The 5 years MOP for your HDB flat is finally fulfilled. Your HDB’s Minimum Occupation Period (MOP) is officially over and you’re thinking it’s a great time to upgrade. But as you browse through PropertyGuru’s for-sale listings searching for your dream home, you can’t help but question: should you sell your current HDB flat first?
It’s not a simple yes-or-no answer. To help you make an informed decision, we’ll go through the pros and cons of selling your HDB flat first or holding on to it.
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5 Reasons You Might Want to Sell Your HDB Flat First
1. Funding the Downpayment on Your next Home
Upgrading usually means a heftier downpayment – especially if you’re taking a bank loan. For those wondering "Should I sell my HDB and buy condo?" will probably be worrying about this downpayment as you have to take on a bank loan. Unlike an HDB loan, a bank loan will require you to put down a minimum cash downpayment.
Selling your HDB flat first could help fund the cash portion of your downpayment, meaning you don’t have to rely so much on your cash reserves or CPF monies.
It doesn’t hurt if after the 5 years MOP for your HDB flat, your home still has a long remaining lease. Homes with longer remaining leases tend to command higher prices on the resale market, meaning you’ll likely get a good price should you sell your HDB flat.
2. You Don’t Need to Pay ABSD
If you want to hold two properties and are a Singapore Citizen, you must bear a 20% Additional Buyer’s Stamp Duty (ABSD) cost on your second one.
For those who intend to sell off the original property after hitting 5 years MOP for your HDB flat, you can get an ABSD remission. In this case, for those wondering "Should I sell my HDB and buy condo" as a way to upgrade your property should pay attention. However, 20% on top of a property price is a significant cost to pay upfront even if you do eventually get it back.
Want to know how much ABSD you may have to pay? Try our easy-to-use stamp duty calculator.
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3. It’s Less Complicated (from a Regulations Perspective)
Selling your HDB flat after hitting the 5 years MOP for your HDB flat is just simpler all-round. For one, if you’re upgrading from an HDB flat to another HDB flat that is larger and/or situated in a better location, you may run into the trouble as you cannot own two HDB flats at the same time.
For those who want to own and HDB flat and condo at the same time, so as to upgrade to a private property and rent out your HDB flat, you’ll need to apply for permission and get approved.
And even if you plan to sell your HDB flat off after buying your new property, you must do so within six months. Then, you’ll need to apply for the ABSD remission after bearing the initial ABSD tax. That’s a lot of steps and moving parts to consider.
Pro-tip: If you sign the OTP earlier and pay the option fee, which can be as soon as your flat buyer has exercised their option, you can avoid ABSD fees.
4. You’re Not Constrained by LTV Caps and CPF Withdrawal Limits
When pondering over "Should I sell my HDB and buy condo", you need to factor in financing decisions. If you intend to hold two properties and are still servicing the loan for your first property, banks are only allowed to give you a 45% LTV ratio on your second property.
This poses a severe financial constraint for those who require a bank loan to finance their property purchase. One top of that, the amount you can withdraw from your CPF to pay for the second property is also lower.
5. You Can Get Greater Clarity on Your Financial Position First
So, you’ve hit the 5 years MOP for your HDB flat and are ready to sell. If you sell your HDB flat first, you will be in a better position to assess your financial position and gauge how much property you can afford. This is thus a lower risk option, as the chances of you overextending yourself are much lower.
While it’s likely you’re buying your second property when you are more financially secure, it is likely you’ll have to come up with a good amount of cash too when purchasing the property. Ready to start looking for home loans? Get pre-qualified first.
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3 Benefits to Not Selling Your HDB Flat First
1. You Have a Place to Stay During the Transition Period
Let’s say your answer to "Should I sell my HDB and buy condo" is a yes and you decide to sell your HDB flat.
But closing on a property can take months. And what if you want to renovate your new place first? Or what if it hasn’t finished being built yet? You’re going to need a place to stay during this transition period (which can be quite lengthy).
While rental prices have come down somewhat, it is still pricey. Having to factor in finding and renting a property while your home is being renovated can be an added inconvenience. You’ll also have to move twice and put whatever excess items into storage.
Keeping your current HDB flat here can be extremely useful and prevent additional costs from adding up.
2. Getting Rental Cash Flows from Your HDB Flat
Let’s say you decide to keep your property and rent out the spare rooms. Or you retain your HDB flat and move in with your in-laws so you can lease out the whole flat. Whichever you choose, your goal is to get some rental cash flow.
While it can sound like a good idea to lease your HDB flat out to tenants when rental prices are still high, do consider these following factors.
Firstly, the rental market has been softening. Demand for HDB rental flats on the open market has muted and prices are dipping. You may not find a suitable tenant too. Additionally, you’ll have to pay to maintain your HDB flat, manage your tenants, and pay the required legal fees and taxes (i.e. non-owner-occupier residential taxes) which can add up.
Secondly, because of the lower LTV limit on your second property if you’re still financing your first mortgage, the higher monthly home loan payments will eat into said rental income.
Thirdly, you’ll have to pay ABSD (assuming you’re keeping your HDB flat for longer than six months).
3. The Additional Capital Appreciation Could Compensate for ABSD Tax
If you buy a second property without first selling your HDB flat, you will have to pay ABSD. If you want a remission on that ABSD amount, then you must sell your HDB within six months.
However, if you hold on to the HDB flat for a few more years, it is possible you may see additional capital appreciation. Especially since you’re holding on to a freshly MOP-ed HDB flat, it’s likely your home will hold good value for a period of time. A new flat that has just completed the 5 years MOP for an HDB flat is highly sought after.
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Which Option Is Better for You?
Those were the general benefits. But personal finance is never general. This means you must dive deeper into your own financial situation to determine which is the right choice for you.
You want to look at how much cash on hand plus CPF OA funds you have. For those who want to keep your HDB flat, ensure you can comfortably the additional cash outlay to afford two properties at once.
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This article was written by Ian Lee, an ex-banker turned financial writer who hopes to use his financial background and writing skills to help raise people’s financial literacy levels – a necessity in our modern world.
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