• Billy Ong

2 Key Things I Avoided In My BTO Application

"Want to apply BTO?" is the famous "I want to settle down with you" phrase among many Singaporean guys.

For me, I popped the question last year upon hearing the news of the upcoming launch of the new Tengah neighbourhood.

If you have not heard about it, you can read it here!

Before applying, I began to research on the various procedures and chance upon a post which enlighten me regarding the issue of wiping out my CPF for my initial down-payment.

Before you sign your life, I mean, lease with HDB, you will be presented with the option of either keeping $20K or wiping out your entire CPF.

1.) I avoided wiping out my CPF OA

Wiping out your CPF would mean a reduction of monthly mortgage instalments, but it also means missing out on a risk-free 2.5% the Government gives to everyone in their OA account.

Temporary unemployment could also mean that you will have no emergency funds to tap into from your CPF and forking out cash.

In the case where you decide to sell your house after the Minimum Occupation Period (MOP), you will also have to pay back the accrued interest of 2.5% that is compounded annually.

For those that might think "Well, it is still paying myself back, just into my CPF what", consider also the opportunity cost when your cash proceeds are deducted from your property sale.

What I did was to create a CPF Investment Account (CPFIS) with OCBC, link up my broker and find the safest investment that is available. After calculating the exact amount that HDB will take for the initial down-payment, which equates to 5% on top of your Buyer Stamp Duty and conveyance fee, I proceed to buy the selected investment of my choice.

I chose ABF Singapore Bond Index because I believe it is the least risky option compared to single company stock, of course, what you choose is up to you and you should determine your risk appetite.

After the initial wipeout of your CPF after the down-payment, I will then proceed to sell off my bonds and leave it to CPF for the risk-free 2.5% returns on my OA.

Being self-employed, it is important for me to have reserves in my CPF OA in case there are down periods without income, consider your financial situation and see if this plan is feasible for you.

2.) I chose not to take up the Optional Component Scheme

For those that do not know, HDB allows people to choose if they wish to have flooring and various fittings done for them. However, this scheme is not available for BTOs that are built using Prefabricated Prefinished Volumetric Construction (PPVC).

We were offered two components, flooring and various toilet fittings. The reason we chose not to have those is that HDB add up these cost to your mortgage payment. Essentially, it means that you will be paying interest on your renovations! Imagine having a toilet bowl that cost an extra 2.6% charged via interest.

From a financial point of view, it makes more sense not to include interest cost to liabilities. The last I check, a few people have also feedback their regret of having a pre-installed flooring because it might not suit their interior design ideas too. It would also cost more if you decide to hack away the flooring and install something new.

HDB is a great option for Singaporean to obtain the cheapest form of housing. However, there are still ways where we can get the most value out of it. Unnecessary costs can be put into somewhere else, like savings and investments.

Let me know what you think of this and if you have other suggestions that can help people in their BTO selection, feel free to comment!



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