You might have seen a lot of online advertisements claiming that you can “How anyone can upgrade from HDB to Condo with 3 easy steps” or “Sell your HDB now to secure two Condo for easy retirement life right away”.
When it comes to asset progression, it is indeed a dream for many to upgrade from a HDB flat to a condo unit. However, making this decision is never easy as it sounds, and the claims above are unfortunately clickbait.
One important question that comes to mind when you upgrade from HDB to Condo is this: Are you going to sell your HDB to be able to upgrade to a condo? Or can you afford to keep both assets at the same time as an investment (i.e. for rental income or property appreciation)?
There is no such thing as the “correct” answer when it comes to your home goals. Everyone’s financial background and circumstance are different. Hence, what we try to do is to help you arrive at your own answer by giving you tips on how to calculate your budget, the benefits you can gain from making a decision, and to avoid common mistakes made by others. That way, you can maximise your gains and minimise any losses you might face.
Here are some incredibly important questions that we will tackle today:
1. Can I buy a private property if I already own a HDB?
2. Financial Analysis: Selling HDB to upgrade into a Condo
3. Financial Analysis: Keeping the HDB and still upgrade to another condo?
4. Can I afford to sell or to keep my HDB and make the upgrade happen?
5. Comparisons: Pros and Cons of each choice
6. For condo units, is it better to buy resale or new launch units?
7. Now that I have decided: How do I make the upgrade happen?
Can I buy a private property if I already own a HDB?
This is an important question for many, as owning a condo usually comes after an upgrade from a HDB unit. If you want to upgrade, you will need to qualify two conditions:
Citizenship of the HDB owner
Fulfilling the Minimum Occupation Period (MOP) for your HDB flat
For this, you will need one of the owners of the HDB flat to be a Singapore Citizen to keep both the HDB and condominium that you are keen to buy. Otherwise, you will have to forgo the HDB when you purchase the condominium – this means that if all of you are Singapore Permanent Residents (SPRs), you will need to sell the HDB flat within 6 months of buying the condominium.
If this is not a concern, the other key aspect would be the Minimum Occupation Period (MOP). Usually, you are required to live in your HDB flat for 5 years at minimum before you are eligible to put it up on the resale market. Essential, MOP dictates the number of years that you have to stay in the HDB before you can buy another private property or sell the HDB itself.
It is calculated from the date you collect your HDB flat keys to the date where you sign the Sale and Purchase Agreement of your new private property. This is regardless of whether the private property is still in the construction phase or ready for possession. If there was any time in between where you did not physically occupy it, then it will not be considered into the MOP as well.
Financial Analysis: Selling HDB to upgrade into a Condo
a. CPF
The first consideration would be your CPF. Depending on the sequence of your condo purchase and your HDB sale, the amount of CPF you can utilise will be affected.
If you decide to buy a condominium first, it will become your second property and this will place some restrictions on allowable CPF withdrawals. For one, you will be required to set aside Basic Retirement Sum (BRS) in your CPF that cannot be touched for home loan repayments. In addition, you can only withdraw up to 100% of the property’s market value or the property’s purchase price, depending which is lower. Furthermore, if the remaining lease of the property does not allow the youngest owner of the property to live in it to the age of 95 years, the amount of CPF available for withdraw will be further pro-rated.
If you decide to sell your HDB first instead, you would be relieved to hear that the entire process will become more simple. Upon sale, you will just have to return the amount CPF you previously withdrawn to make the HDB payment, and even the interest accrued over the years back into your CPF Ordinary Account (OA). After this is done, you can go ahead to purchase your condominium without restrictions. This means that you can now withdraw up to 120% of the Valuation Limit of the condominium instead of the 100% above.
b. HDB Loan Repayments
If you have already repaid your HDB loans, this will not be a concern for you. However, if you still have remaining HDB loans left, the proceeds from your HDB sale will be used to offset the remaining HDB loans that is still outstanding. You will also need to give a written notice to your HDB branch one month in advance to make the repayment.
As most of us would not have paid off our HDB flat’s loan yet, it will now matter whether you sell your HDB first or buy your condo first. If you are buying the condo first, this will mean that you have two existing house loans running at the same time. Your Loan-to-value (LTV) permissible will also be affected, since the percentage (%) you are allowed to loan for your second home will decrease. However, if you decide to sell first before buying, it will be treated as a “first housing loan” and a restriction on your LTV will not be incurred.
Do you know that your age can also affect the amount of loans you can draw out? The monthly mortgage and loan tenure will be affected since it is calculated based on age. If you are older, you will naturally have lesser number of years to pay off the loan and hence pay more per month to cover the same amount in a shorter number of years.
This applies to couples as well, where the combined age is taken into consideration. This will be calculated in the form of Income Weighted Average Age (IWAA). For example, lets take it that:
Alice is 50 years old earning $5,000
Jacky is 55 years old earning $6,000
Their Income Weighted Average Age = (50 x $5,000) + (55 x $6,000) over ($5,000 + $6,000). This is equals to 52.7 years, rounded up to 53 years. Hence, if they want to take a loan, they will need to pay it off in: 65 years – 53 years = 12 years’ time.
c. Tightened Total Debt Servicing Ratio (TDSR)
TDSR is the ratio where new mortgages cannot cause borrowers’ total monthly loan repayment to exceed a certain percentage of their total gross income. In the past, it was at 60%. However, with the recent tightening of the TDSR, the threshold has decreased from 60% to 55%.
If you need to see things from perspective, let’s have an example as well. For example, Bob is drawing $8,000 a month. Let’s take it that he has a car and credit card bills, which take up to $2,000 of loan repayment per month. This will mean:
Current TDSR = $2,000 existing monthly loan repayment / $8,000 income = 25% already taken up
Under the current tightened ratio of 55%, we only have 55% - 25% = 30% left
If Bob wants to apply for a property loan, he will only have = 30% x $8,000 = $2,400 left a month for property monthly loan repayments
This essentially limits the number of items you are purchasing on loans since the maximum of loans repayable you can make across every item can only add up to 55% of your monthly income. This will also apply to the new condo as well, if you are already incurring debt from your existing HDB flat.
d. HDB costs – upgrading costs and levies
In the event where your HDB flat is currently undergoing upgrading works conducted by HDB, you will need to have to pay for the Upgrading Programme Costs incurred as well. This include the maintenance works, repainting works, lift maintenance and more.
The levy incurred will also be payable as well, which is the fee payable when you sell an HDB flat that previously participated in the Upgrading Programme. An upgraded unit will incur an upgrading levy of 10% of the selling price, or 90% of the market value depending on which is higher.
e. Buyer’s Stamp Duty (BSD)
Buyer’s Stamp Duty is a necessary payment when you are purchasing your condominium.
BSD is the tax payable on the property bought. The amount is determined to be the higher amount between purchase price or property valuation.
ABSD is another layer of tax payable on the property bought, and is increasingly higher depending on the number of properties you own. The percentage of ABSD will also depend on your residency status (e.g., Singaporean / Permanent Residents / Foreigners). However, do note that if you manage to sell your HDB flat within 6 months of buying your condo, you will be qualified for remission of the ABSD, if you or your other half is a Singapore Citizen.
To know more details of the exact calculations you should make, reach out to us to get a comprehensive budget analysis and projections of your monthly payables.
f. Property Tax
This might not be foreign to you, but this is a reminder that you do incur property tax based on the Annual Value (AV) of the property you live in.
AV = Gross annual rent excluding renovation, furnishing and maintenance fees
An AV of $8,000 and below will incur 0% of tax rates, and anymore will incur a tax rate of 4% and up depending on the value of your property.
g. Other Costs
There are other considerations as well, as they add up to the total costs. This include:
Legal Fees
HDB lawyers for sale will require a legal fee, which the price will depend on the value of your HDB and the unit size / layout (e.g., 2-room or 3-room etc.)
Resale Application Admin Fees
A non-refundable admin fee for the submission of HDB resale application. It is usually $40 for 2-room and below flats, and $80 for bigger ones.
Maintenance Fees
Maintenance of common facilities will also require maintenance fees, and they will require payment up to the HDB sale completion appointment date.
Property Agent Commission
Agents will typically charge 1-2% of the HDB selling price, depending on the agent you are engaging. We recommend finding an experienced agent known for his negotiation skills since the selling price can pretty much cover the agent fees easily.
Financial Analysis: Keeping the HDB and still upgrade to another condo?
If you are keen to keep both of the properties, this would mean that you are working towards the goal of earning extra rental income to offset or exceed the mortgage payable every month. However, here are some financial considerations that you will need to take note of:
a. CPF
The first consideration would be your CPF. As you are keeping the HDB, your condo will naturally become your second property. This will place some restrictions on allowable CPF withdrawals. For one, you will be required to set aside Basic Retirement Sum (BRS) in your CPF that cannot be touched for home loan repayments. In addition, you can only withdraw up to 100% of the property’s market value or the property’s purchase price, depending which is lower. Furthermore, if the remaining lease of the property does not allow the youngest owner of the property to live in it to the age of 95 years, the amount of CPF available for withdraw will be further pro-rated.
b. Loans (both HDB and Condo Loans)
HDB Loan is not a concern if you are considering to purchase another condo unit. The extra condo property will not affect your existing HDB loan terms nor its pay-out rate.
However, now that you have two existing loans:
1st loan = HDB flat loan
2nd loan = Condo unit loan
Your Loan-to-value (LTV) permissible will be affected, since the percentage (%) you are allowed to loan for your second home will decrease. Again, you age will also affect the amount of loans you can draw out, as monthly mortgage and loan tenure is calculated based on age. If you are older, you will naturally have lesser number of years to pay off the loan and hence pay more per month to cover the same amount in a shorter number of years.
For the bank loan that you are getting for the condo unit, you will only be allowed to borrow 45% of its value, with the remaining 55% payable through CPF or savings. This will undeniably be a huge financial consideration as you will need considerable cash flow to sustain this.
c. Total Debt Servicing Ratio (TDSR)
TDSR is the ratio where new mortgages cannot cause borrowers’ total monthly loan repayment to exceed a certain percentage of their total gross income. In the past, it was at 60%. However, with the recent tightening of the TDSR, the threshold has decreased from 60% to 55%.
As your second property will be your second loan, you will definitely have a smaller portion of the 55% allowable to borrow every month.
d. HDB costs – upgrading costs and levies
In the event where your HDB flat is currently undergoing upgrading works conducted by HDB, you will need to have to pay for the Upgrading Programme Costs incurred as well. This include the maintenance works, repainting works, lift maintenance and more.
As you will be keeping your HDB flat, you will need to keep up with the upgrading costs. While you do not need to incur any levies now, do note that in the event where you want to sell your HDB flat, you will still need to pay HDB upgrading levy. An upgraded unit will incur an upgrading levy of 10% of the selling price, or 90% of the market value depending on which is higher.
e. Seller’s Stamp Duty (SSD)
This will not be applicable as you are not selling your HDB flat.
f. Buyer’s Stamp Duty (BSD)
Buyer’s Stamp Duty is a necessary payment when you are purchasing your condominium.
BSD is the tax payable on the property bought. The amount is determined to be the higher amount between purchase price or property valuation.
ABSD is another layer of tax payable on the property bought and is increasingly higher depending on the number of properties you own. Since you are keeping your HDB flat, your condo will inevitably become your second property. Therefore, you will definitely incur ABSD.
The percentage of ABSD will also depend on your residency status (e.g., Singaporean / Permanent Residents / Foreigners). However, do note that if you manage to sell your HDB flat within 6 months of buying your condo, you will be qualified for remission of the ABSD, if you or your other half is a Singapore Citizen.
To know more details of the exact calculations you should make, reach out to us to get a comprehensive budget analysis and projections of your monthly payables.
g. Property Tax
Now that you have two properties, you will need to pay property tax for both of them. Yes, both the one you are living in, and the one you are renting out.
AV = Gross annual rent excluding renovation, furnishing and maintenance fees
However, the tax payable for Owner-Occupied properties is different from the rates payable for Non-Owner-Occupied properties.
Yes, you guess right – the property tax is much higher for Non-Owner-Occupied properties, jumping to 10%. This is a significant payment that takes away the profits from the rental income.
h. Other Costs
There are other considerations as well, as they add up to the total costs. This include:
Legal Fees
HDB lawyers for sale will require a legal fee, which the price will depend on the value of your HDB and the unit size / layout (e.g., 2-room or 3-room etc.)
Maintenance Fees
Maintenance of common facilities will also require maintenance fees, and they will require payment up to the HDB sale completion appointment date.
Property Agent Commission
Agents will typically charge a month’s rental for a 2-year lease, though it depends on the agent you are engaging. We recommend finding an experienced agent known for his negotiation skills.
Can I afford to sell or to keep my HDB and make the upgrade happen?
This is an important question, as affordability will affect which decision you will make. As you can already guess, the affordability will largely depend on the factors that we mention above, which totals up into two main concepts:
1. Your HDB sale proceeds
2. Your Affordability after costs, payment and fees
Your HDB Sale Proceeds takes into consideration the sales price, which is one of the key determining factors in how much you earn. However, you will have to discount it with the following expenses:
Outstanding HDB loan amount
Upgrading Costs and Levies
Legal fees
Agent commission fee
CPF refund
As for your affordability, you will need to calculate the following:
Comparisons: Pros and Cons of each choice
For condo units, is it better to buy resale or new launch units?
Scrolling through endless list of property information and guidelines can get tiresome. If that is the case, consider getting yourself connected with an experienced property agent. He will be in the best position to give you the right advice and tailor a list of potential units based on your preferences.
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