We highlight some commonly overlooked pointers when buying a resale flat.

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We highlight some commonly overlooked pointers when buying a resale flat.
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Buying property can be seen as an important milestone in your life, but before you get too excited, here’s what to keep in mind before making your first Housing Board flat purchase.

1. You may still need to pay the COV.

It’s a common misconception that resale flat buyers no longer need to pay Cash over Valuation (COV). However, it depends on the situation.

Previously, buyers would make an offer for a resale flat based on its valuation report, plus offer a cash amount known as the COV. An HDB maisonette in Bishan once attracted an enviable COV of $250,000, selling for a record $1.05 million in 2013.

Since March 2014, HDB overhauled the system by allowing only a resale flat buyer or his agent to request a valuation report, and only after agreeing on one purchase price.

You need a valid valuation report if you are using your CPF funds or a housing loan from HDB or the bank. This request must be submitted by the next working day after you have been granted an Option to Purchase (OTP) by the seller, who has accepted a mutually agreed option fee of between $1 to $1,000. During the option period of 21 days – which includes Saturdays, Sundays and public holidays – you’ll need a valid HDB Loan Eligibility letter or Letter of Offer from the bank, before you can exercise the OTP.

If you agreed to pay $500,000 for a flat, but the valuation is only $480,000, HDB or your bank will give you a loan based on the lower of the sale or valuation price in this case, $480,000. You thus have to top up $20,000 in COV. Of course, you can back out and not exercise the OTP, but you will lose your deposit. Always check out recent transacted prices of flats around the neighbourhood to make a fair offer, to avoid a nasty surprise.

2. You’ll enjoy CPF housing grants, but they’ll incur interest when you sell your flat.

A subsidised Built-to-Order (BTO) flat offers buyers the best value, but thankfully, CPF housing grants help resale flat buyers to ease the pinch of buying an older (but more expensive) home.

More good news: In February 2017, Minister for Finance Heng Swee Keat announced in the Budget Statement in Parliament that the Government will increase the CPF housing grant for families buying resale HDB flats for the first time, from a maximum of $90,000 to a maximum of $110,000.

For example, a family will now enjoy a $50,000 grant if they buy a two- to fourroom flat, or $40,000 grant for a five-room or larger flat. Families buying a resale flat to live with or near their parents or married child can get an extra Proximity Housing Grant of $20,000. Depending on the monthly household income, the family can also receive an Additional CPF Housing Grant of between $5,000 (for families who earn between $4,501 and $5,000), to $40,000 (for families earning $1,500 or less).

However, these housing grants are disbursed through your CPF’s Ordinary Account and not as cash. Also, CPF housing grants can only be used to pay off your HDB flat’s initial purchase, or for reducing the housing loan amount. They cannot be used to pay your monthly loan instalments or to reduce your minimum cash downpayment (for those taking a home loan from the bank).

For an excited first-time home buyer who is using CPF funds to pay for the flat anyway, this may not seem important as the grants offset the cost of your new home seamlessly during the buying process.

However, should you sell your flat, every cent used to finance your flat – including the “free” CPF grants – must be returned to your CPF’s Ordinary Account, with accrued interest (currently at 2.5 per cent), over the duration that you’d used those funds when you occupied the flat. Do note that these will eat into the cash proceeds that you will receive.
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