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Removal of Legal Subsidy, Valuation Subsidy and Free Fire Insurance

Written by Patricia Hung on .

Banks have recently removed freebies that are normally offered to Housing Loan customers (for both HDB and private residential properties). These benefits include legal subsidies, valuation subsidies and free fire insurance for first year. Under the MAS guidelines, these benefits are considered cash rebates and should be deducted from the purchase price before arriving at the loan amount. This is similar to discounts or rebates for stamp duty, furniture and renovation offered by developers, which are to be deducted from the purchase price first before arriving on the loan amount.

This MAS guideline was first highlighted by MAS in July 2011. Under MAS Notice 632, Para 17(a)(i) states that any discount, rebate or any other benefit offered by the vendor or any other party (including the payment of legal or stamp fee for the purchase), having the effect of reducing the true purchase price of a residential property, is to be deducted, to obtain the 'Adjusted Purchase Price' of the property.

How will this impact the home buyers?

Majority of the banks have removed the legal subsidy, valuation subsidy and free fire insurance. This will mean that home buyers will have to take into account of these costs now that these benefits no longer come with the housing loan packages offered by the banks. Eg. for a home buyer of a condominum, the additional costs to fork out are legal fee ranges from $2500 to $3000, valuation fee of less than $500 and fire insurance premium of less than $100 per year. Legal fee is however payable by CPF or Cash whilst valuation fee and fire insurance premium are payable in Cash only.

Some banks however give home buyers option to choose a housing loan package that come with legal subsidy, valuation subsidy and free fire insurance. However, these banks will adjust the purchase price downwards by the same amount offered as benefits. The lower adjusted purchase price will mean lower loan amount and the difference will be paid by home buyers in the form of downpayment. For customers who have opt for these benefits, the usual clawback on these subsidies will apply if the loan is fully repaid within first 3 years from loan disbursement.

In summary, home buyers will have to set aside enough funds for these additional costs, on top of the downpayment, stamp duties and agent commission when buying a property.