So you’re finally looking at an upgrade to a private home, transitioning from an HDB flat to a private condominium. This spells a beginning of a new venture and access into exclusive facilities for a different lifestyle for many households. One a dream of many Singaporean families, many are now turning their dream owning and living in a condominium into reality.
With a strong growth in HDB resale flat prices in the past year, many flat owners have decided it is time to switch. HDB resale values started to recover in the second half of 2019 after booking six consecutive years of decline. In 2021, HDB resale prices surged by 12.7%, following a 5% increase in 2020.
This has provided the impetus for many HDB upgraders to act, selling their flat and recycling the proceeds to buying a private home – either in the resale market or in a new launch project, particularly in the mass market. While you may be excited to make the switch, be sure to consider these before you go through with that decision.
1. The five-year minimum occupation period (MOP) for HDBs
Keep in mind that if you are one of the HDB owners looking to upgrade to a private property, there is the 5-year MOP. This means that if you are an HDB owner and you want to purchase a private property, you can only do so after a minimum occupation period of five years.
In other words, if you want to own an HDB flat and a private property, you must first occupy it for at least 5 years before you invest in a private one.
2. Consider your motivation in switching to a private home
Whether you want to enjoy a better privacy, space, facilities or lifestyle, have a clear idea of why you are making the move from an HDB flat to a private home. Are you looking for more privacy? A better environment or facilities? Or do you want a different lifestyle?
By chance, is a certain condo project highly attractive right now? Or does it entertain possibilities of potential capital gains in the future? Tracking the URA private property price index (PPI) and the HDB Resale Price Index (HRPI), it appears that the PPI has enjoyed a faster growth rate on a 5-year and 10-year basis as at Q1 2022, compared to the HRPI (see Chart 1).
Chart 1
3. Take note of financial outlay and monthly repayment
Mass market private homes in the Outside Central Region (OCR) or executive condominiums (ECs) – a type of public and private housing hybrid has been increasingly popular among upgraders. In recent years, residential property prices have been climbing and reaching new peaks.
This takes monthly loan repayment rates to whole other levels. Based on URA Realis caveat data, the average transacted prices for OCR new launches, OCR resale and new EC projects have surpassed that of 2021 at $1.74 million, $1.25 million and $1.37 million respectively (see Table 1).
Table 1: Average Transacted Prices ($) of Private OCR Non-landed New Sales, Resale Homes and New ECs
Source: PropNex Research, URA Realis
At these prices, buyers are looking at a monthly loan repayment of anything between $3,900 and $5,500 based on the assumption that the upgrader has sold the flat and does not have any other financial commitments.
So keep in mind if you are making that upgrade, be sure to lay out all your options and ensure that you are making decisions within your means. If the upgrade means a better lifestyle but end up causing stress over the monthly repayment rates, you might not want to take that risk.
For instance, Table 2 illustrates the financial outlay should the buyer borrows at 75% LTV (loan to value), at a 2% interest rate and a 25-year loan tenure.
*Assumption: Buyer has no other financial commitments, has sold the HDB flat, borrowing at 2% interest rate, with loan tenure of 25 years. Preferably, would-be buyers should work with an experienced real estate salesperson or a financial consultant to review their finances before embarking on big-ticket purchase such as a new home. Just as easily as your upgrade may be a dream come true, it may also turn into a nightmare if you are not ready on finances.
4. Be prepared to pay more for maintenance fees
The thought of upgrading to a private home can be exciting but remember to consider the cost of living you will have to bear from now on. In terms of maintenance or service and conservancy charge payable each month, HDB flats have a reduced S&CC at roughly $64 for 4-room flats and about $80 for 5-room flats.
This amount can easily run up to a couple of hundred dollars a month with a varying amount depending on the size and share values of the unit. In addition, you may no longer enjoy certain incentives offered by the government, such as S&CC rebates once you are a private condo owner.
5. Consider whether there are chances to purchase the property separately
If you are living with your spouse and both of you are now selling your jointly bought flat to buy a new property – you get the chance to ‘decouple’, which is to purchase a new home under one person’s name. This presents an opportunity for the other one of you to buy a residential property further down the road without having to pay additional buyer’s stamp duty (ABSD) as it would be the individual’s first home purchase. The reason you would want to keep this in mind is because the ABSD applied on your second home purchase would not be a small amount – a 17% to be exact. So, if the opportunity is there, plan your decisions properly and go from there.
With all questions asked, when is the right time to upgrade then? Now it is not possible to perfectly time the market, but would-be upgraders could take some guidance from price movements in both the private and HDB resale segments. Ideally, owners would want to take advantage of a stronger HDB resale price growth, especially if private home prices are likely to plateau or see a much slower increase.
PropReveal projects that HDB resale prices could climb by 6% to 8% in 2022 – at a faster clip than that of private residential properties. Since the implementation of new cooling measures in December 2021, private home prices are expected to rise at a slower pace of 3% to 5% this year, compared to the 10.6% jump in 2021. While strong demand had driven prices up in 2021, inflationary pressures could be a factor to watch this year as rising construction cost and manpower cost may push prices further up. In addition, with interest rates expected to inch up through 2022, some buyers may want to make their purchase sooner than later to lock-in more a favourable mortgage rate.
And alas, if you find yourself stuck in a rut even after weighing all possible options, you may need a professional’s opinion. In this case, schedule a visit with us or book a free consultation with our trusted and renowned representatives. Lastly, don’t forget to like, subscribe and share our articles with your friends if you think our content is useful to you. And if you would like us write a review for any property projects, have a blast in the comment section below.
