The recently announced Enhanced Housing Grant (EHG) consolidates the Additional Housing Grant (AHG) and Special Housing Grant (SHG) to provide higher grant amounts at a higher income ceiling. This means more Singaporeans can benefit when buying their first home. Woohoo!
We all know that the reality is that even with subsidised housing in the form of HDB flats, buying a home will always be the biggest financial commitment that most of us make in our lives.
To put it bluntly, unless you were born the only heir of a million-dollar business, if you’re buying your first HDB flat in your 20s, you will need to take out a home loan and rely on housing grants to further subsidise your purchase.
Let’s see how the EHG benefits first-timer buyers.
How do CPF housing grants like the EHG work?
It’s easy to think of CPF housing grants as free money to help you with your first flat. But that’s not technically correct. It’s not really “free money” because if you decide to sell your flat to upgrade or move elsewhere, you’ll need to put the grant money back into your CPF — interest included.
It’s not a loan per se, but it’s kind of like borrowing your future CPF savings to help cushion the costs of your flat first. In a few years time, when you can afford to move out, you should have enough savings to “return” the money.
The accrued interest of 2.5% is added so it’s almost as if you never took the money out.
What CPF housing grants can first-timers get?
The amount of Enhanced CPF Housing Grants (EHG) you qualify for is based on your household’s average monthly income. So, make sure you apply for the grant before you ask your boss for a pay raise.
If this name sounds a little foreign, it’s because it’s newly implemented (11 Sep 2019), and replaces the Additional Housing Grant (AHG) and Special Housing Grant (SHG).
If you’re getting a resale flat, you can also get up to $30,000 in Proximity Housing Grants, and $50,000 in CPF Housing Grant (Family Grant).
Of course, this is all just a short summary. Read this article for all you need to know to about CPF Housing Grants.
Things to note:
The grant amount will be credited directly to your CPF Ordinary Account, so you don’t get it as cash. You can only use it to offset your HDB flat’s initial purchase, or for reducing the housing loan amount.
You can’t use it, for example, to pay your monthly loan instalments or to reduce your minimum cash downpayment (if you’re taking a home loan from the bank).
With that in mind, let’s see how the new EHG will affect the purchase of HDB flats.
How much Enhanced Housing Grant (EHG) are you entitled to?
In order to figure out how much EHG you are entitled to, you must first figure out your monthly household income.
As the grant is to help out families with less income, the amount you can receive is inversely proportionate to your household income.
CPF will calculate your gross monthly household income by averaging across 12 months prior to your application.
Take note that the household income includes all working persons in the household, including applicants and occupiers.
| Average monthly household income (12 months) | EHG Amount |
| Not more than $1,500 | $80,000 |
| $1,501 to $2,000 | $75,000 |
| $2,001 to $2,500 | $70,000 |
| $2,501 to $3,000 | $65,000 |
| $3,001 to $3,500 | $60,000 |
| $3,501 to $4,000 | $55,000 |
| $4,001 to $4,500 | $50,000 |
| $4,501 to $5,000 | $45,000 |
| $5,001 to $5,500 | $40,000 |
| $5,501 to $6,000 | $35,000 |
| $6,001 to $6,500 | $30,000 |
| $6,501 to $7,000 | $25,000 |
| $7,001 to $7,500 | $20,000 |
| $7,501 to $8,000 | $15,000 |
| $8,001 to $8,500 | $10,000 |
| $8,501 to $9,000 | $5,000 |
Example: Take for instance you have worked for 1 year and your monthly income is $3,000. Your partner’s monthly income is $2,000. Your total average monthly income is $5,000, so you will be entitled to $45,000 in EHG grants.
How does the new EHG affect your buying decision?
1. Now you can buy whatever size you want, in whatever estate you like to enjoy the full EHG
With the old AHG and SHG schemes, you would’ve needed to earn under the relatively low income ceiling of $5,000, and buy a new 4-room flat or smaller in a non-mature estate to be eligible for them all.
That used to be a huge deal for new couples, because it meant that if your income is lower and you wanted to maximise your grants, you couldn’t even consider resale flats, 5-room flats, or flats in mature estates.
With the newly introduced EHG, however, the maximum grant ($80,000) and income ceiling ($9,000) is higher, and it is open to all flat types and estates. That means that it no longer matters if it’s BTO or resale, 4-room or 5-room.
As long as your combined income is under $9,000, you will receive the EHG grant for your HDB flat purchase.
2. EHG somewhat levels the playing field between BTOs and resale HDB flats
Resale flats are generally known to cost more than new BTOs, but with up to $160,000 in grants for resale flats — as opposed to $80,000 for new flats — the government has somewhat levelled the playing field.
Currently, you can only get up to $80,000 in EHG for BTOs.
For resale CPF housing grants, you can get:
- CPF Housing Grant (Family Grant): up to $50,000, income ceiling $14,000
- Enhanced Housing Grant (EHG): up to $80,000, income ceiling $9,000
- Proximity Housing Grant (PHG): up to $30,000, must be within 4km radius
Because of this, if you can find an affordable resale flat near your parents’ place, it may actually be cheaper than getting a brand new BTO.
HDB housing loan vs bank loan: How do CPF housing grants help?
As we said earlier, there are some limits to how you can use your grant:
HDB Housing Loan
If you’re taking an HDB Loan, then you have the option to pay for your flat using your CPF savings. First, you will need a Home Loan Eligibility letter, or HLE, from HDB. Among other information, the HLE tells you how much you’re eligible to loan from HDB and for how long.
Your initial payment is 10% of the purchase price, and you can use your CPF Ordinary Account savings (including the Enhanced CPF Housing Grant) to make up that 10%. Then, everything that’s left in your CPF Ordinary Account is wiped out to pay for the remaining 90%, and HDB will loan you the rest of the money, up to the amount specified in the HLE, if there’s not enough in your OA. (Spoiler: It’s not enough.)
If you don’t have enough in your OA, and you’ve hit the maximum amount you can loan, then you will need to pay the rest of the outstanding amount in cash.
Bank loan
If you’re taking a bank loan, you will need to pay at least 25% of the purchase price as a downpayment. Of that initial payment, at least 5% of that downpayment needs to be in cash. This doesn’t change even if you’re eligible for the Enhanced CPF Housing Grant. However, you can use any CPF Housing Grant to offset the remaining 20% of your downpayment.
Here’s a quick illustration of how the EHG applies:
Rohaini wants to buy a 4-room resale flat that costs $500,000 with her fiancé. It will be their first flat and they are both Singaporeans. Together, they earn $7,000 a month. That means they are eligible for $50,000 in CPH Housing Grant (Family Grant) and $25,000 in EHG; total $75,000.
Should they use a HDB home loan or bank loan?
Currently, it would seem that banks offer lower mortgage rates of around 2.1% p.a. If Rohaini and her fiancé took a bank loan, they would need to make a 25% downpayment of $125,000.
Of this amount, $25,000 (or 5% of the purchase price) must be in cash, while the remaining $100,000 (or 20% of the purchase price) can be cash or CPF.
Since they’ve been working for only a few years, they don’t enough CPF savings to cover the 20% for the downpayment. Thankfully, they can use the $75,000 in CPF grants to pay off some of it. $100,000 – $75,000 = $25,000, which is much more manageable. But unless they can cough up $25,000 for the 5% downpayment, it won’t work.
They decide on a HDB home loan and use the EHG to help with downpayment.
They decide to get a HDB home loan. The 10% downpayment can be fully paid with CPF savings and grants. In Rohaini’s case, they have $75,000 which is more than 10% of the purchase price ($50,000), so they won’t need to pay any cash upfront.
The EHG allows Rohaini and her fiancé to buy their marital home early. When they decide to sell the flat, the grant monies will be returned back into their CPF accounts with accrued interest at the CPF rate of 2.5%.
The EHG goes a long way in making your HDB flat purchase a bit more affordable, but make sure that you understand that the grant is not free cash and plan your income accordingly to find a suitable home within your budget.
Source: MoneySmart (12 Sep 2019)