HDB Essential Occupier Scheme – Buy 2nd Private Property

Leveraging on the HDB Essential Occupier Scheme to Buy Private Property

Getting straight to the point, this article is not meant to be a 101 article about the HDB Essential Occupier Scheme. 

The focus of this article is to discuss how you can leverage on the HDB Essential Occupier Scheme to purchase a 2nd private property. 

We will dive deep into how this scheme can be applied, the pros and cons related to it and additional considerations property owners need to consider when using it to avoid ABSD while purchasing a second property.

What is a HDB Essential occupier ?

At the onset of your HDB purchase you are given the option to choose from 3 options with regards to ownership structure or manner of holding. They are namely; Joint tenancy, tenancy in common and Owner occupier. 

Most first time home buyers would simply go 50-50 joint tenancy as the default option. But unbeknown to most HDB owners, the HDB owner occupier structure is a ownership structure that can pave the way for you to own a second private property in time to come. 

By selecting the Owner and Essential Occupier option

It allows you to list one party as the owner of the property and your spouse as an occupier. 

Under this setup, the party listed as owner will become the legal owner of the property. While the other half will be listed as an occupier. 

HDB’s original intent for the owner occupier scheme

Especially for those that are looking to leverage on this to purchase a second property, it is important to understand HDB’s original intent for permitting this option. 

The original intent for this option is to facilitate homeowners facing specific life circumstances to qualify for a HDB housing scheme, to promote housing inclusiveness. 

An example of such an instance would be a divorcee, listing his or her child under custody as an essential occupier to form a family nucleus and qualify for flat application under the family scheme. 

Another instance would be a Single 25 years or older, listing their parents as occupier to qualify for an application of a larger sized HDB flat under the family scheme instead of the Single scheme. 

Case in point, the intent is not to facilitate the purchase of a second property.

HDB Occupier to buy 2nd private property without ABSD ?

Back to our core objective, the goal is to find a way to own both a HDB flat and a private condo. That would be an ideal real estate portfolio for many, owning an affordable HDB flat and a private condo with high capital appreciation potential.

Adopting the HDB essential occupier scheme, essentially free up one spouse name from property ownership right from the onset. Only the spouse that is listed as owner, will be deemed to have a property under his name. 

What could happen is that, after fulfilling the stipulated 5 year minimum occupancy period. The spouse that is listed as HDB occupier can purchase a private property, without having to incur ABSD. 

Eligibility to become a HDB essential occupier

Here’s a download of what it takes to qualify as a HDB essential occupier. 

Relationship to the Owner

An essential occupier must be an immediate family member of the flat owner. This typically includes

• Spouses – A legal spouse of the primary applicant.
• Children – Biological or legally adopted children.
• Parents – Biological or legally adoptive parents.
• Siblings – Biological or legally adoptive siblings 

Citizenship and Residency Status

• Proposed occupants can be Singapore Citizens (SC)
• Singapore Permanent Residents (SPR)
• or non-citizens

For non-citizens, they must hold valid passes (e.g. social visit pass, work pass) with a validity period of at least 6 months at point of application.

Age Requirements

• Minimum Age – Essential occupiers must be at least 18 years old. However, children under this age can be essential occupiers in the case where the primary applicant is a single parent

if you currently own a HDB under 50-50 Joint tenancy

If you currently own a HDB flat under a 50-50 joint tenancy. There is no way you can convert the existing manner of holding to an owner and essential occupier structure.

In order to do this, it will entail a transfer of shares between you and your spouse, for one party to relinquish share ownership in the property. 

Unfortunately, HDB has since tightened its share transfer regulation since 2016, share transfer can only be done under 6 special circumstances. 

• Divorce
• Demise of owner
• Financial challenge i.e. bankruptcy
• Marriage
• Medical reasons
• Renunciation of citizenship

Interim action you can take to leverage on the Essential Occupier Scheme

To leverage on the scheme, you have to do the following.

Sell your existing HDB and repurchase a HDB under the essential occupier scheme. If you have yet to own a HDB flat, then you can take the opportunity to structure it under the owner occupier structure from the onset. 

Quick intro – Decoupling Expertise

Quick introduction, before you decide to commit the next 5 mins reading this article.

We are decoupling expertise, a team of specialist realtors that specialise in helping Singapore property owners derive the best strategy to purchase their second investment property without ABSD.

While decoupling property is often the go-to strategy that property owners adopt. We pride ourselves for helping our client explore and evaluate other alternatives that best suit individual circumstances and objectives. 

Drop us a text to discuss if getting HDB occupier to buy 2nd private property is the optimal method to adopt to minimise ABSD.

The Pros of using the HDB essential occupier scheme to buy 2nd private property

Pro #1 – HDB occupier can buy private property after 5 year MOP without ABSD

The biggest plus of this scheme, which could be the motivation to why you are searching this term anyways. Is that you can avoid ABSD when purchasing the second private property.

Current ABSD rates levied on 2nd property purchase, for Singapore citizens, stands at 20% and 30% for PRs. 

Assuming you were to purchase a $1.2mil property, you will be looking at a $240k savings on ABSD. 

If you ever wonder if it is worth paying ABSD on your 2nd property check out the article link inline.

Pro #2 – It is the only method to own both a HDB flat and a private property 

Aside from paying ABSD to purchase a second private property 

By leveraging on the HDB essential occupier scheme and getting the HDB occupier to buy private property. Is the only way for a property owner in Singapore to own both a HDB and a private condo. 

Consider the scenario whereby you currently own a private property instead of a HDB, there is no way you can purchase a HDB as a second property. 

As per HDB’s regulation, a private property owner would have to dispose of the private property and only be permitted to make a resale HDB purchase after 15 months from the sale. 

We elaborated more on the topic of how you can own both a HDB and a condo at the same time within the article link inline. 

Pro #3 – The cost of implementing this strategy is lower than decoupling property 

The cost of implementing the essential occupier scheme strategy to purchase your 2nd property is almost zero. 

The greatest cost is time and opportunity cost, lost to the 5 year MOP period that you or your spouse as the occupier must wait out. 

During this period, you will not be able to seize any opportunity to purchase any property or capture the price appreciation related to purchasing an investment property earlier.

From a financial cost perspective, the cost of implementing this strategy is significantly lower than the most commonly adopted strategy of decoupling property. The cost of decoupling will average around $20k, to decouple a property valued at $1.4mil. 

Pro #4 – Overcome 2nd Property Loan to Value limitation

The second to paying ABSD, the limitation that MAS placed on taking up mortgage for the second property is the next biggest hurdle faced when purchasing a 2nd property. 

Assuming you were to pay ABSD and purchase a 2nd private property while holding on to your current HDB, you will not be eligible to take up the usual 75% loan to value ratio for the purchase of your 2nd private property. 

You will only be able to take up a 45% loan on the value of your 2nd property. In addition to that,  you would have to fund the remaining quantum that is not covered by loan with a minimum 25% cash. 

The Cons of using the HDB essential occupier scheme to buy 2nd private property

Con #1 – HDB could tighten its regulation while you are clearing your MOP

Specifically addressing property owners that are looking to repurchase another HDB, simply to reset the existing ownership structure and achieve an owner and essential occupier setup.

There is no guarantee that HDB will not tighten its regulation to prevent essential occupier from purchasing a second property. 

Similar to how HDB has tightened its share transfer policy that resulted in decoupling HDB being non permissible in 2016. HDB could do the same for the owner essential occupier scheme. 

Con #2 – You can only finance your mortgage for your HDB with one party’s CPF

For those looking to maximise monthly cash flow. The downside to the HDB essential occupier scheme lies in the fact that only the owner’s CPF is eligible for use to pay off the monthly mortgage. 

While the other spouse can still assist by jointly contributing in cash, the usage of CPF will not be maximised.

Similarly for maximum loan quantum assessment, only the primary owner’s income will be taken into consider for loan assessment.

Con #3 – The need to fulfil 5 year MOP

Time is as valuable as capital in real estate investment. As you get older your maximum loan tenure decreases and the price of a private condo may appreciate faster than the growth of your income and savings.

So while you are awaiting the completion of your 5 year MOP, the price of your ideal 2nd private property may appreciate and its required entry price could exceed your affordability. 

Con #4 – Issue of trust between spouse

Expanding on the fact that only the spouse listed as the owner of the property is deemed the legal owner. The spouse listed as the essential occupier does not have any legal rights over the property. 

This results in an issue of trust, the legal owner of the property has the right to decide what to do to the property without having to seek consent from the occupier. 

Con #5 – Reduced maximum loan quantum

A essential occupier is not deemed as a co-owner of property in the eyes of a lender.

Irregardless of whether you are taking a HDB or private bank loan, only the owner’s gross monthly income will be taken into consideration. The essential occupier gross monthly income will not be considered when assessing maximum loan quantum.

This results in a smaller maximum eligible loan quantum for household adopting the essential owner occupier scheme.

Considerations when adopting the HDB essential occupier scheme to buy private property

Do you really need to own both a HDB and a private condo ? 

While HDB comes with the benefit of affordability. There are challenges to holding on to it for a prolonged duration. 

HDB faces the challenges of decaying lease as it ages, which leads to a compromise in its resale value. 

Alternative to that, you can skip the 5 year MOP downtime and simply purchase a private property with 1 name first, while waiting for the right opportunity to purchase the 2nd property. 

Have you considered the alternative of simply upgrading to a private condo using 1 name 

If your income permits, another option could be to simply purchase another private condo under 1 name first. This will negate waiting out for 5 years to fulfil the mandatory minimum occupancy period. 

As a separate condition, a private property being an asset with higher capital appreciation potential could prove to be a better asset to hold in the long run vs a HDB.

At what stage of the HDB application process do I indicate my interest for the essential owner occupier scheme ?

If you are buying a BTO. Take note if you will need to notify HDB of your intention to adopt the essential owner occupier scheme during the flat application stage.

If you are buying a resale HDB flat, you will need to make this known to your conveyancing lawyer during the first appointment with your conveyancing lawyer.

Have you considered selling your current HDB to purchase 2 private property instead 

Putting it out there, even though this strategy could be inhibitive to many property owners. You could also consider selling off your current HDB and purchase 2 private condos under separate names. 

But it is duly noted that it is not easy to do so, as both you and your spouse need to earn sufficient income to support the financial obligation of two private condos. 

The upside to this strategy is that you could be potentially upgrading to one condo for own stay while simultaneously owning another condo as an investment property.

For more insights on the sell one buy two strategy refer to article link inline

Next Steps

Having committed the last 10 mins to reading, let’s take the research to the next steps. 

Drop us a text to share what’s on your mind and gather some 2nd opinions and ideals on whether your plan is the best way to purchase the 2nd property without ABSD.

Relevant Read

• HDB 15-Month Wait-Out Period Removed – How Private Condo Owners Can Now Cash Out and Retire Early

FAQ