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.
B) Tenancy-in-common
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.
Diagram 1: HDB’s response to confirm that a couple can adopt the Owner + Essential Occupier holding manner to bid for a HDB BTO
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.
Diagram 2: Option to choose between occupier or co-applicant during BTO application
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 12% on secondary home purchase for a Singapore citizen.
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 $120,000. 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 12% 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.
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.
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Thanks heartlandboy for sharing this! Its an insightful piece and one that TW and I found out last year as well when a property agent came knocking on our door. We are gutted too! We will love to keep our current home, and look for another property to be honest! Looks like we have to look forward to the next opportunity to do so!
Hi Heartland Boy. Thanks for this article!
Just to clarify. The difference between Joint tenancy and tenancy-in-common is the right of survivorship? I.e. what happens to one of the owner’s share after he/she is not around
Hi Ming Xuan,
Yes, you are right!
If a couple can only rely on one income instead of two incomes to secure a HDB/Pte loan and with only one CPF to service the monthly mortgage during the MOP, it is likely that the couple’s combined income may exceed the HDB ceiling and thus disqualify the couple for the BTO flat at the time of application.
It was only a few years ago( I think it was 2-3 years ago)that HDB disallowed a couple after their flat’s MOP to change the holding manner from Joint Tenancy( JT) or Tenancy in Common(TiC) to that of ‘Sole Ownership and Essential Occupier’ to exploit this loophole of acquiring a Private Property without releasing their MOPped HDB. That abused process was then known as ‘decoupling’. The rampant abuse is gone. You think that HDB doesn’t foresee that in the initial application of a couple exploiting this loophole? Anyway, it has raised the income ceiling for BTO since then.
Hi Fred,
Thanks. I still don’t quite understand your comments.
Does it matter whether it is one owner or 2 owners (applying together) to ascertain whether the household has breached the HDB income ceiling?
To be eligible for HDB BTO, HDB wil use Household income; if a couple uses the mode of ownership of Sole Owner and Essential Occupier, both the salaries will be computed for eligiblity for BTO but for the loan purpose only the Sole Owner ‘s salary is computed and for CPF monies for payment and mortgage.
I stated that if only the Sole Owner’s salary is used to shoulder the burden of loan and CPF usage, obviously that applicant’s salary is high enough to shoulder it. Worse, if it is combined with the spouse( Essential Occupier) for eligibilty purpose, their salaries may even exceed the salary ceiling.
The method can be used if one of the applicants happen to be self-employed or own business where flexibility of income declaration can be adjusted. Example, a spouse can declare no or low income for the year when HDB application is filed.
Hi Fred,
Yes, for Para 1, I understand and agree with you. That is also clearly stated in my article.
For Para 2 “Worse, if it is combined with the spouse( Essential Occupier) for eligibility purpose, their salaries may even exceed the salary ceiling”, Didnt you already state in Para 1 that HDB assess eligibility based on household income? So it doesnt matter whether it is a owner-owner combo or owner-occupier combo right? If the combined household income exceeds the salary ceiling, the couple is not eligible. Pardon me, but am I missing anything here?
Hi, thanks for this! My gf and I have booked a BTO with both of us as owners. We have yet to collect the keys, do you know if it is still possible for us to change to owner and essential occupier now since we have yet to collect our keys and pay the downpayment?
Hi Ryan,
Based on what I know, I dont think your chances are very good. I suggest you write in to HDB to check.
Hi HLB. I’m applying for a HDB resale with my spouse who is a foreigner, we’ll be applying under owner/occupier. If she has has an existing private property overseas, it would not affect our eligibility for HDB resale correct?
Hi,
I am not familiar with situation pertaining to foreigners who are applicants as well. I suggest you speak to a HDB officer on this. Thanks
Thank you for the insightful post heartland boy.
Just wondering if SINGLE OWNER AND ESSENTIAL OCCUPIER scheme is applicable to Resale HDBs as well?
I.E at the end of the 5 year MOP, the occupier is able to purchase a property without incurring the ABSD
Thank you!
Hi Alan,
I think it should be applicable as well since it is just a form of ownership structure. But pls check with HDB officer, that will be the best answer.
The occupier cannot own a PRIVATE property.
Any person who is listed as an essential occupier in a new flat purchased directly from the Housing Board (HDB), a resale flat under the CPF Housing Grant scheme, a Design Build and Sell Scheme flat or an executive condominium, must continue to be listed, and physically and continuously occupy the flat during the five-year Minimum Occupation Period (MOP). He/ she cannot own foreign or local private property until after the five-year MOP, and HDB must be notified before the Option to Purchase for a private property is exercised.
Hi Tan,
Thanks for your clarification and wholeheartedly agree. If I could ever change the home ownership arrangement, I would have chosen the owner and essential occupier scheme and have the occupier purchase a private property after MOP without incurring ABSD
Hi if I manage to change from joint ownership to owner-occupier prior to BTO keys collection, any idea what happens to the downpayment amount which has been paid by the “occupier”? Because technically occupier is not supposed to be able to pay using his/her CPF monies..
Hi Kelvin,
No idea since I have no experience. I am more curious if you are successful in changing, do update me?