8 Ways to Upgrade from HDB to Condo: The Ultimate Guide 2021
Public housing is the most common form of housing ownership here in Singapore, with over 80% of Singaporeans residing in one. Yet, there are also private houses, in which upgrading to one is subjectively deemed as rising towards the upper echelons of society. Perhaps, after living in your humble abode for a while now, it may have crossed your mind to either upgrade or purchase a private house, namely a condominium.
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3 Top Reasons why People Upgrade to a Condominium?
Singapore is home to the wealthiest individuals in Singapore, with over 207,000 Singaporeans declared millionaires in 2019 (Business Insider, 2019). With the close association of one’s home ownership to their wealth, it is no surprise that Singaporeans are choosing to shift away from public housing to owning their own private properties. Yet, others also choose to upgrade their homes to condominiums for convenience as well as to be able to make passive income.
Aspirations and Dreams of Private property ownership
A private property is largely deemed with opulence, being able to afford the luxury of calling a home your own. Singaporeans are by and large, very ambitious people with many dreams and aspirations. Looking to rise towards the upper echelons of society, private home ownership plays a crucial role in validating one’s wealth and status. It is hence seen as a goal that most people wish to work towards.
An investment property to Rent out for Passive Income
Others may have considered upgrading to a condominium because they have the sufficient funds of purchasing a condominium, while retaining their HDB. In turn, they are able to rent out their HDB flat and receive passive income. They will use their former house as the investment, which will allow them to grow their wealth. In a 2017 study, out of 1 million HDB homeowners, 54,000 households rented out their whole flats while 73,000 households rented out bedrooms (Straits Times, 2018).
Moving nearer to the School of the Parents Choice (For their Kids)
Upgrading to a condominium may also be a result of wanting to ensure convenience for the children, as they travel to school. Condominiums these days are located at spots where many schools are just around the corner. Instead of simply looking for another HDB, people are usually more inclined to look at condominiums as their new potential home. The convenience will allow parents to spend more time with their children and ensure that travelling will not be too tiresome which may in turn result in a loss of morale. Being located nearer to the school also allows parents to provide their children with extracurricular activities to heighten their growth and enable them to excel holistically. As such, parents choose to upgrade to a condominium because they want to be nearer to their children’s school.
All in all, Singaporeans are slowly looking to upgrade to condominiums when they are able to because it is a goal of theirs, alongside other reasons such as convenience and the ability to profit off of their former home.
Can I buy a Condominium if I Own a HDB Flat?
As you contemplate on whether you should upgrade to a condominium, you may wonder if you are eligible to purchase one in the first place. Before you begin thinking about your finances, there are a couple of legal requirements you have to meet in order to be able to buy a condominium.
HDB Flat Minimum Occupation Period (MOP) Status
If you currently reside in a HDB flat, you will have to meet the Minimum Occupation Period (MOP). The MOP is the number of years you need to have stayed in the HDB before you are able to buy a condominium.
According to HDB, the period will be dependent upon the purchase mode, type of flat and the date in which the flat has been applied. If you purchased your HDB flat from HDB directly, from a developer via the Design, Build and Sell Scheme, the Selective En bloc Redevelopment Scheme (SERS) with portable SERS rehousing benefits or a resale flat bought from the open market with the CPF Housing Grant, the MOP will be 5 years.
A flat bought under SERS only, the MOP will either be 7 years from the date of selection of the condominium, or 5 years from the date of occupation, whichever may be earlier. Resale flats bought from the open market without a CPF Housing Grant is dependent on the size of the flat. For one-room flats, there is no MOP. For two-room flats and larger, if you applied for the flat after 30 August 2010, it will be 5 years, flats applied between 5 March to 29 August 2010 will have an MOP of 3 years and any time before that will be 2.5 years with an HDB loan and 1 year with bank loan/without any loan.
For flats bought under the Fresh Start Housing Scheme, the MOP will be 20 years.
At least 1 Homeowner is a Singapore Citizen
Should you have already met the MOP, you will be eligible to buy a condominium. However, in order to keep the HDB, at least one of the homeowners of the HDB has to be a Singapore Citizen. Otherwise, the HDB flat has to be sold within six months of purchasing the condominium.
If you have met these requirements, congratulations! You are eligible to upgrade to a condominium.
Should I Sell or Keep my HDB Flat when buying a Condo? - 3 Things to consider
Once you have made the decision that you intend to upgrade to a condominium, you may begin to ponder as to whether your old flat should still be kept or sold. While everyone will have different circumstances, this article provides you with a few prompts on which decision you should make with regard to your HDB flat.
1. Current Financial Situation
When you have made the decision that you intend to upgrade to a condominium, the most important question you have to ask yourself is if you have the means of purchasing the condominium without considering having to sell your current HDB flat. If the answer to that is yes, you are open to the option of choosing to keep your HDB flat. But if you answered no, then perhaps you should think about selling your HDB flat because you do not want to be in a great deal of debt as you keep your old apartment. On top of that, what are some purchases you will be making in the near future, perhaps maybe funding your child’s education? In addition, you should consider your monthly income as it determines the loan that you are able to take from the bank, and the amount in your CPF alongside how much of it you can actually use is crucial. These factors will be considered later in the guide under ‘Financial Considerations for your Condominium Purchase’.
2. Remaining lease of HDB flat
It is no secret that as HDBs become older, they start to slowly depreciate and the demand for it falls. As such, it is important to consider how long these flats will be under your name until they are returned to HDB. If you own a relatively new flat, which has been upgraded and the amenities around are in pristine condition, you can continue to keep your flat if you choose to. However, if you have been living there for a long time, you should perhaps start to consider putting it up for sale.
3. Location of HDB flat
If you are looking to keep your HDB flat for the sake of renting it out and earning passive income from it, you have to ensure that your flat is situated in a popular area. Renters are more drawn to renting flats at areas near their workplace or schools, because it may be the reason why they are looking to rent a flat in the first place. Consider how desirable is the location of your HDB flat, by listing out the facilities nearby such as transportation, shopping centres, hawker centres and recreational areas such as parks.
These are a few factors that you may consider when deciding on keeping or selling your HDB flat. Ultimately, your finances will show if you have the means to do so. But even then, the value of the HDB flat in the long term should also be taken into consideration.
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Selling your HDB Flat
What is the process of selling a HDB flat in Singapore?
Once you have set your mind to selling your HDB flat, your next move would be how exactly do you expedite this process? The following article will give you a rundown of putting your HDB flat on the market.
For starters, you will have to register your intent to sell your HDB Flat. Visit the HDB Resale Portal on the HDB website to register. Because of the Ethnic Integration Policy (EIP) which ensures a balanced mix of ethnic groups living in HDBs, the website will provide you with information with regard to who will be able to purchase your flat. After registration, you will also be able to view your flat’s Singapore Permanent Resident (SPR) Quota. The SPR Quota refers to a limit on non-Malaysian Permanent Residents eligible to buy your flat. The SPR Quota at the neighbourhood level is capped at 5%, and 8% at the block level. In addition to this, you should also check if your flat will be affected by any upgrading or renewal programme. If so, the buyer will be liable to pay for the upgrading cost.
Once you have registered under the HDB portal, you are able to put up your flat online on various platforms and list it for sale with the help of a real estate professional. You will have to begin considering how to make your flat appealing to buyers. From the price, images of the flat, its furnishings as well as a convincing description of the house such as a convenient location will help boost a buyer’s interest.
After you and a buyer have come to an agreement on the sale price and they have declared their interest in purchasing your flat, the next course of action would be to grant them an official HDB Option to Purchase (OTP), the only viable agreement in the sale and purchase of a flat. The buyer then has to provide an Option fee in exchange for your signed OTP. Within 21 days after the exchange, the buyer will have to confirm their purchase. After confirmation, the buyer will pay you the Option Exercise Fee before signing on the OTP form. Bear in mind that the OTP and Option Exercise Fee may be negotiated between both parties, but may not exceed S$5000 in total.
The buyer and yourself will then have to go online to the HDB portal and submit a resale application document. The application has to be submitted within 7 days of each other’s submission, both the buyer and seller. The resale application has to include the details of the OTP, the buyer and your particulars, a declaration of an existing loan with HDB or any financial institution if applicable, as well as your purchase.
Through the HDB portal, you will then have to endorse the following documents: seller’s sale proceeds, acknowledgement for Upgrading Programme (if applicable), spouse Consent to Resale (if applicable) and resale documents for acknowledgement. There will also be a resale administrative fee that has to be borne by both the buyer and seller each, at S$40 for 1 to 2 bedroom flats, and S$80 for 3 bedroom flats and bigger.
Once HDB has given a final evaluation, they will then provide a stamp of approval with regard to the sale of the flat. There will be a Resale Completion Appointment at HDB hub, in which legal documents will be signed and the exchange of house keys will be facilitated. HDB will then issue an approval letter which claims that you have now successfully sold your HDB flat.
Computation of HDB Flat Sales Process (Selling Price – Cost and Fees)
Financial planning is crucial when you decide to sell your HDB flat. The following article will guide you through the computation of your final sales proceeds. However, if you are not too concerned with the complex breakdown of costs and fees, you may simply utilise the HDB Sales Proceeds Calculator available on the HDB website to get an estimate of the costs.
The final sales proceeds, refers to the purchase price of your HDB flat, excluding the outstanding mortgage loan, the return of CPF funds used with accrued interest, deposit fee received previously and any other payable amounts such as resale levy or upgrading costs.
There are also a couple of outstanding payments you will have to settle as well when you sell your HDB flat.
Firstly, there is the outstanding mortgage loan, which refers to a housing loan you have taken which has yet to be repaid. To settle this, it will be deducted from the resale price of the flat should it be sufficient. Otherwise, the balance of the loan will have to be repaid in cash. Should you require information on your outstanding mortgage loan, you may visit the HDB website on financial information of purchased flats.
Secondly, if you have made a purchase of the flat with the aid of CPF monies, either as a down payment or monthly installments, it has to be returned with accrued interest into your CPF account when you have sold your flat. This cost will also be deducted from the resale price of the flat, and should it be insufficient will be covered by the fees collected (i.e: deposit fees). You may view the amount to be refunded through the CPF website under Public or Private Housing Withdrawal Details.
For those who will be purchasing a condominium or another subsidised flat after the selling of your HDB flat, you will also have to cover the fees of a resale levy. If this is your first resale of subsidised housing, the resale levy for households are as follows: S$15,000 for a 2-room flat, S$30,000 for a 3-room flat, S$40,000 for a 4-room flat, S$45,000 for a 5-room flat, S$50,000 for an executive flat, and S$55,000 for an executive condominium. As for single grant recipients, they are only required to pay half of the resale levy as stated.
There are also other costs which you may have to bear such as the upgrading costs, which will be borne if you are still the flat owner on the date the bill was issued. Should your existing flat reside in an upgraded precinct and you are a Singaporean Citizen who benefitted from the former Main Upgrading Programme (MUP) more than once, you will also have to fork out money to pay for the upgrading levy.
In addition, there are the non-refundable resale application administrative fees, whereby for 1 and 2-room flats, it will cost S$40 each for the buyer and seller, and S$80 each for 3-room and bigger. Legal fees are also applicable should you engage with a HDB solicitor which consists of the conveyancing fees, registration and microfilming to register land titles and deeds as well as miscellaneous fees. Without a HDB solicitor, you will only have to pay for the total discharge of the mortgage. The seller stamp duty will only be applicable to those who recently became homeowners by way of transfer, and the property tax will have to be paid to the Inland Revenue Authority of Singapore (IRAS). There is also the Service and Conservancy charge which has to be paid on the date of completion.
3 Financial Considerations for your Condominium Purchase – How much can you afford? (CPF + Bank Loan + Savings)
1. How much CPF can you use for your property purchase?
Purchasing a property is not a mere stroll in the park. Not only do you have to make many considerations and decisions, you need to have the financial means of being able to fund your property purchase. However, the government has put in place a savings plan named the Central Provident Fund (CPF) which can be used to fund your next property purchase.
If you are looking to upgrade to a condominium, the loan taken up will be a bank loan. The maximum CPF usage is dependent upon whether the remaining lease will be able to cover the youngest owner until they are aged 95. If it does, you are able to the Valuation Limit or the Withdrawal Limit. The Valuation Limit (VL) the lower of the purchase price or the market value of the property when you bought it. If the remaining lease on the home does not cover the youngest owner till at least the age of 95, CPF savings can only be used up to a pro-rated VL. As for the Withdrawal Limit (WL), it is essentially 120% of the VL, in other words, the maximum amount that may be used from your CPF savings.
For those who wish to use beyond the VL (up to WL), the following requirements have to be met: Firstly, the house is able to cover the youngest homeowner until they are 95 years old. Next, for those below the age of 55, you need to set aside the current Basic Retirement Sum (BRS) in your Ordinary Account (OA) and Special Account (SA). Those above the age of 55 need to meet the BRS in your OA and SA.
As for HDB flats which will take up a HDB loan, if the lease covers the youngest owner up to age 95, usage of CPF for new HDBs do not have a VL or WL. As for resale HDBs, there is a VL but no WL.
For all houses, if the remaining lease does not cover the youngest owner until they are age 95, the maximum CPF usage will be a pro-rated VL.
By and large, whether you are able to utilise your CPF in order to fund your next property purchase is dependent on a variety of factors. Depending on the property that you wish to purchase, it will affect the amount that you are able to use. HDBs will allow you to use more of your CPF as opposed to private properties. The age of the youngest owner would also greatly affect whether you are able to use a VL and WL, or a pro-rated VL. You should also keep in mind on the remaining lease of the property
2. Bank Loan: How much bank loan can you get?
Unless you are making millions on end, most of us will have to take a loan from the bank when buying a condominium. Properties are not cheap, and as such we have to take hefty sums from the bank. Because banks have to take into consideration the riskiness of loaning to an individual, there will be a limit to how much one can actually borrow from the bank. This article will cover the factors that affect how much bank loan you may take.
Mortgage Servicing Ratio (MSR)
MSR refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for. This is applicable to those looking to purchase an executive condominium. To calculate the MSR, take the monthly repayment installments for all property loans and divide it by your gross monthly income, then multiply it by 100%. The borrower’s MSR has to be less than or equals to 30%.
Total Debt Servicing Ratio (TDSR)
TDSR refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for. To calculate the TDSR, take your total monthly debt obligations and divide it by your gross monthly income, then multiply it by 100%. It should be less than or equal to 60%. The monthly debt obligations will include property-related loans, including the loan being applied for, car loans, student loans, renovation loans, credit card loans and any other secured or unsecured loans, including revolving loans.
The loan tenure refers to the amount of time you are given to repay a loan, dependent upon the property type. The maximum loan tenure for housing loans is capped at 35 years for non-HDB properties.
Sum of Loan Tenure and Age of Borrower
Taking the maximum loan tenure as 35 years,
The LTV limit determines the maximum amount an individual can borrow from a bank for a housing loan, which is a percentage of the value of the property purchased. If you have no outstanding house loans, the LTV limit is at 75% with a minimum cash down payment of 5%, or an LTV limit of 55% with a minimum cash down payment of 10%. For those with one outstanding house loan, the LTV limit is 45% or 25%, with a minimum cash down payment of 25%. With two or more outstanding house loans, the LTV limit is capped at 35% or 15% alongside a minimum cash down payment of 25% as well. The lower LTV limit will only apply if the loan tenure exceeds 30 years, or if the loan extends beyond the borrower’s age of 65 years.
Down Payment Requirements
As an extension of the aforementioned sub-section (i.e: Loan-to-Value), the down payment can consist of only cash, or cash and CPF. For your first bank property loan, with a 75% LTV,
Cash: How much personal savings do you plan to use?
Beyond the use of your CPF and taking a bank loan, you may have to utilise your personal savings in order to fund your next property purchase.
Consider what proportion of your savings you intend to use to pay for your new house. For starters, how much does your property cost? It is important that the cost of the property is not out of your budget, as while it may be a good investment in the long run, you may encounter financial difficulties in your day-to-day finances. Next, are you currently in any financial debt? Perhaps, you may have purchased a car and you have yet to completely pay off your debts. The income you take home is also crucial in your financial planning, as it determines how quickly you will be able to pay back your loans.
Ensure that you set aside a proportion of your personal savings for situations such as in an emergency or to pay for your children’s college education. It is important to remember that you should not be using most or all of your personal savings in order to pay for your new property. Keep in mind that your personal savings is there to ensure that during emergency situations, you will not struggle with your finances.
If you are unsure of how the calculations with regard to personal savings, you may wish to hire a financial consultant to advise you on how to plan your finances. They will guide you through your expenses for each month and in turn the financial considerations for the future such as the time span of being able to pay off your debts. You will be able to understand how much can be allocated to purchasing your new property, while ensuring that you do not break the bank doing so.
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8 Available Options for your Next Property Purchase – Property Asset Progression Plan
As you venture into your quest to purchase your next property, keep in mind that you have a variety of options. You will have to choose either to keep your HDB flat while you purchase a new property, or sell your HDB flat and then purchase a new property.
If you are looking to only own one property, the route that you will take would be to upgrade your apartment, likely a HDB flat, to a condominium. You have the choice of purchasing either a private condominium, or an executive condominium. But based upon your financial ability, it determines whether you will use your personal savings or not. If you are financially stable, you may be able to keep your personal savings while you purchase either a private condominium or an executive condominium. However, if you have budget restrictions and are not able to fully cover the costs after loans and the use of funds in your CPF, you may have to utilise your personal savings.
Perhaps you are looking to withhold the previous property and invest in a new one, you may choose to either purchase a private condominium or an overseas condominium. Once again, it is largely dependent on your financial ability to keep or use your personal savings in your purchase. Hence, you will either buy a private condominium or an overseas condominium, and keep your personal savings if you are able to cover the expenses, or you may have to use it if the loans and CPF does not fully cover it.
While owning only one property will be less costly, keep in mind that owning two properties enables you to earn passive income. You will be able to rent out your HDB apartment and in doing so may aid you in the repayment of your loans over time.
Key Condo Purchase Considerations
Executive Condo vs. Private Condo – Which is suitable for you at this moment?
You may be conflicted about whether you should purchase an executive condominium or a private condominium. An Executive Condominium (EC) refers to a hybrid between a public-private property, whereby it is not exorbitantly priced while ensuring a comfort comparable to that of a private condominium. This article will give you a rundown of the factors to take note of as you decide on either an EC or a private condominium.
Financial ability plays a large role in this decision. ECs are better in the sense that they are not as expensive as private condominiums are. Purchasing an EC allows you to receive a HDB grant of S$30,000 or less, while there are not any for private condominiums. ECs are also up to 25% cheaper than private condominiums, and as such allows you to save a ton of money.
However, ECs have greater restrictions as compared to private condominiums. For one, you are not allowed to rent out your executive condominium, and you have to fulfil the MOP of five years before you are able to sell your property. New ECs are also only open to Singaporean Citizens, and then to PRs in the sixth to tenth year. Subsequently, only then are foreigners eligible to purchase. Moreover, private condominiums are freehold, while ECs generally come with a 99-year lease.
All in all, the condominium you choose to purchase is largely dependent on your financial ability as well as your purpose with regard to the property. If you are financially stable and the cost of a private condominium is affordable for you, by all means, you should purchase that. If you may have budgetary restraints, perhaps an EC may be more suited for you. It should also be noted that private properties are more worth it in the long term, if you wish to own your property for an indefinite period.
New Launch condo vs. Resale condo – Which should you buy?
There are so many pros and cons when it comes to purchasing a new launch condo and a resale condominium. You are able to go on for hours until the cows come home on the perks of both of these choices, but ultimately your decision should be based upon your personal preferences.
The main difference between a new launch condominium and a resale condominium would be the quality of its facilities as well as how pristine the condition of the home is. However, this may vary depending on how long it has been since the resale condominium was built. If you are someone who is not bothered by your expenses and willing to splurge on the newest and latest facilities, a new launch condominium is likely to be suited for you because it is most likely to be equipped with much fancier components. For instance, new launch condominiums are incorporating smart home technology within the homes, while resale condominiums most likely do not have this. But if you are looking for a cheaper option, a resale condominium is definitely the go-to option if you are not looking to break the bank.
In addition, new launches usually require a few years before you are able to live in it as it is still under construction. Resale condominiums are already built, hence you are able to make examinations of your preferences within the house as you go for a viewing, which you cannot do for a new launch.
Even then, it should also be kept in mind that new launches are likely to have smaller units as opposed to resale condominiums. This is because with the limit of land in Singapore, constructors have to work their way around this limitation which became a product of the smaller units. If you are looking to house a large family, perhaps a resale condominium will be more suited for you as you are likely to be assured that there is ample space around your home. However, if this factor is not on your radar, perhaps consider going for a new launch. The furnishings are more guaranteed to be of superb quality.
There are many factors that come into play with regard to choosing a new launch condominium. While a resale condominium has its advantages, a new launch condominium has newer facilities and features that a resale does not, and the investment horizon and remaining lease will be longer. New launches are hence deemed more attractive to buyers or potential tenants, if you are looking to sell or rent out your condominium respectively.
Condo Location – Considerations on where should you buy?
Deciding on the location of your new home should be done carefully and strategically. It is essential to keep in mind your preferences as you view the different houses, as the location of it will be a gamechanger. This article will consider the various locations across the island and which area you should narrow down to.
Travelling in this tiny island is not an issue at all. With an efficient train system, the Mass Rapid Transport (MRT) allows you to get to places rather quickly and easily. Even then, if you are travelling to the same place every day for school or for work, it may sometimes become tiring during your commute, especially if it takes more than 45 minutes to get to your destination. As such, if you travel via public transportation, you should ensure that your new home has easy access to the MRT, a bus stop to take you to one. Moreover, you should keep in mind those more travelled places, including your family’s place and the preferred school of choice for your children. This way, you are able to get to places easily If you are someone who drives, apart from choosing a location near to places more travelled to, it is suggested that your new home should have quick access to the expressways.
In addition, it is better to have your new home conveniently located near amenities such as shopping centres, hawker centres as well as community centres, depending on your personal preference. That way, if you have to run errands or wish to take a quick bite, it is easily within reach. If you are someone who enjoys nature and or often exercise outdoors, you may wish to look for a home located near parks or trails. This way, you have easy access to take evening jogs without the hassle of travelling too far away.
As for houses you are looking to purchase as an property investment, while the aforementioned does still apply, it is largely dependent on the demographic you intend to rent the home to. However, there are a few places that are more popular than others. Houses situated near the Central Business District (CBD) area, industrial or business parks such as the Changi Business Park, Buona Vista Biopolis or the Punggol Digital District are likely to attract more buyers because it is near to where most people work. Not forgetting areas where expatriates tend to reside at include Holland Village, the East Coast and Changi area will garner more potential renters, likely because these areas are where universities are located at.
After reading through the guide, you should have a clearer understanding as to how you are able to upgrade from a HDB flat to a condominium. There are decisions you have to make such as knowing whether you intend to keep or sell your HDB flat, and if you do decide to sell it, the guide has covered the legal processes that you ought to perform with HDB. It has also mentioned the financial side of things, such as the computation of final proceeds, as well as the costs and the fees that have to be borne by both the buyer and the seller.
There are also other options you can explore to fund your new condominium such as using your CPF and taking a bank loan, and whether you have to delve into your personal savings. In addition, should you be indecisive on which type of condominium you should purchase, there is a section which compares condominiums such as between an executive or private, a new launch or a resale as well as which locations are more desirable for you to be purchasing from.
If you are still unsure of what options are best suited for your next property upgrade, feel free to contact us for a no-obligation, free assessment report of the best options available to you.
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