HOUSING MATTERS
Minimum Occupancy Period (MOP): Why Is It 5 Years?
Most of you homeowners might know about this thing called the Minimum Occupancy Period (MOP). It is the period where you are not able to sell or rent out your home.
By HDB rules, the MOP is 5 years. Some of you might think that the MOP is too long. But there should be a reason behind it. There is no clear answer but we will try to debunk as much as we can.
Assumptions
Loan type: HDB Concessionary Loan
Loan Tenure: 25 Years
Loan Interest: 2.6%
Property Value: $500,000
Downpayment: $50,000 (10% of Property Value)
Loan Amount: $450,000
READ ALSO: Here Is Why A Resale Flat Might Be A Regret
Mortgage Repayment
One thing great about the HDB Concessionary Loan, the monthly payment is at a fixed amount. It gives you the certainty of what your cash flow will be for the next 25 years.
Let’s Do The Maths
After a span of 5 years, you would already spend quite an amount of money. Let’s track it down.
Downpayment: $50,000
Loan Repayment: $122,460
Total: $172,460
After 5 years, you would have spent $172,460 on financing the home. That amount is at least 34% of the purchase price of the property (not including the interest rate) when you bought it.
As a developer, if you can retrieve 34% of the property in the first 5 years, it does sound like a fair business deal.
Nonetheless, this is just perspective from a developer/ seller point of view.
READ ALSO: What Does It Mean By Leaving $20,000 In Your CPFOA When You Buy A House?
It is a subsidised home
HDB flats are subsidised housing. Which means that the government is helping you in getting a roof over your head.
The fact that the government is helping you in getting a roof over your head, that also means that the home should be for your own usage. And maybe not for profit or investment purposes.
Without the MOP, the transaction of houses could be the same as buying a concert ticket and then reselling them at a higher price.
You may win just because you have the faster finger. But in the long-term, the prices of flats keep on surging beyond anyone’s affordability.
Therefore the MOP exists to refrain from such things from happening.
Fairness for everyone
This part would be slightly similar to the previous part.
If everyone has a business mindset, HDB flats would be like the number one product to purchase and then sell.
Even renting out a brand new apartment sounds like a good business offering. Who would not want to be staying in a brand new place?
The MOP lets everyone have a chance of buying a flat. And not wait too long to buy a new one.
You have a higher chance to buy a flat since a good number of people are serving their 5 years MOP.
Even with the MOP, it is already hard to get a BTO.
Just imagine if it did not exist.
READ ASLO: Questions You Need To Ask Yourself When Buying Your First Home
Rules that have to be followed
Overall, the MOP is a rule that we have to abide by. Whether we like or not, there is not a way around it.
Hence, if you do intend to buy a HDB flat, do make sure you have made the right choice.
Think about how long you want to stay there, are you considering an upgrade or even do you want a second property in the future?
Your future plans will definitely depend on your first home. Thus, you do not want to make a huge financial mistake.
That is the end of the article and hope the information is useful. Do share it with your friends and families. Till next time.
READ ALSO: Things You Should Know About BTO Vs Resale: Part 1
Disclaimer
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
