With the government’s successive implementation of cooling measures such as Additional Buyer Stamp duty (ABSD), Mortgage Servicing Ratio (MSR), Total Debt Servicing Ratio (TDSR) and the tightening of the Loan-to-Value (LTV) ratio weighing on buyers, upgrading from HDB to private condo or executive condo is no longer just a decision that’s simply based on the price of the next property you can afford.
To make the most cost-efficient purchasing decision, the reality for hdb upgraders is that they must now take into account the ABSD involved in the purchase of the new property (in addition to other stamp duties) and the amount of mortgage loan they can secure from the banks due to MSR, TDSR and LTV(depending on whether is private condo or executive condo).
Speaking of this, you may have came across ads on social media platforms like the saying something along the lines of: “With an income of just S$7,000 onwards, you can upgrade to own private properties, without having to pay extra cash from your pocket!”
If you indeed want to upgrade to a private condo or executive condo without touching your cash, it’s important to see beyond these ads. In this page, we will show you the figures behind the different upgrading options available right now:
Keep HDB, Buy Private Condo
Sell HDB, Buy Private Condo
Sell HDB, Keep Cash-on-Hand, Buy Private Condo
Upgrade to Executive Condo
Upgrade to Executive Condo without using cash-on-hand
Sell HDB, Buy 2 Private Condo
Profile Of The Typical HDB Owners
Here’s a typical profile of HDB upgrader that we'll use as an example:
Assets Of The Typical HDB Upgrader
Option 1: Keep HDB, Buy Private
If they plan to keep their HDB and buy a private condo, they can only able to afford to buy S$460,000 condo the most. In today’s market, there is only a handful of condos which priced below S$500,000.
Here are their numbers if they want to keeping their HDB flat and buy a private condo:
Their maximum affordability is regulated by MAS regulations on Loan-to-Value (LTV) of 45% for purchase of new property given that they are still financing their existing loan (in this case, they considering as buying 2nd property). Also, they have to pay a higher tier of ABSD at 12%.
Of course, the maximum value of the private property they can buy change if they fully pay up their existing HDB home loan. Therefore, for upgraders that to use their HDB as a springboard for a private home purchase but still wish to retain the flat, they might want to lower or minimize their financial outlay on their first HDB flat while ensuring that the location of the rent has high rent-ability. In this instance, buying a HDB resale flat, instead of a fixed location HDB BTO flat, could be a better option to plan for future upgrading.
Option 2: Sell HDB, Buy Private Condo
Taking this option, they could afford a property up to S$2,250,000. At S$2,250,000, they would have plenty of housing options at their disposal. However, they should not max out their budget for the private property purchase; it is advisable to conserve funds to tide them through unforeseen financial difficulties.
It is also important to take note that, in times of financial distress, HDB flat owners taking HDB loans will get a bit of leeway. Owners taking loan with banks will not have this advantage, should they be unable to service their mortgage. (The main reasons why upgraders are eager to cling to their HDB flats are for both rental income and a secure fallback.)
Option 3: Sell HDB, Buy Private Condo Without Using Cash-On-Hand
Here is the exciting part: upgrading to a private condo without touching cash-on-hand. In other words, they will only use the cash proceeds (estimated at S$135,000) from the sales of their HDB to finance the purchase of private condo.
From the above calculations, without touching their cash savings of S$250,000, they could afford up to a private condo cost S$1,827,142. With a of S$1,800,000 budget, they do have plenty of housing options to upgrade to. Furthermore, by preserving their cash savings of S$250,000, the HDB upgraders are well-covered in times of financial need.
Option 4: Upgrade To Executive Condo (EC)
If they put in all their cash and CPF, their budget for an Executive Condominium (EC) can go up to S$1,615,062. With a budget of S$1,600,000, ECs of various sizes will be within their range.
Option 5: Upgrade To Executive Condo (Keep Cash-On-Hand)
What if Jowell and Aeryn decide to keep their cash savings? Well, if they do not want to use their cash savings, they can still afford up to a family-sized resale condo. One of the largest private condos they can afford is a 4-bedroom unit at Piermont Grand EC or upcoming EC launch Parc Canberra.
Option 6: Sell 1 And Buy 2 Private Condominium
Can this option be done?
Yes, it can be done with careful planning. Here how it would look like:
Looking at their individual purchasing power individually, they can sell their HDB and purchase two private properties separately. Not only this, cash available after getting two private properties is estimated at S$190,000, which can help them during rainy days. Plus, one of the properties can considered as an investment property which can have a rental income to cover the mortgage comfortably or give a good yield.