When searching for housing grants and schemes, you might often come across the term “Essential Occupier” on the HDB website. What does this term mean? Read on to learn more about being an essential occupier for an HDB flat and the pros and cons of purchasing a home this way.
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Who is an Essential Occupier of an HDB Flat?
An essential occupier is a family member who forms the family nucleus with the owner to qualify for an HDB flat under an eligibility scheme. This is different from being an owner or co-owner of the flat, as the essential occupier does not have any legal right or share in the property.
The family nucleus generally consists of:
- If married: You, your spouse, and your children
- If single: You and your parents
- If widowed, divorced, or separated: You and the children under your legal custody
- Orphaned siblings
- Fiancé and fiancée
However, simply living in the HDB flat does not make you an essential occupier. Another point to note is that if you are listed as an essential occupier, you must reside in the flat throughout the Minimum Occupation Period (MOP) until it is fulfilled.
How Long is the Minimum Occupation Period (MOP)?
5 years. This Minimum Occupation Period is calculated from the date you collect the keys to your flat. However, if you do not reside in the flat during certain periods within the MOP, those periods will not be counted towards the MOP. This means if you collected the keys to your flat in January 2017 but did not actually live in it from 2020 to 2021, your 5-year MOP will not end in 2021 but will be extended to 2023.
Under What Circumstances is it Necessary to List Someone as an Essential Occupier?
An essential occupier is required to meet the eligibility requirements for a housing purchase or grant scheme when certain restrictions (such as age or divorce) prevent the flat owner from qualifying on their own.
If you do not qualify for the Singles Scheme due to being widowed, separated, or divorced, and your children are under 35 years old, they can form a family nucleus with you.
So, Should I List My Spouse as an Essential Occupier or a Co-Owner?
Typically, many couples choose to register both their names on the property under Joint Tenancy. However, some couples opt to have their HDB flat under one person’s name. This may occur if there is only one breadwinner in the family nucleus. Some couples prefer to list only the spouse who receives CPF contributions as the sole owner, as the other spouse cannot benefit from CPF contributions to pay the mortgage.
Next, Let’s Discuss the Pros and Cons of Listing Someone as an Essential Occupier
1. Additional Buyer’s Stamp Duty (ABSD)
This is highly beneficial if you and your spouse plan to buy multiple properties. By listing only one spouse as the sole owner, the other spouse can purchase a private property without having to pay the ABSD. Please note that the 5-year Minimum Occupation Period (MOP) must still be met!
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The ABSD rates are as follows:
*ABSD is charged on the higher of the purchase price or market value.
The cost of ABSD can be high. Therefore, this is a significant reason why many couples prefer to list one spouse as an essential occupier rather than a co-owner.
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Of course, listing someone as an essential occupier also has its disadvantages.
1. Use of CPF
If you are listed as an essential occupier, you will not be able to use your own CPF to finance the property purchase and pay the mortgage. Therefore, in the event of job loss or financial problems, this could have a huge impact on your financial situation.
2. Increased Difficulty in Obtaining a High Loan Amount
It is highly likely that banks will not offer you a large loan. This is because the loan amount depends on the property owner’s income. The Mortgage Servicing Ratio (MSR) cannot exceed 30% of the borrower’s monthly income, and the Total Debt Servicing Ratio (TDSR) is capped at 55%. Since only the owner’s income is taken into account, this can be a significant disadvantage. If your income is not very high, it means the bank will not lend you as much. You may need to pay a larger down payment, which can be very challenging for some people.
If I Don’t Want to Use the Essential Occupier Scheme, What Other Property Ownership Options are Available?
1. Tenancy in Common
Under the Tenancy in Common scheme, co-owners have separate and distinct shares in the property.
Tenancy in Common is a form of property ownership where each co-owner holds a separate and distinct share in the property. Although the co-owners hold different shares, they all have the right to use and enjoy the entire property. Upon the death of any party, the title will be distributed according to their will or under the provisions of the Intestate Succession Act.
For example:
Mr. and Mrs. Tan jointly purchase an HDB property. 70% is under Mr. Tan’s name, while the remaining 30% belongs to Mrs. Tan. If Mr. Tan passes away, his 70% share will be transferred to his beneficiaries, while the 30% share will remain with Mrs. Tan.
2. Joint Tenancy
Joint Tenancy is a form of property ownership where all co-owners have equal interests in the property. Under this scheme, the contribution amount of each individual owner towards the purchase of the property is not considered. According to the right of survivorship, when any co-owner passes away, their share is automatically transferred to the other co-owners, regardless of the provisions in the deceased individual’s will.
Here is an example of this holding method.
Mr. and Mrs. Tan jointly purchase an HDB property. Mr. Tan paid 70%, and Mrs. Tan paid 30%. They choose to purchase the property under a Joint Tenancy agreement. Under this agreement, they jointly hold 100% of the property, rather than holding 70% and 30% respectively.
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Conclusion
Whether you are purchasing with an essential occupier, or choosing Joint Tenancy or Tenancy in Common, all such ownership methods have their pros and cons.
Therefore, be sure to weigh the pros and cons before making a decision. Make sure to research which method is more suitable for you!
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