HDB vs Bank Loan

I have seen some people asking whether it is better to take a HDB loan or a bank loan for their HDB flat.

The key feature of a HDB loan is that the interest rate is fixed at 2.5% plus 0.1% or 2.6%. In the event that the CPF OA interest rate goes beyond 2.5%, the interest rate will increase. The disadvantage of taking a HDB loan is that you must wipe out your CPF OA.

For bank loan, interest rate fluctuates if you opt for a variable rate loan. A variable rate loan interest rate is lower compared to a fixed rate loan. You can check out bank loans which has rates tied to their fixed deposit rates. But do note that if you opt for a bank loan, the minimum amount is $100,000. For bank loan, you have the option of deciding the amount of CPF OA to use.

Assuming the difference between a HDB and bank interest rate is 1.0% and you are borrowing $100,000 for 15 years, the monthly difference between a HDB and bank loan is less than $50. Keeping the interest rate constant, every increase in $100,000 loan will double the monthly difference by around $47.

Loan Amount	$100,000	$200,000	$300,000	$400,000
Tenure (years)	15	15	15	15
HDB Loan Mortgage Payment	$672	$1,343	$2,015	$2,686
Bank Loan Mortgage Payment	$625	$1,251	$1,876	$2,501
Monthly Difference	$47	$92	$139	$185

I have done up an excel file. You can download it via the link. The cells highlighted in yellow can be change. The rest are locked.

Hope this helps.


HDB vs Bank Loan

Investing in Strata Retail Units

When the Government tried to cool down the red hot demand in the residential segment a few years back, it resulted in a spillover of demand to the retail, office and even industrial sector. Some strata retail projects like Alexandra Central was sold out in a day.

Now the dust has settled and strata retail malls are completed, the question is where are the tenants?

Some of these malls are not even half full even a year after completion. The soft retail market is one reason. Lack of a coherent marketing strategy due to fragmented ownership is another. The other reason is due to small unit sizes.

In a bid to keep quantum affordable, developers have created spaces as small as 100 sq ft. Very rarely do they have units larger than 1,000 sq ft for sale. Not many individual investors have a few million dollars to spare.

These small spaces have resulted in a mismatch between demand and supply. In a retail mall managed by a developer, if a tenant needs a larger space, the developer can knock down the dividing wall to create a larger space. But in a strata mall, the tenant will have to deal with different owners to get the size he wants. Different owners will want different rents for their units. This is one reason why a strata mall seldom attract an anchor tenant due to the difficulty of getting a large unit.

Which trade can an investor target if he has a strata unit?

Based on my experience in marketing retail units, these are the possible trades. It is not exhaustive but it is a guide.

Size (sq ft)	Possible Trade	Examples
100 – 200	Money changer, barber, mani-pedi, bubble tea	K-Cuts, EC House, Koi, Gong Cha
201 – 500	Convenience shop, café, maid agency, bakery, salon, spa, education	Ya Kun, Toast Box, 7-11, Cheers
501 – 750	F&B, apparel, renovation	Starbucks, Coffee Bean, Café Bene
> 750	F&B	Various

 
The best bets for these strata units are likely to be services like barber, maid agency, education and renovation. But their ability to pay high rental is limited. Strata retail malls do not have high footfall unlike those managed by a developer or REIT. Hence trades with very thin profit margins may not be able to survive in a strata mall.

Do check around to verify the rents quoted by marketing agents. REITs are good sources of rental information as they will give indications of passing rents in their malls.

Good luck in securing a tenant for your unit!