Buying or Bought Your Condo? Plan Ahead For Downgrading to HDB
Buying one’s first condominium has got to be one of the most enduring aspirations for Singaporeans. It was one of our 5 C’s (gosh I’m old), and to this day remains #goals even for millennials and zoomers. Before you rush to get one – or perhaps like me you have already gotten an apartment – I would advise you to think about an eventual “downgrade” to HDB and how having private property affects your HDB purchase.
While property agents seem to love buying ads on how to upgrade from HDB to condo, going the other direction isn’t the most peculiar of moves. Condos aren’t necessarily entirely superior to HDBs, which is why I use the word “downgrade” rather begrudgingly.
It’s quite important to plan for a move from condo to HDB, and if you haven’t already gotten your condo apartment, there are some important considerations that may change your mind about getting a private apartment as your first property.
All other things equal like price and location, most people would be aware that HDBs are going to be significantly larger since the price per square foot is much lower.
Space becomes a lot higher in priority when one starts to have children or have to take in aged parents, and this is something that may be overlooked in one’s excitement to get a condo apartment. One-bedroom or studio apartments may be roomy enough for singles or young couples, but the story quickly changes with the addition of a child or two.
Newly launched condo units over the years have been gradually decreasing in size to maintain some degree of affordability, and HDBs have correspondingly become increasingly more cost-effective in meeting the needs of a growing family. You can of course move from a condo to a HDB when your family situation calls for it, but downgrading comes with issues, as we explore later in this article.
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Another obvious reason to switch from a condo to an HDB apartment would be cost savings. This comes in form of the generally lower prices of HDB apartments. The difference in cost can hence result in a sizeable cash out for one’s retirement or other investment purposes should one sell their condo for an HDB apartment.
There are also ongoing cost savings as condo maintenance fees are significantly pricier than conservancy fees that HDB owners pay. Depending on the specific condo and HDB, the difference can easily be hundreds of dollars a month, which can snowball to a large amount when compounded over the years. Those swimming pools and tennis courts don’t pay for themselves, and such is the cost of fancier things in life.
On top of that, condo owners tend to miss out on government subsidies and vouchers that are given out from time to time. HDB purchases come with a variety of grants and subsidies from the government, and eligibility for government vouchers that defray costs of living are typically tagged to property values. Condo owners do not get subsidies for their condo purchase, and are generally left out from many goodies that the government doles out from time to time.
Issue 1: you must sell your condo within 6 months after buying your HDB
Should you decide to get a HDB apartment while owning a condo apartment, you need to sell your condo within 6 months after buying your HDB. This can of course present some logistical issues: you have to simultaneously manage a property sale, a property purchase, and the home-moving process all at the same time with a deadline looming.
There is no option to buy an HDB after a condo and pay Additional Buyer Stamp Duty (ABSD), but the reverse is true: you can buy a private property after owning an HDB (as long as you complete your Minimum Occupation Period) and keep both (and pay ABSD, of course). For people who aspire to be owners of multiple residential properties, you’d have to start from HDB first.
Issue 2: you can only buy resale HDB (until 30 months later)
After selling your private property, you are only eligible to purchase resale HDBs from the open market for a period of 30 months. You cannot apply for Build-to-Order (BTO) flats from the government until that time is up, and if you add in the waiting time for a BTO apartment… that’s a long time to wait.
Owners looking to sell their HDBs naturally seek a profit for their property sale, and unlike new flats have significantly less than 99 years left on their lease.
Issue 3: you don’t qualify for almost all CPF Grants (until 30 months later)
With the exception of Proximity Housing Grant, you also have to wait 30 months after the sale of your condo property before qualifying for COF housing grants. Considering that such grants go into the tens of thousands, it’s a large amount to forgo if you were to buy an HDB less than 2.5 years after your condo sale.
Issue 4: it’s harder to get a loan for HDB because of MSR
This took me a little by surprise when I was doing my own research: the loan requirements for HDB is quite a bit stricter than that of condos. When you buy a condo, you just need to satisfy Total Debt Servicing Ratio (TDSR), which means your total monthly debt obligation cannot exceed 55% of your gross monthly income. Your monthly mortgage for your condo can take up the entirety of this sum, so if you earn say $6,000, you can have a maximum mortgage of $3,300 per month.
HDBs, on the other hand, have Mortgage Servicing Ratio (MSR) on top of TDSR. MSR caps your mortgage at 30% of your monthly gross salary. The same $6,000 salary can only qualify for a $1,800 monthly mortgage.
Depending on your income, if you have bought a $700,000 condo apartment previously and think you can get a $700,000 HDB flat without issue, your eligible loan amount might actually hinder you from getting a HDB of this price.
Hoembuying in Singapore is equally an emotional journey as well as a logical decision-making process. There’s a fine balance to strike between letting the head and heart rule, but planning ahead can at least prevent fewer future headaches… and possibly heart pains.
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