Updated: Nov 11, 2020
Many Singaporeans intend to upgrade from a flat to a condo, after their Minimum Occupation Period (MOP). In my previous article, I explained how this might be driven by stagnant resale HDB flat prices, and the attractiveness of gains in Singapore’s private property market.
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 HDB flat to a Condo?
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
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 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 a HDB loan. A bank loan has a maximum Loan To Value (LTV) ratio of 75 per cent – this means you can borrow up to 75 per cent 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 per cent 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 per cent 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 per cent 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 login to 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 per cent 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 sell or buy 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 (see above), and gives you a clear sense of your budget.
A poor credit score is one of the reasons why a loan application is stalled. Read my previous article to find out how you can improve your credit score for mortgage loan.
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 per cent 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 per cent (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 per cent 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
To find the right condo for you, do contact me for help; I can assist you in making an informed comparison between different developments. Once you are 100 per cent 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 per cent 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 per cent), or be refunded only 25 per cent of the deposit (if it’s five per cent 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 per cent of the property price as it’s your second property. If you’re a Permanent Resident (PR), you’ll pay 15 per cent 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.
Buying and selling a home concurrently can be a daunting chore if you do not know how. It can incur serious financial cost 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.
Jacq Ng - Your HDB Upgrading Partner resolves to partner home buyers and sellers to ensure that the entire process runs smoothly. WhatsApp me or Book an Appointment so that I can review your situation, highlight common blindspots and make the process as smooth as possible. (I’ll help you get the best prices for your previous flat or new condo, while we’re at it).
About The Author
My passion for Real Estate sparked at a very young age. At 14, I would tail along with my parents as they went for home viewings, and get involved with the necessary matters whenever they shifted homes.
Later on, I was appointed as their power attorney who solely oversaw the sale and purchase of my family’s properties. From my personal experience in engaging agents, I deeply understand how important integrity is in this business.
As properties are big-ticket items, their dealings should not be taken lightly. To offer the best advice,
I always strive to put myself in the shoes of my clients such that I can help them make informed decisions which support their goals. Check out my client testimonials.
My mission is to add value and make a positive impact on the lives of my clients through sound investments and intelligent strategising. Let's connect at 97642556 to discuss on your goals.