Stepping up from an HDB to purchasing a private condo is part of the Singaporean dream. Thanks to the wealth we enjoy in our nation, we can easily make this progression without putting a lot of burden on our finances.

The present COVID-19 pandemic has brought a lot of uncertainty with it, but also a lot of fantastic opportunities to buy. For this reason, you have to keep your eyes peeled for these openings so that you don’t miss them.

Your first move, however, should be to assess your financial status. When you have done that, you will need to prepare a timeline that will guide your upgrade from HDB to your private condo.

After you are sure you can take the financial strain and you have a purchasing plan in place, the following options are available to you:

  • Keeping your HDB flat and purchasing your condo,
  • Purchasing your condo and then selling the HDB flat,
  • Selling the HDB flat first before purchasing your condo,
  • Selling the HDB flat and buying your condo at the same time.

One other thing to consider is which is better for you – buying a resale or buying a new launch.

Now, let’s study these options one by one to help you decide which best suits your plans.

Alternative 1: Keeping your HDB flat and purchasing your condo

Pros:

  • You can own both properties and use either one for rental returns.
  • There’s no hurry to get the condo because you don’t have to move out of your HDB flat.

Cons:

  • You must pay an ABSD of 12%.
  • You require high capital expenditure to buy the condo.
  • Your HBD flat will ultimately reduce in value.
  • With an unsettled loan on your HBD, you get a maximum of only 45% loan to buy your condo.

Fulfilling your five-year Minimum Occupation Period (MOP) gives you the option of keeping your HDB flat and also buying a condo. This means you can either continue to stay in your HDB flat or move to your new condo.

If you’re thinking of keeping your HDB for rent and using the impressive rental income to finance your new purchase, you need to pause and think of the disadvantages of this action.

First of all, the new property will be deemed as your other asset since HDB does not allow decoupling or part-sale. This means that you’ll need an Additional Buyer Stamp Duty (ABSD) of 12%, which is a lot. Throwing away this amount of money does not seem like a good idea to most.

For example, buying a $1.2 million condo would mean you spend $144,000. This is worth about 4.8 years of rent if you rent the flat out at $2500 a month ($30,000 a year). This is comparable to a whole round of MOP (maintenance operation protocol).

HDB prices has been falling since removal of COV and introduction of MSR

Furthermore, the depreciation of your HDB flat is highly likely. If your HDB flat is worth $600k and it depreciates by 2% per year, you’ll lose about $55k in 4.8 years.

It doesn’t make any sense, economically, earning $30k in annual rental revenue from your HDB and then lose around $200k from depreciation and ABSD.

Also, you would have to clear your HDB loan entirely so that you can gain access to the maximum 75% loan to purchase your condo, or else, you get only 45%.

Therefore, buying a $1.2 million condo without first selling your HDB flat means you have to get a minimum of 17% (5% down + 12% ABSD) in cash, and that amounts to about $204,000.

Also, you need to have enough CPF to cover the other 20% and $38,600 Buyer Stamp Duty (BSD), or you’ll need to get $278,600 extra cash.

This massive amount of capital needed is not worth it for many people.

Alternative 2: Purchasing your condo and then selling the HDB flat

Pros:

  • You can meticulously select your property.
  • It provides you with enough time for renovation and moving into your new condo.

Cons:

  • You must first pay the ABSD, and you can then claim that the new purchase is a matrimonial home and sell the HDB in half a year.
  • If you still have unsettled HDB loans, you can only get a 45% loan, so you need more money on hand to purchase the condo.

Buying the condo before selling your HDB comes with similar drawbacks to Alternative 1, and that means there will be challenges surrounding loans and ABSD. So, the initial capital needed is also very high.

The variance between this alternative and the first is that, although you need to pay ABSD, if you can sell your HDB flat in six months, you can get remission and get your money back. However, this remission is for married couples only, meaning that the home must be in the names of a husband and wife. Other people cannot get remission.

The good side of this alternative is that you can look for your dream home without any pressure whatsoever, increasing the likelihood that you will make a better decision.

Alternative 3: Selling the HDB flat first before purchasing your condo

Pros:

  • ABSD is out of the way.
  • There’s no trouble with cash flow.
  • You can sell your HDB at a high price immediately, instead of later selling at a reduced price.
  • You have time to find the perfect home.

Cons:

  • You’ll probably need somewhere to stay temporarily after the sale of your flat.
  • It might cost you money to pay for rent while you look for your new condo.

The most significant upside to selling your HDB before buying a condo is that you can escape paying ABSD, and that relieves you of a lot of financial stress. Also, the money gotten from selling your HDB can go a long way in acquiring your new condo.

However, the downside is that you might have to rent a place after the sale of your HDB flat, and that could cost you some good money.

This alternative is best, especially when you buy a new condo launch. You sell, your HDB flat, book a new condo, then continue to rent till T.O.P.

Many people don’t favor moving twice and having to rent for a few years before they can move to their new accommodation.

On the bright side, it is better to sell your HDB flat now that it is more expensive instead of waiting two or three more years for its value to depreciate. The difference between the price now and the future price should offset the rental cost you have to bear.

Also, consider booking a new condo during launch so that you can enjoy discounts such as early bird and first-mover benefits. The time constraint for buying a new condo will also be relaxed.

Alternative 4: Selling the HDB flat and buying your condo at the same time

Pros:

  • You have time to locate the perfect house.
  • You don’t have to pay rent for a temporary stay.
  • You have time to renovate your new house.
  • If you plan things well, you don’t have to pay ABSD.

Cons:

  • You must have enough money to pay 5% cash and BSD.
  • You must plan your timeline properly.
  • The new owner of your house may not be willing to give you extra stay time.

To pull this option off, you must time the sale and purchase so that:

  • When your HDB flat buyer uses his payment options, you are free to dive into purchasing your condo. You are very safe when your buyer exercises the option to purchase (OTP), but to be on the safer side, you can wait until HBD acceptance after you apply to resell, as there are instances when the buyer might not be able to go through with the deal.
  • You can use your OTP after your buyer so that you don’t have to pay ABSD.
  • You complete your HDB sale before your purchase is complete so that you can use the proceeds from the sale to purchase the condo. If this doesn’t work, you’ll need a bridging loan. If it’s compulsory to use the CPF from the proceeds of your sale to purchase the new condo, understand that it could take around 14 days for you to get the money in your CPF account.

You will need your buyer to give you an extension of stay because the HDB completion will happen before the completion of your private condo. Remember to let your buyer know this before you accept their offer.

Speak to us if you want to have a hitch-free transition from your HDB flat to your condo and employ the services of a professional agent who specialize in asset progression planning.

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