Question on why must pay extra $152K for BTO?

Question: Wilfred, we decided to buy a new HDB either through BTO or Balance of Sales. I was shocked when I was told I must pay $152,000 in additional money over and above the purchase price. We were looking at a $350K BTO but I was told it will cost us $500K instead! To make it worse, we were told we can only borrow at most $200K. I don’t know what to do as we don’t have the money! HELP!!

Answer: You and your wife sold your first subsidised HDB flat in 2005 due to some family financial problems. Since the sale was before 3 March 2006, the applicable levy for a 5 room flat is 25% of resale price or 90% of valuation whichever is higher. Since the flat was sold at $400,000 (with positive COV), the applicable resale levy is 25% x 400000 = $100,000 plus an interest of 5%pa to the point the levy is paid. The total estimated levy is $155,132 which is close to the figure you provided me.

I understand your budget for the new HDB flat is about $350,000. Since your previous loan was a concessionary loan and if you want to get a concessionary loan again, you must understand that the loan is subject to 90% of purchase price less your existing CPF OA balances and up to half of cash proceeds from the sales of your immediate past flat. Since you had a cash proceed of $200,000 in the sale of your HDB flat in 2005, it means your maximum HDB loan is 90%(350000) – 20000 (existing CPFOA) – 100000 = $195,000. Thus, the loan-to-valuation (LTV) becomes 195/350 =55.7% only. Unfortunately, you spent all the cash proceeds of $200,000 over the past 9 years.

Alternatively, it is to get a bank loan. Unfortunately, you will exceed 60% of total debt service ratio if you take a bank loan. Thus, you cannot apply for bank loan.

Your financial problem causing you to sell your HDB in 2005 probably put you in a situation which it becomes almost impossible to ‘recover’ due to not in the property market for a whopping 9 years. That is why financial planning is so important. Financial planning is ALWAYS preventive in nature. Once financial issue arises, it is usually NOT possible to rectify it using financial planning. This is the big difference between medical science and financial planning. There are many diseases and injuries which can be cured by medical science. There are very few financial problems that can be cured using financial planning. Financial planning is most effective as a ‘preventive medicine’. Also, as it can be seen that financial planning can be quite complicated and thus the need to have a professional financial planner.

Disclaimers: All persons / characters appearing in this Q&A are fictitious. Any resemblance to real persons, living or dead, is purely coincidental.

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