor an investment. Just a safe temporary haven while I build up my overall networth.

    I have 5 years of time [after getting the key] to decide what I want to do with it.

  4. Hi K,

    I believe my income will be sufficiently secure as I have the ability to generate it without being employed too.

  5. Hi,

    I think option 2 is best. HDB loan is the cheapest loan around, you should max up the period to repay your loan.

    For my own case, I max up the entire amount to pay in full but regretted it later as I have no money in my OA for CPF investments.

    My 2 cents worth


  6. Why not option 3: Invest part of your CPF and use the balance to reduce your loan amount.

  7. i think u basically have no problem. but u are a savvy person and need the liquidity as you can get. treat your cash outside as your retirement savings and CPF as your housing and medisave fund

    Investment Moats.com

  8. I think you might want to take a risk management approach - i.e. if certain bad scenario happen, will you be able to service the loan under each of those situations? For instance, [and touch wood] disability, death, loss of employment by either yourself or your girl. Should any of these happen, will you be (or your girl) be able to meet the monthly instalment with CPF alone? That would determine your tolerance and the amount that you would want to pay down for your house, till you reach an acceptable level of risk - one where you can sleep peacefully.

  9. I emptied my OA account, because I won't gamble with my lodging on anything... any money you put into clearing the loan is effectively a 2.6% FD, which isn't all that bad really.

    Cash for investments, CPF for housing and sleep with a peace of mind =)


  10. Congrats on getting your BTO..

    Where is it?

    I got mine early this year too in Punggol...

    I am guessing yours is a 5 room..

    Well, my preference is to clear the loan asap..
    Forget abt fanciful CPF investment..

    You never know what the future holds and job security is a big question mark as we approach 40s...

    I hope to clear my loan by 37...


  11. hmm, i m really interested in the 2nd option too. if u do run a simulation, please blog it here^^. the problem i see with 2nd option is what are we looking for? long term? or short term (ie 5yrs)? are we going to sell it after 5 yrs?

    if long term, i would be more biased towards option 2, since the longer ur cpf gets to roll for dividend the higher the return, in the end u will end up taking out less frm ur pocket because u would be using all of ur dividends to fund the hdb.

    if short term, then wat is the amount of interest u r going to pay if u terminate loan early? option 1 would be better? since less loan would mean u pay less interest when u want to clear loan earlier?

    correct me if i m wrong. any comments any1?

  12. Hi Phyllis,

    you are right that HDB is the cheapest loan around. What I have done so far is instead of paying one lump sum for my CPF education loan, I use the money to enter SPH, Starhub, etc, which yields 6%+.

    The only thing different is the absolute amount of the loan for this HDB.

  13. Hi axt,

    we are all forced to have a minimum sum of 20k in the CPF. That portion would be deducted for the HDB, so it will sort of reduce the loan by at least 40k.

  14. Hi Drizzt,

    I was thinking if I invest the funds in the CPF, the dividends that enter could cover some of the loan amount too!

    Probably wishful thinking on my part :x

  15. Hi Lizardo,

    well said! Contingency planning is indeed important.


  16. Hi P,

    That's another of seeing it, 2.6% FD. Thanks. :)

  17. Hi Zelphon,

    yup, it's a 5-rm at Fernvale.

    I think I need to read up more on HDB repayment. Not sure if can choose to pay lump sum into HDB from CPF. So if anything happens, liquid stocks can still be sold and be used to pay down the loan.

  18. Hi Yap,

    those are valid points and concerns. My main problem is I'm not sure of the rules yet. Another main concern is if HDB will come out with any more draconian rules too to dash our wishful thinking.

  19. Hi,

    If you have a spare room to rent out, the rental income will lightened your burden and you will free less stressful.


    Freedom Achiever

  20. Hi Momo,

    Just 4 words of advice - Pay it off soon.

    And congrats on your new home!

  21. Hi Freedom Achiever,

    you are right. That's one of my plans too.

    I might even convert one portion for my tuition as well...

  22. Hi MW,

    Thanks. I knew you would say that :)
    It's still 3 yrs more though... I still have time to ponder...

  23. I took a 30 yrs HDB loan, took out quite an amt for investment before CPF was wipe out. wait for ur OA to reach $20K then reduce the yrs of loan. As the interest for the first 20K in OA is 3.5%.
    I believed HDB Loans are "good" loans to have.. therefore can use the $$ for better yields.

  24. HI JW,

    Beside the min sum, what i did is i calculate how much i can invest if i max up my monthly payment with a 15 yrs loan period and i invest the rest.

    I managed to cleared off my loan on the 11th year wuth a lump sum. And my investment is still running with a 7% return.

    Anthony (axt)

  25. Hi qinzheng,

    that's a good idea. Didn't consider that option beforehand. Thanks for sharing!

  26. Hi axt,

    did you clear off using CPF or using cash?

  27. I feel very sad for this younger generation of 20 to 30 plus.
    During our time(30+ then, now going to 63+), we paid fully with our CPF OA - about 127,000 for a Bedok HDB maisonette.
    And we were only average wage earner at that time.
    So without having to pay interests on any loan throughout our lives, we have more capital to invest and proper faster.
    I wonder what's going to happen after your generation.

    Very sad.

  28. Hi Anonymous,

    I kinda agree with you. 30 years ago, HDB was under cost-based pricing, which priced flats very cheaply.

    Then again, life is never fair. Just like my uncle who was the last batch who did not need to do NS. Anyone born 1 year later than him would need to serve 2.5 years.

    Such is life. :(

  29. Hi JW,

    I must be "lucky" too.
    I am the same age as your uncle.

  30. Hi Anonymous,

    I'm "lucky" too! NS was reduced to 2 years 3 weeks after I ORDed!!! LOL!

  31. Hi JW,

    Using CPF. Have to sell off some shares though.

    Hi Anony (15/11/2010),

    Yes indeed very worrying. Even for this current generation if you didn't plan/budget ahead.

  32. If you want to be prudent with your money, you don't really need to spend min 50K on renovation ...

  33. Hi Anony (18/11/2010),

    $50k is merely an estimate. It does not have to be absolute when the time comes. It's always much more prudent to prepare for more money than what is necessary to avoid falling deeper into debts or desperate situations.

    But well, I could probably just lay groundsheets on the concrete floors, and take that as my bed. There's no need for any furniture, flooring, appliances at all.

  34. Hi JW,

    May I know whether you pay up the HDB through bank loan or hdb loan? Or is it already fully paid up?

    Thank you.

    1. Hi Hyruga,

      I used HDB loan so far, but may decide on something different later on... Not decided yet.

      Luckily you caught me at a time when I more free and about to post something :)

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