By Paul Ho (guest contributor)

Under the HDB’s new rules issued on 27th Aug 2013 and effective on 28th Aug 2013, Singapore Permanent residents will need to wait three years before they can purchase a HDB flat. This is welcome news for most young Singaporean couples as less competition will mean more stable prices, but the specifics of the rules can create an anomalous situation where a young couple finds they cannot finance an HDB flat but are able to finance a private condominium.

HDB’s Monthly Servicing Ratio capped at 30% and loan tenure at 25 years

In line with the government’s aim to impose financial prudence, the monthly servicing ratio (MSR) for HDB flats has been set at 30%. This means that the housing related servicing must not exceed 30% of a person’s or household’s gross income. For example, a household who earns $8,000 a month (husband $4,000 and wife $4,000) can only spend a maximum of $2,400 on property financing for HDB.

While a $2,400 monthly repayment ceiling sounds fine, don’t forget that this is not based on the actual interest rates charged by the banks, but rather a rate of 3.5% mandated by the MAS.

For HDB property buyers, they have to meet two criteria to get a mortgage. First the MSR must not be greater than 30%, and the Total Debt Servicing Ratio (TDSR) must be not more than 60%.

The loan tenure plays a part as well. If the loan tenure is 30 years, that means that the couple will be able to afford a higher priced HDB flat. If the loan tenure is shorter, that means that the price of the HDB flat they can afford will drop. With effect from 28th Aug 2013, the HDB loan tenure for an 80% loan is now capped at 25 years (down from 30 years).

What is the impact of this rule?

Under the impact of this rule, young couples will face greater difficulties in buying a HDB resale flat as they have to pass the MSR rule.

Let’s take the example of a young couple (30 years old) with $8,000 joint income and $1,200 of car loans, with no credit card or other debt.

BEFORE 28 Aug 2013

Before the rule, a young couple earning a total income of $8,000, with a car loan servicing of $1,200 per month can only buy an HDB flat cheaper than roughly $700,000, as the MSR comes up to ~31.43% based on 80% borrowing. In other words, they can only take a maximum of a $560,000 loan.


On or after the 28th Aug 2013, the young couple cannot even afford to buy a HDB flat that costs $600,000 as the MSR comes up to 30.04% based on 80% borrowing, with a maximum loan of less than $480,000. This is due to the reduction of the loan tenure from 30 years to 25 years.

As the young couple cannot pass the MSR criteria, there is no need to compute the TDSR which they can pass easily.

But in the government’s aim for financial prudence, it seems that an anomaly has opened up. This couple would be able to borrow up to $800,000 and still meet the TDSR (at about 59.9%) to buy a private condominium, as private property purchases are not subjected to the MSR requirement.

So to conclude: a couple cannot borrow more than $480,000 to buy an HDB flat but they can borrow $800,000 to buy private property or an Executive Condominium. How is financial prudence served in this way?

By Paul Ho, holder of an MBA from a reputable university and editor of, Singapore’s first Cloud-based Home Loan reporting platform used by Property agents, financial advisors as well as Mortgage brokers.

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