Property Mortgage 101: Looking at HDB Loans and Flats

The Singaporean government has established the Housing and Development Board or HDB as an answer to the increasing problems on housing shortages. Housing opportunities are provided by HDB to help those who do not have much choice on properties. Singaporean citizens or those who have been granted permanent residency can avail of HDB loans. This Singaporean property loan can be used to get a flat for the borrower and his or her family. With an interest rate of 2.6%, HDB loans are viable options for those who want to get their own places. The 99-year lease hold also makes HDB flats one of the most permanent residential units that anybody can have.

HDB loans were originally based on the land value and construction cost of the unit. The small interest rate represents the profit that the government will make. Because of this, many think that they can make money off the flats by taking out HDB loans and leasing the unit to somebody else for a profit. Some buy flats then resell it at a higher cost. However, these are illegal acts according to strict HDB regulations. There exist rules on minimum years of residency in the unit before leasing or reselling the property. The flat may be confiscated by the government if they find out that you broke the agreement and guidelines of the loan.

The strict regulations on HDB loans have sparked debates on the issue of having flats as assets. There were issues before that the government wilfully constructed a small number of flats to increase the demand for these units, increasing the selling price of each flat. Most modern units have added features like extra small rooms or frills that do not necessarily add value to the flat but increased the construction price. This means that borrowers have to take out bigger HDB loans in order to get their hands on these flats. Without an increase in income, paying the loan has become difficult to some owners. Because of this inability to pay the home loan, forfeitures of units have begun to take place.

In order to make sure that HDB loans work for us, ensure also your capability to pay the loan. HDB flats can be difficult to maintain financially, making them more of liabilities than assets in the long run. Remember that the government controls the demand and supply of HDB flats. The regulations and costing can also change from time to time without necessarily informing the buyer and borrower. Because of this, you may end up paying more than what you have prepared for. A financial adviser will be able to help you get the education and protection you need so that you can make wise investments in the future. Your financial stability is still the most important aspect in making these decisions. While HDB loans are there as an option for us as potential home owners, make sure that you study each regulation and factor carefully before getting into an agreement with the lending institution.

Find out more at Singapore Home Loan website.

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