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Upgrading from an HDB flat to a condo?


Congratulations! If you’re reading this article, you’re probably moving up and out from your starter home and upgrading to a condo, or thinking about doing so.


Financial planning and budgeting for the upgrade


Developing a robust financial strategy is imperative before transitioning from an HDB flat to a condominium. This involves evaluating your current financial status, comprehending the entirety of condo purchase expenses (including hidden costs like maintenance fees, renovation outlays, and property taxes), and preparing for ongoing mortgage commitments. Additionally, it's vital to assess how this upgrade fits into your broader financial objectives, such as retirement savings or setting aside funds for your children's education.


Crafting a detailed budget plan is essential to ensure that your aspiration for a condo is grounded in sound financial logic rather than solely emotional impulse.


Seeking advice from a financial consultant or utilizing online financial planning resources can offer valuable assistance throughout this process.


Reasons for upgrading to a condo


- Enhanced location convenience: Moving to a condo could mean shorter commuting distances and times for either you or your spouse, potentially aligning with workplace locations.


- School selection flexibility: Choosing a condo within a 1km radius of a preferred primary school allows for greater options in securing enrollment for your child.


- Freedom from HDB regulations: Condo living frees you from HDB rules like the Minimum Occupation Period (MOP) and pet ownership restrictions, providing more autonomy in your lifestyle choices.


- Diversity in buyer market: Private properties aren't subject to Ethnic Integration Policy (EIP), widening the pool of potential buyers if you decide to sell your condo in the future.


- Abundant amenities: Condos offer a plethora of amenities such as pools, gyms, karaoke rooms, and even specialty facilities like bowling alleys and ice therapy rooms, enriching your daily living experience.


- Asset appreciation potential: Upgrading to an executive condo (EC) nearing its MOP completion grants advantageous positioning as it approaches privatization, potentially yielding profits upon resale, especially with rising demand and prices.


- Consideration for new launch condos: Explore upcoming condo developments with approaching Additional Buyer's Stamp Duty (ABSD) deadlines for potential investment opportunities.


We will usually use our 7 Essential Checklist to help our clients select the best unit before they make any informed decision. Chat us up to find out more! https://www.dreampropsg.com/contactus


Here’s how you can upgrade from your HDB flat to a condo. But first…


You need to MOP before upgrading!


The soonest you can upgrade is after completing your MOP, which is usually five years from the key collection date. But your MOP also depends on the mode of purchase.


Mode of purchase

Minimum Occupation Period (MOP)

Bought from HDB: non-PLH flats 

5 years 

Bought from HDB: PLH flats

10 years

SERS (Announced before 7 April 2022) 


At designated replacement sites 

Whichever is earlier: 


  • 7 years from replacement flat selection date, or

  • 5 years from key collection

SERS (Announced before 7 April 2022) 


With portable rehousing benefits

5 years from key collection 

5 years from key collection 

Resale HDB flat: non-PLH flats

5 years 

Resale HDB flat: PLH flats

10 years

20 years 

During your MOP, you cannot do these 4 things:


• Sell your flat

• Buy another HDB flat

• Buy a private property

• Buy property abroad


To check your eligibility, you can go to My HDBPage and log in with your Singpass.


To buy or sell first?


*Buy first, sell later


Pros


1. No need for temporary accommodation


Selling an HDB flat on the open market can take months and depends on a variance of factors.


• The current property market

• If your property requires renovation

• Proximity to educational institutes and amenities

• How far it is to the nearest MRT/LRT station

• If it’s on a high floor or low floor


You don’t need to worry about having a roof over your head if you’ve secured your condo prior to selling your HDB flat. 


Doing so saves you thousands of dollars on potential rental costs. Plus, if you decide to renovate your condo before moving in, you can continue living in your HDB while completing your renovations.


2. Deferred Payment Scheme (DPS) 


A big concern HDB upgraders have when taking the “buy first, sell later” approach is having to service the mortgage of two housing loans simultaneously until the condo receives TOP status. 


In reality, this isn’t a concern if you’re buying an EC, as many EC developers offer the Deferred Payment Scheme (DPS). Under this scheme, you only pay the initial 20% downpayment of the property purchase price, with 5% in cash and 15% in either cash or CPF.


The rest of the 80% is paid after two to three years. During these years, you’re free from having to make loan repayments, stamp duties and all other financial obligations (relating to the property, of course)


Having a lower upfront cash outlay plus an extended deferment period will allow you to do these things:


• Have more cash flow

• Pay off remaining home loans

• Get extra time to raise cash 


As for condos, only those that have received Temporary Occupation Period (TOP) status or the Certificate of Statutory Completion can be sold under DPS, so be sure to check with the developers before pulling the trigger. 


However, there’s a catch: the property’s price will also be higher by about 10%, which is a fair trade-off for deferring your loan repayment. 


Cons:


1. Reduced loan-to-value (LTV) ratio


Purchasing a condo before selling your HDB flat entails managing two home loans simultaneously, leading to a lower LTV ratio. Instead of the standard 75% LTV, the LTV ratio for the second loan is typically capped at 45%. This ratio further decreases to 25% if the loan tenure exceeds 30 years or extends beyond your 65th birthday.


Increased cash downpayment


With a lower LTV ratio, the minimum cash downpayment jumps from 5% to 25%, necessitating a larger upfront cash investment when acquiring the condo.


Valuation impact on borrowing capacity: The loan amount you can secure depends on the valuation of the property, not solely the purchase price. A higher valuation allows for a larger borrowing capacity but also results in higher stamp duties, as they are calculated based on the higher of the purchase price or valuation. It's important to consider this factor before actively seeking a higher valuation for your property.


2. TSDR restrictions — You might not get your desired loan amount


Currently, the Total Debt Servicing Ratio (TDSR) threshold stands at 55%. It applies to loans where the Option to Purchase (OTP) of the property purchase was granted on or after 16 December 2021. 


If your monthly income is S$10,000, your outstanding debt repayments cannot be more than S$5,500 per month.

After paying for all my loans plus Netflix premium and Grab rides, I can’t afford to take on another property loan?


TDSR considers all your monthly loan repayment and debts. These include car loans, student loans, credit card debts, etc. 


This limits the total amount you can borrow, which in turn may affect the property you can afford.  


Do note, though, that you may be able to get the monthly loan obligation for your current HDB flat excluded in the TDSR calculation if you provide the following documents to the bank:


  • A copy of a signed undertaking to the HDB committing to complete the sale of your current property within the period stipulated in the undertaking

  • A written declaration that you will take steps, in accordance with the signed undertaking, to sell your current property.


3. Your MSR is limited (if you’re buying a new EC)


You might also be limited by the Mortgage Servicing Ratio (MSR), where you are allowed to only use up to 30% of your monthly income to service your home loans. 


If your monthly income is S$10,000, your maximum monthly home loan is capped at S$3,000.


As if the TDSR cap isn’t enough, the MSR might add another layer of difficulty when securing the loan amount required and impact your overall affordability if you’re purchasing a new EC. 

*MSR doesn’t apply to privatised ECs


If you’re unable to meet the MSR, you have a couple of options. You can make a bigger downpayment, increase the loan tenure, buy a resale EC or… simply make more money


4. Additional Buyer’s Stamp Duty (ABSD) Payment:


When purchasing your condo before selling your HDB flat, you're required to pay a 20% ABSD if you're a Singaporean acquiring your second property.


However, you have the option to apply for ABSD remission and reclaim the paid amount through the e-Stamping portal on IRAS's website. To qualify for this remission:


- You must be a married couple, with at least one spouse being a Singapore Citizen (SC).


- The property must be jointly purchased as a married couple.


- Both spouses must remain married at the time of application.


- You must sell your first home within six months of acquiring the condo or when your condo has obtained its Temporary Occupation Permit (TOP).


- You must not have acquired additional properties since purchasing the second residential property.


- ABSD is calculated based on the higher value between the purchase price and property valuation.

For example, if the purchase price is S$2.3 million and the property's market value is S$2.2 million, the ABSD will be computed based on S$2.3 million.


- Current ABSD rates are as follows: [Include relevant ABSD rates here].


Types of buyers

Rates on or after 16 December 2021


Singapore Citizens

First residential property

0%

Second residential property

20%


Third and subsequent residential property

30%


Permanent Residents

First residential property

5%

Second residential property

30%


Third and subsequent residential property

35%


Foreigners

Any residential property

60%

Example: Buying a property priced at S$2.3 million ABSD payable: 20% x S$2.3 million = S$460,000


ABSD must be paid within 14 days after signing the agreement (usually the Sale and Purchase Agreement), and the remission application must be made within six months after the sale of your HDB flat. 


To avoid paying the ABSD altogether, you need to be legally contracted to sell your current HDB flat before signing the Option to Purchase for your new condo. 


5. Under pressure to sell quickly 


To receive the ABSD remission, you need to sell your property within six months. This may throw a spanner in the works, especially if the property market is stagnant or, worse, on the downtrend. 


ABSD is non-deferrable and must be paid in full and on time. Failure to do so means incurring a penalty of four times the amount of unpaid duty under the Stamp Duties Act.

Five months already, someone, anyone, please buy my house!!!


6. CPF Utilization Restrictions


Purchasing a condo before selling your HDB flat categorizes the condo as your second property, subjecting you to CPF usage limitations.


If you've utilized CPF funds for your first home and intend to use excess CPF Ordinary Account (OA) savings for your second property, you must set aside a Basic Retirement Sum (BRS).


Individuals below the age of 55 must allocate the BRS in their OA and Special Account (SA), while those aged 55 and above must allocate it in their OA, SA, and Retirement Account (RA).


Two key terms to understand are Valuation Limit (VL) and Withdrawal Limit (WL):


- VL is determined by the market value of the property at purchase or the purchase price, whichever is lower. For instance, if the market value is S$2 million and the purchase price is S$1.8 million, the VL will be S$1.8 million.


- After setting aside the BRS, CPF OA savings can be used for the second property up to the VL.


- WL is the maximum amount of CPF savings allowable for housing use, capped at 120% of the VL for the first property and 100% of VL for the second property.


- Once CPF WL is reached, further housing loan servicing must be financed with cash, as CPF usage is no longer permitted.


- CPF's Housing Usage Calculator aids in determining available OA funds for property purchases.


Chat us up to find out more! https://www.dreampropsg.com/contactus


*Sell first, buy later


Pros


1. No ABSD


As stated above, you can avoid paying the ABSD if you sign the option to purchase of your second property after selling your HDB flat.

This means having one less process of applying for the ABSD remission in your upgrading journey.


2. No LTV cap


To prevent over-leveraging, your LTV ratio drops as you own more properties. As explained earlier, if you’re already servicing one housing loan, the bank can only give you a 45% LTV ratio on your second, for loan tenures up to 30 years.

On the contrary, all this hassle can be avoided if you sell your HDB flat first before upgrading. So the amount of financing you can get will be up to 75% of the property value or purchase price, whichever is lower.


3. More money for your next purchase


Upgrading is a hefty financial commitment that comes with a significant downpayment, especially if you’re taking a bank loan. Selling your HDB flat first frees up money to fund that downpayment so you can avoid tapping on your cash reserves or CPF.


Cons


1. Finding alternative accommodation


Suppose you fail to secure your desired condo after selling your HDB flat. In that case, you’ll find yourself caught in the headache-inducing position of having to source interim accommodation for you and your family. 

Moving… again?


You can always request an extension of up to three months from the buyers of your HDB flat. However, keep in mind that the buyers may not be agreeable to this as it might push back their moving or renovation plans. 


A generous friend or relative might offer their place for you to put up at while you search for your second home, but this means you’ll need to incur storage charges for your belongings and furniture. 


Think about it. You need to pay moving costs of your possessions to either your rental or storage unit, after which you need to pay to move it again to your condo. There’s always the risk of things getting damaged in the process of moving, not to mention the costs will start to stack up.  


2. Buyer’s Stamp Duty (BSD)


Regardless of which route you decide to take, you’ll need to pay the Buyer’s Stamp Duty (BSD) to the Inland Revenue Authority of Singapore (IRAS). 


BSD is determined by your property’s purchase price or valuation, whichever is higher. If the purchase price stated in the Sale and Purchase Agreement is S$2 million and the property’s market value is S$1.8 million, the BSD will be calculated based on S$2 million.

Hare are the current BSD rates for properties bought on after 15 February 2023: 


Purchase price / Market value

Rates for residential properties 

First S$180,000

1%

Next S$180,000

2%

Next S$640,000

3%

Next S$500,000

4%

Next S$1.5 million

5%

Remaining amount

6% 

*BSD is rounded down to the nearest dollar. 


Example: Calculating BSD for a S$2m condo 

Percentage payable

Calculation

Total

1% of the first S$180,000

1% x S$180,000

S$1,800

2% of the next S$180,000

2% x S$180,000

S$3,600

3% of the next S$640,000

3% x S$640,000

S$19,200

4% of the next S$500,000

4% x S$500,000

S$20,000

5% of the remaining S$500,000

5% x S$500,000

S$25,000

Tota BSD payable

S$(1,800 + 3,600 + 19,200 + 20,000 + 25,000) 

S$69,600

Like the ABSD, the BSD must be paid within 14 days of signing the contract or agreement.


Want to find out how much your current flat worth before selling? Submit your valuation here https://www.srx.com.sg/mysg-home?inviteId=1946642&source=184 or Chat us up to find out more! https://www.dreampropsg.com/contactus


Now, EC or Condo?

Okay darling, you need to stop shopping on TAOBAO, Shopee, Lazada & Amazon if we want to make our loan repayments in future!


Executive Condos (ECs) offer a unique blend of public and private housing, developed and sold by private developers. They boast similar amenities to private condos but are initially subjected to certain HDB restrictions upon launch. With a standard Minimum Occupation Period (MOP) of 5 years, ECs can be resold to Singaporeans and PRs after this period, and to anyone, including foreigners, after 10 years.


- Income Ceiling: Prospective buyers of ECs must ensure their average gross monthly household income does not exceed S$16,000. While this may pose a limitation, it also signifies higher affordability. However, exceeding this limit may necessitate exploring the EC resale market or the condo market.


- Sale of HDB Flat: Purchasing a new launch EC mandates the sale of your HDB flat within six months of obtaining the EC keys, as new launch ECs are considered subsidized housing.


- Affordability: ECs, particularly new launch ones, are initially more budget-friendly compared to condos due to subsidies, making them an appealing option for potential price appreciation.


Resale levy payable. Unless you’re buying a private condo, you’re subjected to a resale levy when you sell your subsidised HDB flat to buy an EC from a developer. 


According to HDB, the resale levy is put in place to “reduce the subsidy that a buyer receives on their second subsidised HDB flat and ensures a fair distribution of subsidies between first-timers and second-timers”.


Here’s the resale levy amounts payable. 

Households

Singles Grant recipients



First subsidised housing type

Resale levy amount

2-room/ 2-room Flexi flat

S$15,000

S$7,500

S$30,000

S$15,000

S$40,000

S$20,000

S$45,000

S$22,500

S$50,000

S$25,000

S$55,000

NA


Upcoming EC launching in the EAST, visit https://www.dreampropsg.com/tampinesnorthec to find out more or direct contact us!


New launch or resale EC/ condo?


Likewise, there are pros and cons to new launch versus resale units. Whether you want to buy your next home from the developer or the resale market should depend on your preferences and financial means.


New launch units


Visit https://www.dreampropsg.com/s-projects-basic for the latest New Launches!


New amenities. Buying a new launch means enjoying spanking new facilities, such as the gym and the pool. It doesn’t just end there — the fittings and fixtures in your unit are also untouched and in pristine condition, with a one-year warranty in the event any issues pop up. 


You get to bask in that new condo environment for many years before wear and tear sets in. 


Developer perks. Another upside of buying a new launch condo directly at the condo showflat is getting access to perks, such as early-bird discounts and other incentives. Some incentives include developers absorbing the stamp duty payable. 


A wider choice of units is also available, such as picking from different stacks or floors versus choosing from whatever properties owners are listing on the open market.


Progressive Payment Scheme (PPS). Only available to Buildings Under Construction (BUCs)*, the Progressive Payment Scheme (PPS) is great for buyers who don’t have a ton of upfront capital to spare. 


Under the PPS, buyers don’t have to make a full payment at one go as the condo isn’t constructed yet. Payments are only made when construction milestones are achieved, which makes it more manageable financially. 


Long waiting time. Construction of a condo can take anywhere from three to four years, during which they’re known as a BUC. The wait is even longer for new launch ECs, as they can only be launched 15 months after the land acquisition, or after the completion of foundation works, whichever is earlier. 


Is it done yet? Is there anything I can do to help speed up the process?


With this in mind, it’s recommended to buy first and sell later for new launches to ensure you’ll have a place to live while you wait for your condo to be completed.


FINALLY!!!


Which would you upgrade to, EC or New/Resale condo? Drop us your comment or contact us.


Considering selling your property? Whether your HDB flat has reached the end of its Minimum Occupation Period (MOP) or your condo has passed its Seller Stamp Duty (SSD) period, it's crucial to assess your potential gains and determine if they align with your relocation goals.


One convenient option for consumers or clients are to request assistance from a reliable and reputable property consultant through our platform.


If you have an intriguing property-related narrative to share, feel free to reach out to us, and we'll gladly review and respond to your message.




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