If you have not purchased any property yet and planning to buy an HDB flat, you may have noticed the term “essential occupier”. This topic has little public awareness but may have significant financial implications for a couple down the road.
Instead of holding the property the traditional way, wherein couples co-own their HDB flat under Joint Tenancy or Tenancy-in-Common, some go for a third option: owner-occupier scheme.
These couples may like to own their HDB apartment under one spouse’s name while listing the other spouse as an essential occupier. Couples who intend to purchase a second property in future will find the third option valuable.
This article debunks several myths surrounding the HDB owner-occupier arrangement while also exploring the associated pros and cons.
According to HDB, an essential occupier must be a family member required to form a family nucleus. A couple must list one of the applicants as the single owner and the spouse/fiance as the essential owner during a flat application – a BTO or a resale – to qualify under this scheme.
Under the eyes of the law, the essential occupier is not an owner or co-owner of the HDB flat as they do not have any share in the apartment or legal right in it.
Typically, the essential occupier is the spouse of the main applicant. However, in some cases, the essential occupier can also be other family members, such as parents or children, depending on the scheme under which you are forming the family nucleus for an HDB flat.
An essential occupier is only necessary when the flat owner is not eligible to purchase the flat or to fulfil certain grant or scheme requirements. You can add a family member as an essential occupier to qualify for a particular scheme.
Note that the Minimum Occupation Period (MOP) of 5 years applies whether you list yourself as an essential occupier or owner of the HDB flat.
To be included in the flat application, the essential occupier(s) must meet certain criteria and fulfil specific roles:
Citizenship. Both you and your spouse must be Singapore Citizens (SCs) or Singapore Permanent Residents (SPRs).
Marital Status. You must be legally married before applying for an HDB flat as an essential occupier. Common-law and same-sex marriages are not recognised in Singapore for HDB flat applications.
Home Ownership. You cannot own foreign or local private property until after the 5-year MOP, and you must notify an HDB before exercising the Option to Purchase to buy a private property.
Residency. Being an essential occupier, you must reside in the HDB flat as the primary place of residence. This requirement ensures the intended occupants live in the flat, and it is not rented out or left vacant.
An HDB essential occupier does not have a share or any legal right on the said property, even if they have contributed to repaying the home loan. So, an essential occupier is not the owner of the HDB flat. However, they have the full right to live in the flat as long as they are married to the flat owner.
On the other hand, an owner or co-owner has full rights to the flat, regardless of whether they have contributed any money to the property purchase.
Flat owners have the option to submit an application for a change in flat ownership to include immediate family members who satisfy all the necessary eligibility criteria.
To transfer ownership of an HDB flat to someone else, you would need to go through a different process known as flat ownership transfer or flat transfer. This process involves transferring the legal ownership of the HDB flat from the existing owner(s) to another eligible party.
To initiate a flat ownership transfer, certain conditions must be met, such as fulfilling the minimum occupation period (MOP), meeting the eligibility criteria for the new owner, and obtaining approval from the relevant authorities, including the Housing and Development Board (HDB).
Debunking the myth: The essential occupier does not have automatic co-ownership rights over the flat. In Singapore, only the main applicant is considered the legal owner of the HDB flat.
Even if the essential occupier is the spouse and not registered as a co-owner, they do not have a legal stake in the property. However, they have the right to reside in the flat and enjoy the associated benefits till they stay married to the main applicant.
Debunking the myth: Financial contributions alone do not grant the essential occupier co-ownership rights. HDB’s policy is based on the family nucleus concept, where the main applicant and the essential occupier form the family nucleus.
While financial contributions are crucial for the sustainability of the household, they do not confer ownership rights unless you list the essential occupier as a co-applicant during the flat application process.
Yes, you can change the essential occupier for an HDB flat under certain circumstances, such as divorce, death of the main applicant, and change in the family nucleus.
Changes in the family nucleus may include the addition or removal of family members previously listed as essential occupiers. It could be situations where children become adults and form their family nucleus, or elderly parents no longer reside in the flat.
Changing the essential occupier involves updating the flat’s ownership and occupancy details to reflect the new occupant.
It is essential to consult with the HDB directly or seek guidance from a legal professional to understand the necessary procedures and requirements based on specific circumstances for changing the essential occupier.
While an essential occupier can contribute to the household expenses such as mortgage payments and other housing-related costs, they do not have ownership rights or the ability to buy an HDB flat in their name unless they become the main applicant in a separate application.
In Singapore, it is not possible for a person to be an essential occupier of one HDB flat and the main applicant to purchase another HDB flat simultaneously.
Upon completion of 5-year MOP (Minimum Occupation Period), the spouse listed as an essential occupier of the HDB flat would be considered a first-time property buyer and can buy a private property.
With no existing housing loans under one spouse’s name, you can purchase a private property after fulfilling the MOP without incurring ABSD or selling off the current HDB. That will easily save you significant cash in stamp duty, especially for a higher-priced private property.
Also, you could qualify for a higher loan quantum capped at 75% of the property’s purchase price, compared to a maximum LTV of 45% for a second property when buying a condo.
If both the co-owners are working and have CPF funds to contribute to the pay for the HDB flat, it is better for a couple to co-own the property. This way, both co-owners can protect their interest in case of divorce or the death of one of the spouses.
However, if a couple co-owns an HDB flat and wants to buy a private property for investment, they will be subjected to a hefty ABSD tax of 17% on a second property purchase.
To help couples decide on home ownership, we will discuss the advantages and disadvantages of listing the spouse as an essential occupier.
1. Access to housing grants. One significant benefit of listing a spouse as an essential occupier is the eligibility for HDB housing grants. The occupier status allows couples to access various grants, such as the Enhanced CPF Housing Grant (EHG) and the Proximity Housing Grant (PHG), which can significantly reduce the overall cost of buying an HDB flat and make home ownership more affordable.
2. Family cohesion. Purchasing an HDB flat with a spouse as an essential occupier allows couples to establish a stable and secure home environment for themselves and any future family members. It promotes family cohesion by providing a common residence where the couple can build a life together, fostering a sense of belonging and shared experiences.
3. Financial benefits. Listing a spouse as an essential occupier allows both partners to contribute financially to the household expenses like monthly mortgage payments and other housing-related costs. The shared responsibility can help distribute the financial burden and make home ownership more manageable.
4. Buy 2nd property without paying ABSD. Upon fulfilling the 5-year MOP, the couple can purchase a second residential property, say a 3-room condo, under the spouse’s name which is registered as an essential occupier.
Their next residential property purchase will not be subject to ABSD. It is because the spouse will then be treated as a first-time buyer. This option works well if you plan to keep your HDB flat for a longer time and own a second investment property at the same time.
5. Higher loan quantum for 2nd property. As the essential owner is not a borrower or co-owner of the HDB flat, they do not have any housing loans under their name. This allows them the opportunity to qualify for a higher loan amount from the bank when seeking financing for a second property. It is because the couple’s 2nd property would be one spouse’s 1st property.
Note that a bank loan can go up to 75% for a first property loan, which can reduce to a maximum of 45% for a 2nd private property loan.
1. Cannot use essential occupier’s CPF. By listing one spouse as an HDB essential occupier, they cannot borrow and make CPF contributions to fund the purchase of the HDB property. It includes the downpayment as well as the monthly mortgage repayments. Moreover, if the sole owner loses their job or faces financial troubles, it could become stressful for the couple to manage their finances.
2. No legal ownership rights. The essential occupier has no legal ownership rights over the HDB flat. In case of a legal dispute like divorce or separation, the spouse listed as the essential occupier may have a hard time laying claims to the property, even if they have made significant cash contributions towards repaying the mortgage.
3. Dependency on the main applicant. As an essential occupier, your rights to the flat depend on your relationship with the main applicant. If the marriage ends in divorce or the main applicant passes away, you may need to vacate the flat since you don’t legally own it (unless there are alternative arrangements).
If the main applicant (or legal owner) of the HDB flat passes on without a will, the Intestate Succession Act (ISA) would kick in. Essentially, your HDB flat would be sold, and your family would receive the sale proceeds according to ISA regulations.
For example, if you don’t have children but your deceased spouse’s parents are still alive, you would be entitled to only half of the property while the other portion is allocated to the surviving parents.
4. Limited future housing options. Buying an HDB flat with your spouse as an essential occupier may limit your options for housing in the future. For instance, if you wish to upgrade to private property, you may face restrictions due to the eligibility criteria set by HDB.
5. Limited loan quantum. The CPF monies and loan assessment process would solely depend on the single owner’s income, which may limit your loan quantum when buying an HDB flat. According to HDB regulations, the MSR for HDB flats cannot exceed 30% of the owner’s income, which would apply to the sole owner’s income.
That means the amount of loan disbursed by the bank could be significantly lower, which translates into a higher downpayment required. In contrast, a couple who co-owns the HDB flat is likely to benefit from more favourable loan terms as the 30% MSR would be calculated based on the combined income of both owners.
On a side note, listing the spouse as an essential occupier only works if you have complete trust in the other spouse, or else it is not thoughtful for couples to go with this mode of holding. Also, the sole owner must have sufficient income and CPF monies to meet the criteria for downpayment and mortgage repayments.
Buying an HDB with your spouse as an essential occupier in Singapore instead of owning it jointly has pros and cons. As with any financial decision, it is crucial to weigh the benefits and drawbacks based on your circumstances and long-term goals.
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