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Private Property or HDB Flats?

Private Property or HDB Flats?

In Singapore, buying private property is something that speaks of wealth. Property investments are quite important in this city-state, and owning several houses ensures well-being from a financial point of view, because of a few factors, such as CPF Interest Rate, the tolerance for interest rate spikes, and the availability of lower interest rates for the wealthy.

Private property owners pay lower interest rates than owners of HDB flats, in spite of the fact that HDB flats cost less. The difference in rates ranges from 0.9% to 1.2%, which can be quite significant. The explanation is that for private property a bank loan is always the option, with rates ranging from 1.4% to 1.7%, while the HDB concessionary loan is around 2.6%, as it is pegged at 0.1% above the CPF rate.

In the event of choosing a bank loan, however, you need to consider your tolerance for interest rate spikes, because bank loan rates are variable, which means that they can easily spike, or drop, making them a riskier choice for the average Singaporeans, who can’t afford them rising too much. The advantage of the HDB concessionary interest rate loan is that it is practically constant, which means there is no high risk of it rising dangerously during the loan tenure. In other words, HDB flat dwellers can’t afford private property, because they can’t afford the risk involved.

Those who can afford a bank loan have more to benefit from CPF (Central Provident Fund), too. In case of buying a house and deciding to make payments for the house using CPF money, which is an acceptable option in the event of getting a bank loan, your CPF money is likely to increase at a much faster rate than what the loan initially was, and as you pay off more of the loan, the monthly payments decrease, because of the fact that your home loan is gradually amortized, whereas the CPF grows at 2.5% compounding interest. If you use the HDB concessionary loan in this case, the interest rate is 2.6% – that is to say, 0.1% above the prevailing CPF rate.

HDB flats need to remain public housing, a fact that has drawn some measures, such as de-linking of new flat prices from resale flat prices, which makes these flats a less important asset than private property.

So, when it comes to the ultimate advantage of private property in Singapore, buying private property can’t be rivaled, as it’s simply a means to get wealthier, and far better an asset.