Is it riskier for single or zero-income couples to buy HDB flats?

HDB should give clarity on how financially stable it expects couples to be before they apply for homes

May 18, 2024

INTUITIVELY, you would think that if a person is unable to secure sufficient loan financing before buying a home, the prudent thing to do would be to not proceed to make such a purchase.

Without a loan, you could, after all, be stuck having to pay for a large proportion of the amount in cash.

For some buying Build-To-Order (BTO) flats from the Housing and Development Board (HDB), it may not be possible for those who are in school or drawing only a single income to obtain an adequate loan to buy a flat.

Because construction takes years, couples may want to apply for a flat while they’re still in school with no income, so that they have a home when they graduate and get married.

In fact, the government has acknowledged as much. This is why it has made allowances for a certain group of buyers – couples who are both still in school.

Couples where both are full-time students; or one is a national serviceman; or both have completed full-time studies within the last 12 months before their housing flat eligibility (HFE) letter application qualify for deferred income assessment (DIA).

Such “zero-income” couples are essentially waved through the system when they first apply for a BTO flat. Their income position is assessed about three months before flat completion.

In fact, changes were recently made to improve the affordability of flats by reducing the initial amount payable under the staggered downpayment scheme by such “zero-income” couples after the selection of a flat to 2.5 per cent, from 5 per cent previously.

On the other hand, another group of young couples – who are in an almost similar situation – gets no such privileges.

Under current HDB rules, couples, in which one party has been working for more than 12 months, while the other is still studying or has only recently graduated, do not qualify for DIA.

Instead, they are given an HDB loan that is effectively half of what a double-income couple can get, assuming both parties eventually find jobs.

It is not unheard of for single-income couples with a reduced HDB loan financing eligibility to turn up at the HDB office at flat selection time, hoping that their loan quantum eligibility can be reassessed upwards when it is time to collect the keys.

But they may be warned by the HDB officers who process their selection that such a strategy is risky and, if not approved, they could end up having difficulties paying for their flats.

They are then given three choices – either get a bank loan closer to the date of key collection, pay for the balance in cash, or give up the flat.

While HDB has clarified with The Business Times that a fourth option for couples to reassess their loans closer to flat completion is available, anecdotal evidence suggests that couples are being steered away from the reassessment option.

One buyer who encountered difficulties is Aliff Dien. The 28-year-old public servant and his fiancee were successful in applying for a BTO flat. On May 8, 2024, he was invited to the HDB office to select his flat; he had set his eyes on a four-room flat in Tengah.

But he turned it down after finding out he and his fiancee did not qualify for DIA. Only his income was assessed since his fiancee was still a student when they first applied, although she will start her full-time position next month.

He said he was told by an HDB officer that banking on a reassessment for his loan was “not advisable”, because reassessments are mainly for smaller loans and not larger ones.

“If I appeal for a higher loan, it’s like a 50-50 chance. To me, it’s quite risky if HDB rejects my appeal,” he said.

Taking a loan from a bank instead was an option open to him, but he was concerned that a bank loan would incur higher interest rates.

Furthermore, Aliff said the HDB officer warned that unlike an HDB loan that was more flexible in terms, taking up a bank loan could result in having to surrender his home if he could not pay his loan should he lose his job.

If he had opted to pay for the balance of his flat purchase in cash, he would have had to cough up S$160,000 for his four-room Tengah flat.

In my view, couples such as Aliff and his fiancee should not be treated differently from zero-income couples.

Both groups do not have income that would be stable enough to be assessed for any sort of loan and could be considered equally financially unstable.

Yet, zero-income couples go through an easier process with their HDB financing, compared to single-income couples.

Of course, single-income couples have alternatives. They could pay a higher cash amount or pay for a higher-interest-rate bank loan, but these options only serve to unnecessarily penalise this cohort of buyers.

Clear policy needed

Anecdotally, some couples have been able to get their HDB loans reassessed closer to flat completion.

However, numerous couples have received warnings against doing so when they applied for flats with their HFE applications.

Some have also suggested that this is due to HDB’s desire to close a loophole in the grant process, whereby couples sign up for a flat with a small income and receive a large housing grant, before reapplying for a large housing loan closer to flat completion.

HDB has told BT that a couple could still have their enhanced housing grant clawed back under the HFE application, if they are later reassessed for higher loans.

Instead of coming up with vague warnings of unemployment and evictions, HDB should clarify how financially stable it expects couples to be before they apply for flats.

It appears to be encouraging zero-income couples to move along on their home ownership journey, yet seems to be discouraging single-income couples from doing the same.

After all, are zero-income and single-income couples really financially secure enough to afford the flats to begin with?

https://www.businesstimes.com.sg/pro...-buy-hdb-flats