Planning to Upgrade from HDB to Private Condominium?
Here are several option property owners should consider before making a decision
Option 1 : Own both HDB Flat and Private Condominium
Choosing to keep both HDB and the newly purchased Private Condo. Property owners have the choice between renting out the HDB or the new condo. Several Pros and Cons to this option are this options allows you to generate rental income. However, you will have to pay for 20% Additional Buyers Stamping Fee (ABSD). In addition, a higher expense is required to purchase the new condominium as you can only take 45% loan for the private condo if you still have an outstanding HDB loan. Finally, HDB flat value is likely to depreciate over the years.
What is ABSD?
‘Additional Buyers Stamping Fee’ is a fee required to be paid on top of the Buyer’s Stamp Duty (BSD). Several criteria will determine if you will have to pay ABSD, one of which is a Singapore citizen that has more than one residential property. The rate for a second residential property owner is 20%.
Timeline for buying a private condo
If you have fulfilled your five years Minimum Occupation Period (MOP), you are allowed to keep your HDB flat and buy a condo. You can choose to continue staying in your HDB flat or move into your new condo. Maybe you are thinking, why not keep your HDB and rent it out since the rental yield is very attractive? Then with the rental income, you can use it to finance your new purchase. Sounds very logical?
But do take a step back and consider the disadvantages. Firstly, since the new purchase will be your second property (HDB doesn’t allow part-sale or is commonly known as ‘decoupling’), you would need to pay an Additional Buyer Stamp Duty (ABSD) of 20%. Yes, no kidding! 20% is a lot of money. Many people loathe the thought of throwing away this considerable sum of money. If you were to buy a $1.2 million condo, a 20% ABSD amounts to $240,000. Suppose you rent out your flat at $3,500 a month or $30,000 a year, the $240,000 ABSD will set you back by 5.7 years in rent. Oh no! It’s like going through another round of M.O.P.!
Secondly, your HDB flat may likely depreciate over time. (Although HDB has been proven resilient, HDB owners usually enjoy the luxury of spaciousness and capital appreciation over time.
Just for illustration if some feel that HDB will still depreciate over time.
Suppose your HDB flat is worth about $600,000 now, and it depreciates at 2% a year, in 5.8 years you would have lost about $68,400. So, does it make economic sense to earn $42,000 of annual rental income from your HDB flat, while losing almost $240,000 in terms of ABSD and depreciation? You would also need to fully clear your HDB loan to enjoy the maximum 75% loan for your condo purchase. Otherwise, you can only borrow 45%.
So, does it make economic sense to earn $42,000 of annual rental income from your HDB flat, while losing almost $240,000 in terms of ABSD and depreciation?
Hence, to buy a $1.2 million condo without selling your HDB flat, you would need at least 25% (5% down + 20% ABSD) in cash, which is $300,000, together with the Buyer Stamp Duty (BSD) $32,600 , you would total need to have $320,600 of cash/cpf. This upfront capital outlay may make it look like it is out of reach for many people. However you maybe surprised that there are a good bandwidth of Singaporeans sitting on a large amount of Cash and CPF!
Option 2: Buy Condo First Then Sell HDB
When buying your first condo you could carefully choose the right property. Once you made a choice, make sure you have the time to renovate and move into the new house.
But there is a catch! You will have to pay ABSD first and then claim back if new purchase is a matrimonial home (i.e. buy under husband and wife’s names) and sell off the HDB flat within six months. This upfront financial commitment may present some cash flow problems for some people. If you still have an outstanding HDB loan, the maximum amount you can borrow is 45%, so you would need more capital outlay to buy a condo.
If you choose to buy a condo first then sell your HDB, you will face some issues with ABSD and loan. Similarly, the initial capital outlay is very high. However, though you have to pay the ABSD first, if you are able to sell your HDB flat within six months, you can apply for remission and get back your money. This remission only applies to the matrimonial home; the property must be in both husband and wife’s names. There is no remission for singles, widows/widowers, and divorcees. Overall this option gives you a pressureless way to shop for your new condo.
Buy a condo first before you sell your HDB will incur ABSD
Option 3: Sell HDB First Then Buy Condo
What is good about is option is that there is no ABSD. You can slowly take your time to find your dream home. There won’t be any cash flow problem like option 2. Your HDB can be sold at a higher price now than letting it depreciate to a lower price at a later time. However, you might need to find temporary accommodation meanwhile looking for a new condo after selling off your HDB. Temporary accommodation means extra expenses during the interim period.
Some do not like the idea of having to move twice and having to rent for say, two to three years before the new place is ready. On the positive side, the value of your flat may likely depreciate over the two to three years while you are renting. So you are selling at a higher price NOW. This should offset the cost of renting. It would be wise to book a new condo during launch to enjoy early bird discounts and first mover advantage. So, selling your flat first will free you from the time to buy a new condo.
Option 4: Sell Your HDB Flat And Buy A Condo At The Same Time
Another option is to sell your HDB and buy a condo at around the same time. By doing this, you still have have the time to find the ideal house you are looking for cause selling off the HDB takes time (around 8 -10 weeks). Meanwhile, you can search for your next dream home while selling off your HDB. The best if you could match up the OTP at around the same time so you could move out and move in to the new condo immediately. By doing that, you could save some cash from hiring movers or renting a temporary accommodation plus no ABSD if it is planned well.
The only downside is that you will need sufficient cash to pay the 5% cash and buyer stamp duty. Some experience is needed to plan properly from selling HDB and buying your condo. And also, some buyers may not be willing to grant you the extension of stay when selling off your HDB.
All of the options need experience and knowledge. If you are still confused, feel free to contact us at buycondo.sg and we will gladly assist you in whatever way possible to ease your selling or buying of any condo here in Singapore!