Why Relying on Bank's Fire Insurance for Mortgaged Home Is Technically a Financial Death Sentence? (Part 2)

 

Hi Folks, welcome back to Investment Income For Life and my Part 2 yapping on the above subject. Coming off from my Part 1 post on Home Insurance, I hope I do not give an impression that everyone needs to purchase an insurance to cover for building structure in event of a fire or other peril. The thing is that both private Condo and HDB actually already stipulated mandatory coverage which I should just briefly mention in Section 1 below for those interested in the detailed technicalities so that we do not buy the wrong insurance coverage- the focus should be on Home Renovation and Content which will be discussed in Section 2 below as well as common peril in Section 3 such as leaking water from your unit into the neighbours below and causing of 3rd party liability due to water damages or injuries from the resultant slippery floors.

1. Fire Insurance For Building Structure Generally Already Covered

(i)  For private condominiums

The Management Corporation Strata Title body ("MCST") will actually need to purchase fire insurance to cover fire damages to the entire building structure and common areas. By building, it also includes the initial fittings such as windows, doors, floorings, water pipes, aircon, gas pipes, electrical wiring and false ceiling concealment work etc that were furnished by the original developer during TOP. Nevertheless, these does not cover any subsequent enhancement or upgrades which can be quite substantial. 

Basis of law: The law for this is stipulated under Section 70(1) of the Building Maintenance and Strata Management Act (BMSMA) of Singapore, the Management Corporation Strata Title (MCST) is legally mandated to purchase and maintain a master damage insurance policy for the estate against fire, lightning, explosion, and other prescribed risks.

(ii) For public HDB

If you bought your HDB flat using an HDB housing loan, you (the flat owner) are legally required to buy and renew the HDB Fire Insurance policy every 5 years for the entire duration of your loan. If your loan is paid off: Once your mortgage is S$0, the mandatory requirement drops, and keeping the fire insurance becomes completely optional (though highly recommended as basic prudence).

Basis of law: The Prescribed Legislation: Interpretation (Housing and Development Board — Fees) Order 2026 (Under Section 46(1) of the Interpretation Act 1965). Section 46(1) of the Interpretation Act is the legal "bridge." It gives the Ministry of National Development the concrete legislative authority to draw up binding rules (like the Fees Order 2026) that legally solidify HDB's administrative right to force flat purchasers into the mandatory HDB Fire Insurance Scheme.

2. What is the Home Insurance Coverage That is Normally Missing and Actually Needs to Be Covered?

The costly parts that are not covered in event of fire will be your renovation and home content. Simply put, these will be your enhancement or home purchases after getting the keys to your unit. For example, some folks will change the entire flooring or hack away walls, building magnificent TV Consoles with luxurious wall features and build new wardrobes and cabinets. These renovation alone can cost S$10K to S$200K depending on the enhancement. This is not cheap. Hence one needs to buy personal home insurance to cover this essential component to ensure you have a decent size funds to redo your personal space.

3. Water Leakages From Your Unit Spreading To Neighbours Unit and Getting Lawyer's Letter and Lawsuits.

This is actually a common problem that one will sooner or later encounter. The scary part is that if your unit causes your below neighbour's ceiling to leak, you will be held 100% responsible for repair costs if you are living in a private property and 50% split of repair responsibility between upper and lower floor if you are living in a HDB (there is now a special scheme where HDB will chip in 50% for repair and remainder split between the neighbours).

The bomb here is actually not the repair bill but the consequential damages from the leak that causes say S$100K due to extensive damages. The Singapore Court will not follow the 50%-50% split. They will look into who is the negligent party and there is a probability and financial exposure here that you maybe held responsible for over 6 figures sum of damages being filed against you.

This is where home insurance 3rd Party Liability protection comes into place. You would want to prevent a huge dent to your wallet in such an unfortunate event.

For the fun of it, this coverage and protection is strangely known as the "Family Worldwide Personal Liability". The mind boggling use of the term "Worldwide" here is that it actually covers more than home risk. Say if you travel overseas and were eating an ice-cream and you accidentally dropped the ice-cream and an elderly man stepped on the dropped ice-cream and sue you for injuries from slipping on your ice-cream, you can activate this coverage here to cover for 3rd party liabilities. The only reason it is often bundled into home insurance policy is that leaking of water to the unit below is one of the very common problems that are likely to occur.  

4. Other Common Issues to Note Regarding Home Insurance Coverage

Tracing and hacking to trouble-shoot water leakage in home is often costly and can cause a few thousand dollars of financial damage. Take note that not every home insurance policies cover this aspect- they only cover for consequential water damages to tiles and walls but DO NOT cover for the hiring of plumber and contractors to do hacking through tiles for tracing of water seepages behind walls or ceilings.  For example, SOMPOS which used to have it under their Home Bliss series policy under "Enhanced Peril" has actually quietly removed them. I can also no longer find this coverage under their latest HomeMax or HomeVital polices.

The only insurance companies that I know of that still insured the seepage trouble-shooting and repair are MSIG and Income Insurance Ltd but even then, they are only willing to cover this on a co-payment basis. For example, Income Insurance will only cover such water seepage tracing and repair work for up to maximum S$5,000 and only subject to 80% of any cost with the remaining 20% chipped in by yourself.

Parting Thoughts

It is crucial that one actually buys his or her own home insurance protection in order to cover the gaps in protection from areas as above-mentioned, other than the usual building structure reinstatement. Ok, that's all from me today on the topic of home insurance coverage- have a great week ahead!

Why Relying on Bank's Fire Insurance for Mortgaged Home Is Technically a Financial Death Sentence? (Part 1)

 

Hi Folks, good day to all. I am in the midst of renewing my home insurance when I discovered that many of my colleagues and friends do not even buy any home insurance. The common reason given was that while taking out the mortgage from the bank, the banker have already stipulated that the home owner will need to pay for the mandatory fire insurance. This thus give rise to a belief that there is already a home insurance coverage for major fire and the resultant damages.   

1. The Misconception-The Bankers Purchased For You liao

Unfortunately, this is the greatest myth and misconception along 2 lines. 

Firstly, the mandatory fire insurance purchased will only cover for the structure of the building as well as any other original fittings and fixtures given by the developer. It does NOT cover the internal renovation as well as purchase of new TVs, ceiling fans, sofa, dining table set, refrigerator, bed-frames & mattresses etc. 

Secondly and this is the most important and slightly complicated part. This fire insurance purchased by the Banker is actually structured for the insurer to pay off the loan owed by you in the event of a disastrous fire. Let me elaborate further below and imagine you have a outstanding mortgage loan of S$500K.

2. The mandatory fire policy that a bank forces a buyer to take out has very explicit legal terms. It acts as a hybrid: it is legally structured as a "property reinstatement policy", but it operates practically as a "loan-repayment mechanism" for the bank.

Here are the exact terms and mechanisms of how a standard bank-mandated Mortgagee Interest Policy (MIP) works:

(i) The Core Insurance Terms

The banker usually sets the maximum coverage limit to match either the outstanding loan amount or the building's reinstatement value (whichever is lower). It completely ignores the market value of the property or the value of your possessions.

(ii) The Loss Payee Clause (Mortgagee Clause)

The most critical term in the policy states that the Banker is the sole "Beneficiary (Loss Payee)". Legally, the contract dictates that in the event of a major loss, the insurance company cannot pay you directly. They must pay the bank.

3. Does it fix the fire damage or just pay off the bank?

It actually "does both", but the priority is entirely skewed toward clearing the bank's debt. Here is the exact chain reaction after a devastating fire:

Step A: The Insurer Pays the Bank (Paying off the loan)

Because the building (the bank's collateral) is destroyed, the insurance company assesses the damage. If the property is completely uninhabitable or ruined, the insurer pays a lump sum directly to the bank to completely or partially wipe out your outstanding mortgage balance. The bank is made whole and walks away happy. Your debt to the bank disappears.

Step B: The Reinstatement Right (Fixing the fire damage)

Technically, because it is a property policy, the insurance funds can be used for reinstatement. However, because the bank is the primary "owner" of the policy benefits, the choice is entirely up to them.

4. The Ultimate Catch: The Law Behind It

Under Singapore's Building Maintenance and Strata Management Act (BMSMA) and general insurance laws, if the insurer pays off your loan to the bank, a legal transition happens, that is, the insurer takes over as the mortgagee.

This means the insurance company effectively "buys" your debt from the bank via re-assignment. The bank leaves the picture, and you must now continue to make your monthly mortgage payments directly to the insurance company instead. 

Summary

In other words, the fire insurance purchased in favour of the bank as beneficiary is not a real fire policy-it serves merely to transmit the risk of default in monthly repayment by the mortgagor and assign them to the insurer.  In the event of major fire damages, you will not have control over the funds from this particular fire policy for reinstatement of the building structure, original developer given fixtures and also fittings. In addition, as mentioned earlier, there is another major financial exposure that can range from S$20k to S$100K for the renovation and house contents that were destroyed and also temporary housing costs. Since this post is getting too lengthy, I will stop here and break further discussion, in another blog post (Part 2), on where the actual funds for reconstruction is coming from and whether one need to buy your own fire insurance.

SG Government Finally Revised Executive Condo Purchase Rules- Just Do Away with EC Scheme.

 

I read in absolute amazement at the devastating new property measures released by the Singapore Government with regard to changes in conditions for buying an Executive Condo (“EC”) in Singapore. These changes will apply to government land sales from May 8, 2026 which means that it will occur somewhere in late 2027 or early 2028 given the requirement for developers to only be able sell EC 15 months after successful land bid. Many private developers and 2nd time HDB upgraders are probably cursing and swearing at the upcoming changes. 

1. Latest Changes Summarised

So for couple who decided to apply for EC and getting married soon at age 28, waiting for TOP takes around 2 years while the new Minimum Occupation Period (“MOP”) thereafter is 10 years will mean a long waiting time to flip EC of 12 years, that is age 40 already. This will definitely address the current unhealthy trend of Singaporean couples using this as a mean to get rich via property flipping. 

The increased allocation from 70% to 90% reservation for 1st time buyer will also reduce the get rich 2nd time lottery for HDB upgraders who already benefitted from the Singapore get rich via HDB lottery system in the 1st round and now asking for 2nd bite of the cherry. Additionally, this will ensure more 1st time buyers benefit from owning their first property.

2. My Personal Take- Good Measures To Control Unsustainable Rise in EC Prices

Overall, I think this is good as developers will now be very worried about selling off all units in time lest they get into trouble with the 5 years sales penalty if they are still unable to market the units off. Developers will thus be more prudent in their EC bid.

3. EC Scheme Should be Removed.

Don’t flame me but I am not exactly a fan of the current EC scheme. Our HDB government agency has lost track of its original purpose post independence to help all Singaporeans own affordable housing for a roof over their heads. Building EC takes away precious land now used to build tennis court, swimming pool & landscaping which could be used to build an extra stack of BTO. Why should all tax payers be paying for folks who want to live in luxury property at the expense of the lower income group who are more in need of subsidies?

Hence, there should just be (i) BTO and (ii) private property class in Singapore. HDB housing is for Singaporeans to live in and not for flipping upon MOP. Those who wants to speculate or invest can just go directly to the private property market. 

Parting Thoughts

Personally, I think that these new measures are long overdue and bring EC in line with the BTO Plus and Prime area programmes of 10 years MOP. For too long, many Singaporeans have been treating an EC as a mean to get free government handout in the form of subsided land rates and special CPF grant of up to S$30K. Overall, many EC flippers simply just sell away after the previous 5 years MOP rule and walk away with half a million dollars of profit or even more to upgrade to private condo or to buy a landed home without any effort. A home is primarily for living in and not for speculation. I hope that this measure will also help moderate EC prices to benefit future generation and also spur more people to be more entrepreneurial by starting their own businesses to boost the economy instead of just lying flat and waiting for money to drop down via flipping of their EC for sure-win lottery gains. 

Singapore Buyers Got Misled Into Investing Into Malaysia Johor Properties Under Private Lease Scheme- Slim Hope of Winning Civil Suit.

It is shocking when I read the news that some fellow Singaporean buyers are in legal dispute with a Malaysian developer over the form of ownership of Johor condo purchases. Apparently, these fellow Singaporeans have bought into a property under a "Private Lease Scheme (PLS)" that is unique in Malaysia but not in Singapore property market. It is akin to being a tenant as all the rights associated with ownership are missing and the only rights is to be able to stay in the condominium apartment for 99 years. You need to seek permission from the Developer to sublease or re-sell the unit.  

1. What is PLS?

Under such a scheme, the Malaysian developer retains ownership of the property and you essentially have a long-term rental agreement and NOT TRUE ownership. One thus does not have full ownership rights such as voting on condo management or selling the property freely. 

2. Where is the Disputed Residential Properties?

According to the Edge, some residential properties in Medini, an area within Iskandar Puteri in Johor, were sold in 2013 and 2014 under a PLS and not as 99-year leasehold condominiums. 

3. Statutory Claims Limit in Civil Suit as well as Signing the Sales & Purchase Agreement with Eyes Wide Open

3(i) Considering now is 2024 and that this matter is only raised up now, there will also be an issue of statutory expiry of civil claims lawsuit which is 6 years in Malaysia. Can affected PLS Singaporean buyers even file the suit in the first place on being mislead into paying for a PLS instead of a normal purchase?

3(ii) Also, even if they raise a claim successfully, how do these buyers argue their way out of an agreement that they have signed with eyes wide open in the first place?

Parting Thoughts

I thought that investing into Malaysian assets can become extremely risky if one is not careful in the due diligence process. Nonetheless, even if one is very careful, we should not forget about the constantly changing policy by the Malaysian government (depending on who is in power). We have seen the aftermaths of the 1998 CLOB issue where many Singaporeans lost their hard earn money overnight due to political risk. We have also seen Forest City which was marketed to many folks in China and Singapore as a 2nd residential home under special visa stay programme but which Mahathir's government subsequently reversed hence turning it into a ghost city. 

Moreover, even if there are capital gains of 100% in say 10 years, the depreciating currency based on historical trend against SGD will mean that the investment gain will be be wiped back to zero. Therefore, buying into Malaysian property is definitely more for staying or living in rather than as a form of investment. 

To put it bluntly, I think that the affected Singaporeans on PLS have very little room to maneuver to get the ownership title restored and will just be incurring more unnecessary legal fees expenses. The only stakeholder that will surely benefit the most will be the Malaysian la

Crazy Singapore Property Price- Price Collapse Will Lead to Bursting of People's Dream.

When one sees Woodlands Condo, Norwood Grand, lauching at close to S$2,000psf and still gets snapped up like hotcakes, this signal something very wrong with the property market. Emerald of Katong launched at S$2,621 psf average also gets snapped up by 99% within a single weekend signalling a red hot property market. Once the bubble bursts, many folks will be saddled with over S$1.5Mil+ of mortagages. I still believe market goes up and down in cycles.....it cannot shoot up perpertually. Look at what is happening to Hong Kong property market right now. 

Be cautious when many people are bullish. Buy only if one has sufficent cash buffers. Don't end up being a slave to the banks.

Zyanya Review- City Fringe Freehold Condo At Geylang Food Haven And Near MRT Station With Incredulous Price Of S$1,700psf.

 

While I was on my way to lunch in the Geylang area, I walked past the Zyanya showflat located in a shophouse and thus decided to drop in for a quick visit. Zyanya is a freehold 34 units boutique condominium located in the eastern city fringe location of District 14. This is definitely one of the nearest free-hold condominium to Aljunied MRT station. You just need around 5 to 6 minutes to walk from Geylang Lorong 25A to the MRT station. Given the S$2,000plus psf new launch at Lentor Modern and AMO Residence at the Outside Central Region (OCR), Freehold Zyanya at 1,700psf at city fringe (Rest of Central Region- "RCR") appears to be a great steal. In addition, 99 years leasehold developments Sims Urban Oasis and the latest Penrose condominiums in the vicinity area are already asking for S$1,700psf to S$2,000psf. 

Front view

Zoom in front view-level 2 is the mechanised carpark

Side view

Backview

Besides the attractive price on offer for Zyanya, I am going to list down a few other highlights of staying in this well-known city fringe area:

1. Food Haven

Geylang is highly regarded to be one of Singapore's hot spots for famous hawker stalls and street food. One can always savour the famous Geylang fried prawn noodles and Geylang Frog porridges near the comfort of one's home. 

2. Excellent location well connected to other parts of Singapore 

5-10 minutes drive to Kallang Wave Mall, Suntec City, Bugis Junction and City Hall via Nicoll Highway. One can also get onto major expressway PIE or KPE within 5 minutes 

3. Units layout good but unfortunately some stacks facing West and will have afternoon sun

I will put up some of the better 4 bedder and 3 bedder layout below. For 1 bedder and 2 bedder will not be discussing here as the smaller bedder units have already been mostly snapped up by investors that I reckon are looking to rent them out.

4 Bedder + Study-1302sqft

The above is one of the best layout in Zyanya with spacious living room and even space set aside for a study area that can sit two people. Unfortunately, all the bedrooms are facing west and will get the afternoon sun which means that when you return back home from work, your bedroom will feel like a sauna. Since young I have a very low tolerance level for heat- the best I can accept is bedrooms with east facing which only gets the morning sun but this is my own personal preference. I do know of friends who like the sun a lot. 

4 Bedder-1195sqft

The 1195sqft D1 Type layout is my personal favorite as it is the only one with all bedroom facing the east (only morning sun issue). Its relatively smaller quantum for a 1195sqft means approximately S$2Mil for a 4 bedder configuration at a city fringe location.

3 Bedder+Study-1044sqft

Overall layout for the above 3 bedder + study is not efficient and appers to be odd shape to me. The dinning area is also tiny for a 3 bedder. Good thing for this layout is that there is a small area reserved as study area. Balconies are tiny. My thoughts are to pay a bit more to get the 4 bedder instead.

3 Bedder-893sqft

The compact 3 bedder layout for Zyanya is a bit strange. I thought that the junior master bedroom concept with space wasted for an attached bathroom wasted- it could have been better use for a larger kitchen area or even a small study area. Also, all bedrooms are west facing and will encounter the afternoon sun issue.

4. Limited facilities as only 34 units boutique

This is a small development hence of course, the facilities available are lesser than large scale development. But it does have a decent small lap pool of around 13m in length. There are a total of 28 carpark lots which should be more than enough given that there are 1 bedder and 2 bedders units whereby the owner bought for investment purpose as well as being near Aljunied MRT station, there is really not a need to own a car. But I guess the mechanised carparking system maybe an issue here especially if it breaks down  frequently after a few years of wear and tear- it will depend on how well it is being maintained. 

One should also take note that with only 34 units, managing the Management Corporation Strata Title ("MCST") and balancing the mgt funds book will not be as economical in scale relative to bigger developments with 300-500 units. For folks who purchased for own stay, he or she may even have to roll up their sleeve to join the Management Committee of the MCST to take on the laborious job of dealing with contractors, ensure maintenance is well taken care of as well as ensuring statutory compliance.

Zyanya lap pool at 3rd level.

Parting thoughts

If one is looking to resell their units in the short-term to mid term, then one has to be careful whether one wants to buy into a boutique development with only 34 units as there will only be a few transactions available for benchmarking during future resales. But if one wants to stay in the area for a longer term and to get a freehold city fringe home at an attractive entry pricing, then Zyanya may just be the right one for you.

AMO Residence Over 98% Sold In A Day- Singapore Property Market Shining Bright In spite of Economic Downturn. Will You Pay S$6K To Service Your Mortgage in Outside Central Region?

 

AMO Residence located off Ang Mo Kio Avenue 1 ended the weekend of 23 July 2022 with 98.1% of its 372 units all sold out. The average price of units sold is at incredulous S$2,100psf. What a crazy price for Ang Mo Kio. UOL Group and its partners are now laughing all the way to the bank. I can still remember back in 2010 when Centro Residences debuted at Ang Mo Kio Centre- it was going for  an eye popping S$1,200 psf by Far East Organization during launch and many people were saying that is so exorbitant and a record price of over the psychological  barrier of up to S$1,000 psf for sub-urban area. Well, 12 years later, prices for new launch condo at Ang Mo Kio now apparently hit S$2,100 psf. This is paying close to S$2Mil for a compact 958 sqft 3 bedder unit.

Using a loan of S$1.5Mil spread over 30 years for a young couple along and assuming a 2.5% interest rate, this will mean a monthly payment of S$5.9K which means each husband and wife need to cough up around S$3K individually each month to service their mortgage. Total interest paid over 30 years will add up to S$634K.

2.5% borrowing rate simulation

If interest rate continues to increase to say 3.0%, it will mean a monthly servicing of S$6.3K per month. Total interest rate paid over 30 years will be S$777K- I think it is time to buy more shares of DBS, UOB and OCBC listed on SGX which seems to be a better investment. 

3.0% borrowing rate simulation

Well, such pricing is not for the faint hearted folks. Down payment and stamp duties will mean half a million upfront in cash and CPF and not to mention in the current climate of rising bank borrowing rates, it certainly takes great courage to sign the option to purchase. According to property agents, the success of AMO Residence shows that "the market is hungry for attractively priced homes in good locations". Property prices is still a good hedge against inflation according to many people. I am not sure on that. However, I do hope that job losses are kept to a minimum in the upcoming economic downturn and everyone gets to keep their bread and butter. Else it will be extremely painful to support a S$6K per month mortgage.