Rationale for 10% deposit on BTO flat

Reader Yuen Kar Wai, 58, wrote to askST about the 10 per cent Housing Board deposit he needs to pay for his upcoming four-room flat. His request for a waiver was rejected even though he is unable to pay the deposit now. He wrote: "(The proceeds from the sale of my current flat) is sufficient to pay for half of the Build-to-Order (BTO) flat. Why is HDB so inflexible in dealing with problems faced by retirees like me, when most of the money is stored away in the Retirement Account? Why does HDB need the 10 per cent so badly?"

Housing reporter Ng Jun Sen replies.

Just like for many other big- ticket items purchased here or overseas, whether it is a car or a home, a deposit ensures that buyers are committed to their purchases.

Deals fall through all the time and often at the last minute. In the case of Housing Board flats, this is usually due to changes in the buyers' financial situation while completing their purchases, or other personal reasons that may be beyond their control.

Between last year and March this year, 45 buyers opted to cancel their flat bookings and forfeit their deposits owing to these reasons, National Development Minister Lawrence Wong said in Parliament last month.

Currently, home buyers need to make a down payment of 10 per cent of the flat's purchase price when they first sign the lease agreement with HDB, if they do not take any housing loan.

The balance is due when the keys of the new flat are ready for collection.

In the meantime, most buyers will try to sell their current homes and use the proceeds to pay the balance. But some buyers, like Mr Yuen, may not have the cash available until then.

This is why this year, more help was given to the elderly with cash flow problems, or those whose funds are tied up in their existing flats.

Starting from last month's BTO sales exercise, a new Deferred Downpayment Scheme (DDS) allows eligible buyers aged 55 and older to make a down payment only at the time of key collection. With the DDS, elderly buyers need to pay only the stamp and legal fees when they sign the lease, deferring the down payment to later.

Since March, a new temporary loan scheme has become available to buyers to finance their completed purchases without taking out a mortgage. This bridging loan is offered at the prevailing non-concessionary interest rate.

Mr Yuen, who has booked a four-room BTO flat, should note that the DDS applies only to two-room flexi or three-room flats, and one can take out the temporary loan only when the new flat is ready.

If buyers are facing financial hardships, the HDB does grant time extensions and waiver of forfeitures on a case-by-case basis, according to Mr Wong.

Even with these assistance schemes, flat buyers should still be prudent in their home purchases and be careful not to spend beyond their means.

A version of this article appeared in the print edition of The Straits Times on June 03, 2017, with the headline 'Rationale for 10% deposit on BTO flat'. Print Edition | Subscribe