Upgrade from HDB to condo

What does it take to upgrade HDB to condo.

In this article, we are not trying to convince you to do one thing or the other.  Instead, we want to guide you so you can calculate home loan affordability, identify the benefits and prepare for the pitfalls of selling vs keeping your HDB before upgrading to a condo.  By the end of the article, you can determine that for yourself.

upgrade from HDB to condo
Image 1: Picture of HDB blocks, unsplash

Minimum Occupation Period (MOP) for your HDB flat

To be able to upgrade to a condo or landed property from your HDB flat, you need to have completed the Minimum Occupation Period (MOP) for your HDB flat.  Typically, you need to have been living in your HDB flat for a minimum period of 5 years before you can upgrade to private property.  The MOP is the minimum number of years you need to have physically occupied your HDB flat before you can buy a private property or sell the HDB.

If at least one of the owners of your HDB is a Singapore citizen, then you can keep the HDB and also the condominium that you intend to buy next.  Provided that your eligibility is not a concern, your ability to keep the HDB flat or the need to sell it before upgrading will depend on your finances.

Valuation limit (VL) – How does that work for your HDB flat?

You can withdraw up to a maximum of 100% of the condo’s Valuation Limit (VL) from your CPF Ordinary Account (Valuation Limit = The lower of the market value or the purchase price of the property).  Example: let’s say the condo you want to purchase has a market value of $1,005,000 and the price you purchased it for is $1,000,000.  So you can withdraw up to $1,000,000 from your CPF Ordinary Account.  You need to set aside a Basic Retirement Sum (BRS) in your CPF, before being allowed to withdraw any money for the condo purchase.

What this means is that you need to keep a certain amount of money in your combined CPF accounts, and can only withdraw the amount in excess of that.  Example: let`s say you turn 55 years old in 2019, your BRS is $88,000 as per CPF’s site. 

Example: you can withdraw up to 100% of the market value or the purchase price of the property (to pay for the house) from your CPF Ordinary Account (OA), whichever is lower. If the Valuation Limit (VL) is $1,000,000, that means the total you can withdraw from CPF OA is $1,000,000 of the house price. After this amount is reached, you will need to pay cash for your HDB flat.

Valuation Limit (VL) – Why is it important?

Valuation Limit (VL) is a number that will hit you further down the road. For example, you buy a $1,000,000 property, and you borrow 75% loan-to-value, $750,000.

As you have to pay interest on the loan, the total interest over the next 25 to 30 years may add up to 30-40% of the loaned amount. Let’s just say it is $400,000. This means that the total withdrawal is $750,000 + $400,000 interest incurred from banks, that is $1,150,000.

Once the CPF OA withdrawal reaches $1,000,000 (in the case where VL = 100%), you will no longer be allowed to draw on the CPF OA anymore. The remaining installment

Sell HDB flat first then Buy Condo

if you sell your HDB first Furthermore, when buying your condo, you will be allowed to withdraw up to 120% of the Valuation Limit of the condo (Valuation Limit) is the lower of your condo’s market value and purchase price) instead of 100%.

When you sell your HDB before upgrading to a condo, the proceeds from the sale of the flat will be used to pay off the outstanding HDB loan amount.  In the case where the sale price of the HDB flat does not cover the full outstanding loan amount, you need to pay the balance in cash.  If you’ve already paid off the loan on your HDB flat, it doesn’t matter whether you sell the HDB first or buy a condo first as you will be able to borrow the maximum possible @ 75% (provided your income supports it).

Caution: You do have to pay Additional Buyer Stamp Duty if you have not yet sold your HDB, when you buy the Condominium.

Buy first the condo and sell the HDB flat later – What to look out for?

If your HDB flat is fully paid, you choose to buy Condo first before selling your HDB flat, you will be faced with the following: –

Additional buyer stamp duty (ABSD) – You will need to pay for this first. If you sell your HDB flat within 6 months, then you may claim this ABSD back from IRAS, subjected to IRAS approval.

HDB Flat not yet sold (with outstanding loan) and Buy a Condo – What happens?

Assuming your HDB flat’s loan is not yet paid off, it matters whether you buy your condo first or sell your HDB first. Then the loan-to-value will be 45% of the property price. That means the their downpayment will be 55% from CASH + CPF OA.

For purchase, the maximum age is based on age cap at 65 years old. Your loan tenure will be 65 minus your current age (weighted-income average age).

Total Debt Servicing Ratio (TDSR) applies when you are buying a property

If you were to take a loan for buying a condominium in Singapore, the maximum loan amount you can take is subject to TDSR restrictions, meaning that even if the LTV for your bank loan is high, the amount of money you can get as a loan depends on your income. 

It does not matter how many fully paid properties your grand father passed on to you and which you fully owned.

The new financing regime is no longer “asset based” but rather “income based”. This means that unless you can service the loan from your income sources, your loan will be reduced where bank housing loans are concerned.

For example, suppose a couple who want to upgrade to a condominium is currently servicing two debts – their car loan and their credit cards and assuming they are young enough to get a 25 year loan tenure,  the amount they can borrow from the bank including interest is will be will be calculated to a certain amount.  This is called the “principal loan amount.

HDB Upgrading Programme – You are liable to pay for it

If you want to upgrade hdb to condo, you may want to check If there is an Upgrading Programme is undertaken in a block, the residents have to pay the Upgrading Programme’s Costs.  If a particular Upgrading Programme’s bill was issued while you were the owner of the flat, you still have to pay for the Upgrading Programme’s Costs before selling the HDB.

HDB Upgrading levy upon selling HDB flat

Following the previous point, if you live in an HDB unit that went through an Upgrading Programme, you would have to pay an Upgrading Levy upon selling the flat.  If your unit was Upgraded, you will have to pay an Upgrading Levy of 10% of the selling price or 10% of 90% of the market value of your flat, whichever is higher.

You should also find out about resale levy and how it works in case you have taken some of the grants.

Barring exceptional cases, you need to have completed your MOP before you can buy a condo or sell your HDB.  Irrespective of whether you keep your HDB flat or sell it, you need to pay a Buyer’s Stamp Duty (BSD) when you buy a condo.  You should find out everything there is to know about Buyer’s Stamp Duty (BSD). You should also find out everything there is to know about Additional Buyer’s Stamp Duty (ABSD).

This is a non-refundable administrative fee for the submission of the HDB resale application.  If you are using HDB lawyers for your sale, you can estimate the legal fee using the Legal Fee Enquiry service on HDB`s website, which estimates your legal fees based on the type of your HDB (i. e.  2-Room, 5-Room, etc.), and the selling price.  You would need to hire private lawyers for your condo purchase which would typically cost you a few thousand dollars depending on the law firm you’re hiring.  Service & Conservancy Charges / Maintenance Fee Service and Conservancy Charges are charges for the maintenance of the common facilities in your HDB block.  You must pay the service and conservancy charges for your HDB flat up to the HDB sale completion appointment date.

For selling your HDB, an agent will typically charge you 2% of the HDB`s selling price (this is the common market practice, but it is negotiable).  For buying a condo, you do not have to pay any property agent fee i.e. it is normally a free service because the buyer agent who acts for you gets a co-broke fee from the seller agent. If the buyer agent declares that he/she will not receive a co-broke fee from the seller agent, this agent may ask you to pay a buyer agent fee. As the buyer acts for you and is not worried about whether the seller agent is willing to co-broke or not, there is a chance that you may end up with a better deal).

When selling, it is important to hire an experienced HDB property agent. For those who is buying a HDB flat, you may want to know what is the difference between HDB loan and a bank loan.

Written by Ravi Chandran

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