How to manage your timeline when upgrading your HDB flat to a condo
Many Singaporeans intend to upgrade from a flat to a condo, after their Minimum Occupation Period (MOP).
However, upgrading is a process that involves careful timing, and administrative detail. Mistakes can be expensive, such as paying the Additional Buyers Stamp Duty unnecessarily or even lost deposits. So, how to manage the timeline when upgrading from an HDB flat to a Condo? Should you buy first or sell first?
In this article, I’ll explain the timeline considerations to keep in mind when upgrading:
Basic checks to make before upgrading:
These are the earliest steps to take, and it is crucial for you to do these before making your move to upgrade,
- Ensure you’re eligible to sell your flat
- Work out the needed down payment
- Check how much of your CPF you need to refund
- Make early preparations for storage and temporary accommodation
This is a post written by Jacq Ng which is re-shared with her permission. I find the article particularly educational as I am currently facing the same dilemma of deciding whether to buy first or sell first in my next property purchase. Jacq does a great job in providing a step-by-step guide as to how one should approach that decision.
I have also added additional content for those who are looking to sell your existing HDB flat to purchase another resale HDB flat. This falls under the enhanced contra facility.
1. Ensure you’re eligible to sell your flat
The five-year MOP must be reached before you can attempt to sell your flat on the open market. If you don’t know the exact date, do contact HDB or login to the HDB portal with your SingPass.
As a quick reminder, the MOP is counted from the time of key collection, not from the time you balloted for the flat, secured the OTP, etc.
Likewise, if you’ve spent any period living outside of your flat – such as if you’ve spent a year living overseas – this period will not be count toward fulfilling your MOP.
2. Work out the needed down payment
If you are using a bank loan for the first time, note that it’s different from an HDB loan. A bank loan has a maximum Loan To Value (LTV) ratio of 75 percent – this means you can borrow up to 75 percent of your intended condo’s price or valuation*, whichever is lower (e.g. for a $1 million condo, the maximum possible loan is $750,000).
For the down payment, the first five percent of the condo must be paid in cash. For a $1 million condo, for example, you must prepare $50,000 in cash. The government does not permit banks to lend you this amount. Another 20 percent of your property (i.e. the rest of the down payment) can be in any combination of cash or CPF. If you don’t want to pay any cash for this portion, do ensure you have sufficient money in your CPF.
Note that there’s no HDB loan for Executive Condominiums (ECs), so the above also applies to ECs, even if they’re still technically HDB properties at the time.
*For new launch condos, the developer’s price is considered to be the same as the valuation.
3. Check how much of your CPF you need to refund
When you sell your flat, you must refund any CPF monies that you used for the flat, along with the 2.5 percent interest it would have accrued. Many Singaporeans would have used their CPF to pay for the following:
- Your flat down payment
- The Buyers Stamp Duty (BSD) for your flat
- Legal fees for buying the flat
- Servicing your monthly home loan
Do check with the CPF board, on how much of your CPF you’re required to refund alternatively, you can log in to the CPF website via Singpass to find out. While you can still use your CPF to buy your condo, you must refund the amount first, before you can use it for your next home.
Note that in some cases, the refund may take up the whole sale proceeds, leaving you with no cash in hand. In such a situation, you must look for other ways to pay the first five percent of your condo in cash (see point 3).
4. Make early preparations for storage and temporary accommodation
Unless you’re buying a resale condo, which you can move into immediately, there will be an interim period where you need to have temporary lodging. Do make plans to store any of your large items (e.g. your bed, television set, antique study desks), as you may not be able to fit this into your temporary home. Alternatively, renting an unfurnished apartment would be ideal.
As a tip, I would suggest you trim down your spending on material goods, if you know you’ll soon be moving to a new home; this will make it much easier to move. Perhaps consider selling unused, bulky items on second-hand sites like Carousell, E-Bay, etc.
Once that’s settled, you have two choices on how to upgrade:
- Buy your new condo first, and then sell your flat
- Sell your flat first, and then buy your new condo
So, the question now is, should I buy first or sell first? Both involve different timelines and needs. Let’s dive in deeper on these 2 options.
Option 1: Buy your condo first, and then sell your flat
The main advantage of this method is convenience. You can avoid the need for temporary accommodation, for instance, by staying in your flat until your condo is ready to move in. You can also wait in your flat while renovations are completed in your condo, and move in afterward.
A second advantage is speed: if you see a condo unit that’s right for you, you can move fast to secure it. If you wait to sell your flat first, your desired unit may be snapped up by the time you’re ready.
Step 1: Secure pre-approval from your chosen bank
Pre-approval, or Approval In Principle (AIP), is a statement from a bank; it details how much they will lend you for your property. The AIP lets you plan for the down payment and gives you a clear sense of your budget.
A poor credit score is one of the reasons why a loan application is stalled.
Do not put down a deposit on any property before you get the AIP. If you put down a deposit for the property, and later cannot secure a loan, you will likely forfeit the deposit.
Step 2: Be aware of any early redemption costs for your home loan, and inform the bank of your intent
For your next property, be sure the bank you are borrowing from is aware you intend to sell your flat; you may need to produce documents to prove this. This is because, if you attempt to get a home loan for the condo before your flat loan is paid off, you’ll end up with a lower loan quantum – you could have to pay as much as 45 percent as a down payment on the condo, on account of your outstanding flat loan. But if you can show the bank the flat is being sold, they will usually grant you the maximum financing of 75 percent (see above).
If you use a bank loan for your HDB flat, look out for prepayment penalties – a bank might charge up to 1.5 percent of the undisbursed loan amount if you try to pay off your remaining loan.
(HDB does not charge such penalties for its loans).
Step 3: Find the condo you like, and then secure the Option To Purchase (OTP) with a deposit
Once you are 100 percent certain of the property you want, you can proceed to secure the Option to Purchase (OTP). While it’s possible for buyers and sellers to proceed straight to the OTP without first sending an Offer to Purchase, sending an Offer letter is a good practice that allows buyers to specify the terms of the subsequent OTP.
Issued by the buyer’s agent on instruction by the buyer, the Offer to Purchase is accompanied by a cheque which is typically one to five percent of the condo price. You will usually have 14 to 21 days to exercise the OTP (this is called the validity period). When you exercise the OTP, you will have to make the remainder of your down payment, and sign the Sale & Purchase (S&P) Agreement.
An OTP can be extended to a maximum of 12 weeks if you need more time, but it’s up to your seller to accept it. Important: If you don’t exercise the OTP within the validity period, you will forfeit the deposit (if it’s one percent), or be refunded only 25 percent of the deposit (if it’s five percent and if you’re buying from the developer).
Step 4: Pay the relevant stamp duties after exercising the OTP, including Additional Buyers Stamp Duty (ABSD)
You must pay all relevant stamp duties within 14 days of completing the S&P Agreement. This will include the Buyers Stamp Duty (BSD) and ABSD, as you are technically buying a second property (your flat is not sold yet). BSD and ABSD can be paid in any combination of cash or CPF.
The BSD* is as follows:
- 1% of the first $180,000
- 2% of the next $180,000
- 3% of the next $640,000
- 4% of any remaining amount
So if the property price is $1.2 million, the BSD is $32,600. For the ABSD*, you’ll pay 12 percent of the property price as it’s your second property. If you’re a Permanent Resident (PR), you’ll pay 15 percent instead (note that if your co-owner is a PR, you’ll also pay the higher ABSD rate). An exception to this is when you’re buying an EC, in which case you don’t need to pay ABSD when upgrading.
You can apply for ABSD remission later. So long as (1) you’re a married couple with at least one Singapore Citizen, and (2) you sell your flat within six months of buying the condo, you can apply for ABSD remission. Be aware of this time-sensitive issue, when selling your old flat.
*All stamp duties are based on the higher of the property price or valuation
Step 5: Assuming the condo is completed, just wait for renovation to be finished before moving in
On average, renovations for new condos take about six to eight weeks, depending on the extent and your contractor. Note that resale condos may take longer, as you need to hack away the previous works. Speak to your contractor for a time estimate, so you can plan your move.
Option 2: Sell your flat first, then buy a condo
This is the more straightforward route. Using this method, you simply sell the flat first and pay off your outstanding home loan (while refunding your CPF).
The average time taken to sell your flat can be taken as roughly two to three months; the typical timeline being:
Day 01: The buyer of your flat secures the OTP by giving you a deposit
Day 14 – 21: The buyer exercises the OTP to complete the transaction
Day 22 – 24: The Resale application is submitted to HDB
Day 25 – 38: HDB sends acknowledgement if there are no problems
Do note that the above is an estimated timeline, it may be shorter or longer depending on the unique situation of each transaction.
From that point forward, you can start viewing homes and take your time to buy. There’s no six-month deadline to worry about, and you don’t need to worry about upfront ABSD costs when buying. However, between the sale of your flat and moving into your new condo – you may need to rent, live with in-laws, or make some other arrangement. If necessary, you can try to negotiate for an extension from your flat buyer, for a slightly longer stay.
Enhanced Contra Facility (ECF)
With the Enhanced Contra Facility (ECF), you can sell your existing HDB flat and at the same time, buy another resale HDB flat using the sale proceeds and refunded CPF monies. However, the refunded CPF monies cannot be used for the payment of stamp duty and conveyancing fees.
With the ECF, you can:
- Reduce the cash outlay needed for your resale HDB flat
- Reduce the mortgage loan amount needed and the subsequent monthly repayments
There are however certain conditions that one will need to be aware of when applying for ECF.
Condition 1:
You may apply for the ECF if you are selling your existing flat (Flat A) and buying an HDB resale flat (Flat B). The ECF can be used to finance the purchase of Flat B, including the insurance premiums for the CPF Home Protection Scheme. However, your buyer (of Flat A) and the seller (of Flat B) must not have applied for similar contra facilities for their flats.
Condition 2:
If all the sellers of Flat A are Singapore Permanent Residents (SPRs), they must not be an undischarged bankrupt or have any bankruptcy proceedings against any of them. HDB may not approve the ECF application if any of the following apply:
- There is a mortgage in favor of a financial institution
- There is a CPF mortgage/ charge on Flat A and/ or Flat B
- Private solicitors have to be engaged
Condition 3:
The ECF is not available for the following types of resale applications:
- Conversion Scheme
- Sale of part-share of an existing flat
- Contra party buys another resale flat using a housing loan from a bank
Condition 4:
The resale of Flat A must be completed before or on the same day as the completion of the resale of Flat B.
As can be seen, the application for ECF is also not as straight-forward, with certain conditions (such as condition 2) stipulating that the mortgage charges on both flats need to be cleared before the facility might be approved.
For more information on ECF, one can check with your property agent or refer to the HDB website here.
Conclusion
Buying and selling a home concurrently can be a daunting chore if you do not know-how. It can incur serious financial costs if done in the wrong sequence.
However, it is not a process where you have to go through alone. It’s advisable to get the help of a qualified and experienced realtor to partner and guide you through your upgrading journey.
NAOF: On the decision to buy your next property first then sell your existing property or to sell your existing property first then buy your next property, it might come down to financial ability.
If cash is tight, you might want to choose to sell your existing property first. In this case, you don’t have to pay for the ABSD upfront (although it can be refunded later). However, the main downside is that you are now “forced” to accelerate your home-buying process if you do not wish to shift to a temporary rental location (which could also be a hassle).
This option might be more ideal for a family who has an interim accommodation to re-locate to.
Sell First, Buy Later: Family who does not wish to fork out the additional cash for ABSD (which can be refunded later) and has the option to relocate to a temporary dwelling.
For those who choose to buy first and sell later, this is a route that is favored if you do not wish to go through the hassle of relocating to a temporary housing. You however have to pay the ABSD (through cash or CPF) which amounts to 12%-15%. For a S$1m property loan, that is a rather hefty amount of at least $120,000 that one will need to fork out already.
Hence this option is suitable for those who are “cash-rich” or “CPF-rich” and able to fork out this additional amount on top of the normal BSD. One attractive alternative is to purchase NEW EC which will NOT require the payment of ABSD. This is also a reason why ECs are so favored by HDB upgraders.
You will, however, need to sell your HDB within 6 months of the EC TOP. For resale Condo/ECs, you will need to sell your HDB within 6 months of purchase of your new property to be entitled to the ABSD remission, if not that will be totally forfeited and you are now deemed to be the proud owner of MULTIPLE properties.
Buy First, Sell Later: Family who has sufficient cash to pay for the ABSD. Alternatively, a family who is looking to upgrade to an EC.
If you find the above article informative and wish to have Jacq review your existing situation and highlight common blindspot and make the home buying/selling process as smooth as possible, do fill out the short questionnaire below and we will get in touch with you as soon as possible.
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