3 Reasons Why Downgrading From a Condo to an HDB Flat Makes Sense (and What You Should Know Before Doing It)
Whilst the typical homeownership journey for most Singaporeans is ‘upgrading’ from an HDB flat to a private property (e.g. a condo), however, the reverse is also true; there are some who would take the unconventional approach by ‘downgrading’ from a condo to an HDB flat.
If you’re thinking of selling your condo to buy an HDB flat, below is what you might want to consider first:
Reasons Why You Might Want to Consider Downgrading From a Condo To an HDB Flat:
1. When You Want a Larger (or Smaller) Home
Homeowners who need more space for their growing families might move from their smaller condo to a larger HDB flat. According to this CNA article, there has been an increase of owners who have sold their condominiums to buy larger HDB flats after the circuit breaker, driven by the work-from-home (WFH) norm and changing lifestyle needs. Some buyers also feel it’s more worthwhile to buy a larger and more well-located HDB flat.
On the other hand, an older couple may also choose to move into a smaller HDB flat once their children have moved out. Apart from a changing lifestyle, it also allows them to tap on schemes such as the Silver Housing Bonus (SHB) as well as the Proximity Housing Grant (PHG) if they choose to live closer to their children.
2. When The Maintenance Fees Are Too Much Too Handle
It’s no secret that condos have high maintenance fees, which can vary between a few hundred to four-digit figures. Add on other miscellaneous fees like the sinking fund, and the monthly amount you’ll be forking out will go to waste, especially if you don’t use the facilities regularly.
By moving to an HDB flat, not only would you enjoy monthly Service and Conservancy Charges (S&CC), but you would also be eligible for GST Vouchers. The monthly savings could also be channelled into something that would benefit you better.
3. When You Want to Fund For Your Retirement
For retirees who have not fully paid off their mortgage, downgrading from a condo to an HDB flat would make financial sense because it lowers your monthly liabilities. This is especially true if you’re relying on your savings and do not have a source of income.
What You Should Know If You Choose to Downgrade From a Condo to an HDB Flat:
If you resonate with any of the above, and are considering to sell your condo to buy an HDB flat, here’s what you need to know beforehand:
1. You Need to Sell Your Condo Before Buying an HDB Flat
Whilst you can buy a private property if you own an HDB flat, you can’t buy an HDB flat if you already own a private property. According to HDB rules, you need to wait at least 30 months after selling your private property before you can:
- Buy a BTO/Sale of Balance Flat (SBF)
- Buy an executive condo (EC) from a developer
- Apply for CPF Housing Grants
- Take an HDB loan
For most condo owners, the 30-month waiting period is a turn-off (remember that you also need to ballot for a BTO flat and wait a few years for it to be built). On top of that, you’re not eligible for CPF Housing Grants (except maybe the Proximity Housing Grant), and also can’t take an HDB loan during this period.
As such, most would consider getting a resale HDB instead because you can immediately move into the flat as long as you sell your private property within six months after collecting the keys to your flat. Additionally, resale flat buyers would be eligible for the PHG and can also take a bank loan to finance the flat.
2. You Have to Meet HDB’s Eligibility Requirements
HDB has specific requirements when it comes to buying the type of flat that you want, including citizenship, family nucleus, income ceiling, and ethnicity, among others.
For example, if you’re buying as a single Singaporean, you need to be at least 35 years old. And if you’re planning to get a BTO flat, remember that your monthly gross income must not exceed $7,000 and you can only buy a 2-room flat in a non-mature estate. However, you can buy a resale HDB flat without restriction on size, location, or income (again, this makes a resale flat more appealing).
On the other hand, if you’re buying as a married couple, then at least one of you must be a Singapore Citizen, or both must be Singapore Permanent Residents if you’re planning to get a resale flat.
So, before you decide to downgrade from a condo to an HDB flat, be sure to do an eligibility check here.
3. You Won’t Get The Maximum Loan-to-Value (LTV) If You Have an Outstanding Home Loan
The LTV is basically the amount that you borrow from a financial institution. If you’re getting a bank loan, the maximum LTV is 75%, meaning you can borrow up to 75% from the bank, whilst paying the remaining 25% downpayment.
Before buying your new HDB flat, it’s recommended that you pay off your condo’s existing loan, or you won’t get the maximum 75% bank loan for your HDB flat. In other words, it means you can borrow less and have to pay a higher downpayment.
Outstanding home loans
75% (25% downpayment, 5% of which in cash)
55% (45% downpayment, 10% of which in cash)
Two or more
35% (65% downpayment, 25% of which in cash)
As you can see from above, you would get a lower LTV if you have not paid off your existing loan (even after selling the property). As Paul Wee, Managing Director (Fintech) of PropertyGuru group says: "It depends on the bank. Whilst some banks will give 75% LTV subject to an undertaking to sell, others will give 55% and then raise it to 75% if the property is sold before disbursement of the second property."
Aside from existing loans, the LTV amount will also be affected by the borrower’s age and the loan tenure.
Specifically, you can only obtain a maximum 75% LTV if you fulfil these criteria:
- You have no outstanding home loan
- The loan tenure is not more than 30 years
- The loan period does not exceed past your age of 65 years old
- If the HDB flat’s lease is 40 years or less
4. The Mortgage Servicing Ratio (MSR) Now Applies (In Addition to Total Debt Servicing Ratio)
Aside from LTV, Total Debt Servicing Ratio (TDSR) and MSR also affect your home loan. TDSR and MSR both help to prevent you from overborrowing to service your monthly debt repayments.
- TDSR refers to the maximum amount you can use from your income to pay your monthly debt repayments. Under the current TDSR rules, you can’t use more than 60% of your gross monthly income to service your monthly debts. These include your home loans, car loans, credit cards, study loans, personal loans, etc.
- MSR is the portion of your gross monthly income that goes towards repaying your monthly mortgage payments and only applies if you’re buying an HDB flat. You can only use 30% of your monthly earnings to service the loan.
5. You Can Use Your CPF Funds to Finance the Flat
If you had previously used your CPF monies to pay or service your condo, you will need to return the “borrowed” CPF monies back into your CPF account after selling your condo — plus accrued interest, which is the interest you would have earned if you had kept the money in your CPF.
However, when buying the HDB flat again, you are allowed to use your CPF monies again (according to your withdrawal limits, of course).
Not sure how much CPF you can use? Use the CPF Housing Usage Calculator to find out.
6. You Need to Pay Buyer’s Stamp Duty (BSD), but Not Additional Buyer’s Stamp Duty (ABSD)
BSD is the tax that you need to pay on all property purchases, and is calculated based on the property’s purchase price or the property’s valuation, whichever is higher. Here’s the current BSD rates:
Purchase price or valuation of the property
Meanwhile, ABSD is the tax that’s levied on top of BSD, and like BSD, is computed based on the purchase price or market value, whichever is higher. However, the amount is based on your residency status.
The good news is that downgrading from a private property to an HDB flat is actually one of the few exceptions where you don’t need to pay ABSD (since you need to sell your private property within six months of acquiring your HDB flat).
7. You Won’t Need to Pay HDB Resale Levy
The HDB resale levy is the cost you need to pay if you sell your subsidised flat to buy a second subsidised flat. You do not need to pay a resale levy if you’re selling your condo to buy an HDB resale flat. However, if you’ve previously bought a subsidised flat (i.e. BTO or SBF) or an EC from a developer, or had taken CPF Housing Grants previously, then you need to pay a resale levy. The amount you need to pay depends on the flat size that you’re buying.
Other FAQs About Downgrading From a Condo to HDB Flat
Can I Downgrade From a Condo to an HDB Flat?
Yes, you can. However, you would need to wait at least 30 months after selling your condo if you want to buy a new HDB flat, get an HDB loan, or CPF Housing Grants. If you plan on getting a resale HDB flat, you have to sell your condo within six months after moving into your new flat. You also have to meet HDB’s eligibility requirements.
Can I Buy an HDB Flat If I Own a Condo?
If you’re a condo owner, you can’t own an HDB flat at the same time. You would need to sell your condo before you can buy an HDB flat. Alternatively, you may buy a resale flat if you sell your condo within six months of moving in.
Can I Rent Out My HDB and Stay In a Condo?
Yes, you can. However, you would need to meet HDB’s eligibility conditions such as fulfilling the 5-year MOP, non-citizen quota, and so on. In addition, you would need to buy the HDB flat prior to buying a condo, as you can’t buy an HDB flat while owning a condo.
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This article was written by Victor Kang, Digital Content Specialist at PropertyGuru. When he’s not busy churning out engaging property content* or newsletter copies, he’s busy being a lover of all geeky things. Say hi at: firstname.lastname@example.org.
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