Is holding your HDB long term an ASSET or LIABILITY?

When HDB owners express their desire to leave a legacy for their children, they often refer to their property. However, it's crucial to evaluate whether the property they pass on is truly an ASSET or LIABILITY?

Let's consider the scenario of Mr. and Mrs. Chua to better illustrate the implications of inheriting an old age HDB flat.

Meet Mr. and Mrs. Chua, who were in their mid 30s who has a son who is 5 years old when they bought a 15-year-old resale HDB flat. Fast forward 25 years, and their son is now 30 years old and ready to start a family of his own. However, Mr. and Mrs. Tan continue to live in the same HDB flat they purchased in their 30s.

In the event that Mr. and Mrs. Tan pass away, and their HDB flat is inherited by their son.

It's important to note that if the son already owns an interest in another HDB flat, he will have to sell one of the flats, regardless of whether it is the inherited HDB flat or his existing one. This requirement applies even if the son only has partial ownership in an HDB flat.

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HERE’S THE DILEMMA THEIR SON FACES

After the 25 years, the current age of the flat is 40 years now.

#1 Limited CPF Usage for Older HDB Flats

When financing an HDB purchase with CPF, limitations on CPF usage may restrict your ability to buy an older HDB with less than 60 years remaining on the lease. Full CPF usage is only permitted if the remaining lease covers the youngest buyer until age 95, and prorated usage is allowed if it does not. This may limit your options and make it difficult to afford an older HDB flat.

#2 Reduced Loan Eligibility for Older HDB Flats

Before buying an HDB, it's essential to know how much you can borrow. However, for older flats, banks may not loan as much compared to newer ones due to loan-to-value (LTV) limits. When your loan tenure exceeds 25 years or goes beyond your age of 65, the LTV limit is lowered. In general, banks tend to reduce LTV for older flats, which may impact your financing plans. Even if you're eligible for a $300,000 loan for a $400,000 resale HDB with a 75% LTV, the bank may reduce the LTV for an older flat, forcing you to pay more cash upfront.