Guide to Upgrading from An HDB to A Condo or EC That’s Still Under Construction
Despite the economic situation, new condos have been selling like hotcakes here in Singapore. In fact, 2021 was off to a great start with Normanton Park selling about 600 or almost one-third of its units on launch its launch day in January. Other new launch condos that did well in Q1 2021 include The Reef at King’s Dock and Martin Modern, as well as the executive condo (EC), Parc Central Residences.
This is in spite of the government’s recent clampdown on the reissuance of purchase options (also known as Option To Purchase or OTP).
With this persistent demand for new condos and the healthy stream of new executive and private condo launches, one might wonder how finite Singapore’s land actually is!
If you’re a HDB homeowner who has fulfilled your flat’s Minimum Occupation Period (MOP) and saved up enough to buy a private property, congratulations! With more attractive 2021 condo launches to come, now is certainly a good time to plan for an upgrade from your HDB to a new condo.
Before we go into the details, here is a quick summary of the three ways you may go about when transitioning from your HDB to a new condo or EC that is still under construction:
- Purchase the unit in the new property and wait it out in your HDB flat. Sell your HDB within six months of collecting the keys to your new place.
- Sell your HDB flat first, use the proceeds to purchase your new unit. Find a temporary place of stay while waiting.
- Own both HDB and private condo at the same time (only applicable for new private condo purchase).
Buying A Brand New Condo Unit
If you’re thinking of moving to a resale condo, then things are pretty straightforward. Since the new home is already built, you can move in once you purchase it and complete the sale of your HDB. The transition is relatively seamless.
But things get a little tricky when it comes to buying a new condo directly from the developer, because unless you buy a unit in a project that has obtained its Temporary Occupation Permit or TOP, it will still be under construction. The same applies to executive condos which are still being built. These are known as “Buildings Under Construction” or BUC.
Note: In Singapore’s real estate jargon, the term BUC refers exclusively to private properties only (i.e. BTOs don’t count).
There are many reasons why one would purchase BUC over a resale property:
- Brand new amenities, often featuring swanky and modern facilities
- Early-bird discounts, amongst other goodies thrown in upon purchase at the showflat
- The assurance of a ready-to-move-in standard, with no need for extensive renovations
- All the choices of units to choose from
… And the list goes on.
Related article: New Launch Property vs Resale Condos in Singapore: Which is Better?
Now, as mentioned, since the BUCs aren’t fully up and constructed yet, there is often a waiting time of up to three to four years, depending on the construction time and how soon you buy a unit after its launch.
This means that if you intend to upgrade to a BUC condo, there may be a gap of a few years and you may not be able to merely uproot from one place and settle into another.
How to Wait for Your New EC or BUC Condo
Before we begin, it’s important to draw a clear distinction between ECs and private BUC condos.
Important Things to Note If Your Purchase Is A New EC:
Executive Condominiums are considered public housing for the first 10 years so the same HDB rules are applied. You cannot own two HDB properties at the same time, and you must either sell your existing HDB flat before getting an EC, or sell your HDB within six months of collecting the keys to your new place.
Read more about ECs here: Executive Condo Guide: Everything You Need to Know About Buying an Executive Condo in Singapore
In the Case of A Private Condo Purchase (or Any Private Property):
You have the option of keeping both your HDB apartment and own a private property if you wish. That is provided that you have enough funds to do so, and are willing to pay the Additional Buyer’s Stamp Duty (ABSD) and the other miscellaneous fees that come along.
Read more on the difference between purchasing an EC and other private property here: Upgrading From a HDB: Should You Get a Private Condo or an Executive Condo in Singapore?
Now that that’s clear, let’s evaluate the three above-mentioned options for upgrading from an HDB flat to a new condo or EC.
Option 1: Buy the condo and wait it out in your HDB flat. Sell your HDB within six months of collecting the keys to your new place.
This option definitely saves you the hassle of making multiple moves, as you are literally moving from your old house to the new one. However, this option also requires you to have sufficient funds prepared for your new purchase as you would not have your HDB’s sales proceeds to get you by.
You need to have enough money.
Before your new EC or BUC’s Progressive Payment Scheme (PPS) begins, you will need to pay the following:
- 5% Option-to-Purchase (OTP) fee in cash
- 15% downpayment (option to use CPF available) upon signing the Sale & Purchase Agreement
- All Stamp Duties involved (option to use CPF available)
Essentially, you need to be able to finance two properties concurrently, not just for the miscellaneous upkeeping or taxes involved, but also the loans. While we’re on this topic…
Your loan amount for the new condo will be affected.
If you buy a private condo without first selling your HDB flat, your loan-to-value (LTV) ratio for the new condo will be significantly reduced as it will be considered your second mortgage. The LTV drops from up to 75% to 45%.
You’ll also need to consider the Total Debt Servicing Ratio (TDSR) (and Mortgage Servicing Ratio (MSR) for ECs) which is capped at 60% (and 30%) of your gross monthly income. You must ensure that your income is able to support the criteria above.
You risk selling your HDB at its “rightful” value.
Your HDB flat can take several months to sell in the market. If you have chosen to sell your HDB flat only after physically securing your new condo (aka collecting of keys), then you will only have six months to sell your house. Doing so at the last minute could mean risking the ability to find the right buyer and selling your house at a commensurate price.
What happens if you are unable to sell your existing HDB flat within the six months?
If your purchase is an EC: Penalties involved can go from surrendering your new unit, to paying a fine; it’s a case-by-case decision and the fate lies in HDB’s hands.
If your purchase is a BUC: At this point, you would have paid the Additional Buyer’s Stamp Duty (ABSD) for your second property. This is calculated based on the purchase price of the property. You will, however, not be granted ABSD remission if you are unable to sell your HDB flat within the six months.
While HDB has been known to be gracious when handling appeal cases for extension of the grace period, this is definitely a situation you should avoid.
- More seamless transition
- Better chance of securing a preferable unit at launch
- Need to rely on funds outside of HDB sales proceeds
- Loan amount for the new property will be lower as TDSR/MSR takes into account of all current property mortgages
- In a rush to sell your HDB within a short time frame, you may not be able to get a good price out of the sale
Option 2: Sell the HDB flat first, use the proceeds to purchase your new condo. Find a temporary place to stay while waiting.
Without a six-month deadline, you can take your time to seek out potential buyers for your existing flat. Instead of settling for the first deal that comes your way, you have the luxury of going through asking prices until you are satisfied with one. With that said, you probably wouldn’t want to take too long to decide on a buyer as you would not want to miss out on selecting your ideal unit in the new EC or BUC, especially if you are using your HDB sales proceeds to purchase your new apartment.
If you are a Singaporean… Good news!
You do not need to worry about ABSD on your new unit as ABSD is not applicable in this scenario.
While this option may enable you to protect and preserve your HDB’s value, it does not guarantee to be the most cost-efficient solution – depending on your choice of temporary stay (while waiting for the new condo to be ready).
If you are a couple or a small family, you may consider moving back into your parents’ place. For those who do not have that as an option, you will need to factor in the cost of renting a temporary roof over your head. For families who are not too particular, opting for a cheap rental during this short stay may not be too bad. Be careful not to overspend on rent or it defeats the purpose of selling your HDB at its rightful value!
- Safer option in preserving the HDB’s value
- Able to use HDB sales proceeds to finance the new EC/BUC
- The inconvenience of moving multiple times
- May not be able to secure your ideal unit in time
(Only for BUC) Option 3: Own both HDB and condo at the same time.
This option is only for buyers of BUC who have sufficient funds for both properties, BSD, ABSD, and all the other fees involved. In this case, the timeline of when you purchase your new place (after meeting the MOP for your HDB) will not matter as much.
Note: The same reduced LTV and TDSR considerations apply.
If financing two apartments is not an issue, then this seems like the best approach since you can keep both and rent out your HDB to earn some passive income. But be sure to work out your finances carefully first: remember that when taking a second property loan in Singapore, the LTV drops from up to 75% to 45%. This means coughing up a minimum downpayment of 55%, which is not for the faint of heart. If you buy a $1,500,000 unit, that’s $825,000!
- Potential investment opportunity
- Transition of the move is fuss-free as timeline of move is on your own terms
- Very costly, as owning two properties requires sufficient funds
- LTV also drops to up to 45%
So Which Option Is Best?
To determine which of the three above options are the best for you, consider your finances and personal goals, and how they all fit into your timeline. Indeed, timing is dependent on your priorities and circumstance at that moment. And storyboarding your next five years will be helpful in planning for your next move. Planning it right will certainly save you the hassle (and if you’re lucky, money too!)
If you need help in working out the financing part of the equation, PropertyGuru Finance’s home finance advisors are happy to help at zero cost to you. They can help you assess your current finances and recommend the most suitable mortgage for your situation.
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This article was written by Lexy Leong, a writer, editor, and marketer based in Singapore. When she’s not weaving sweet brand narratives, she’s working up a sweat as a fitness instructor. Say hi at firstname.lastname@example.org.