• Christine Kang

What are the Options after HDB MOP?

This article discusses on the possible options when our HDB flats reach the minimum occupation period (MOP).


About HDB Flat


Singapore’s public housing scheme enables all eligible Singapore Citizens (SC) to own an HDB flat, with the main intent of providing a home for all Singaporeans. This privilege has been extended to Singapore Permanent Residents (SPR), of at least 3 years, to acquire HDB resale flats.


All owners of HDB flats must fulfill a minimum occupation period (MOP) of 5 years before the flat can be sold. The MOP starts counting from the day of key collection to the day it is sold. However, it does not include the period when owners are on overseas postings and not able to physically stay in their units.


After its MOP, SC can then own a private residential property and/or rent out the entire flat. The SPR are not allowed to rent out the HDB flat and will have to sell the HDB flat if they are buying a private residential property.


Many of us would always like to be upgraded to a bigger HDB flat, executive condominium or private residential when our HDB flats have fulfilled its MOP, especially when our families or incomes grow over the five years period.


Nevertheless, what we want to do with our existing HDB flats when it turn MOP will depend very much on individuals' aspirations and financial positions.

What are the Options after MOP?


Option 1: Continue Staying at Current HDB Flat


Usually, most people would prefer to stay in a location surrounded with amenities and good transport connectivity.


However, to many of us who are setting up a family and looking for a roof over our families, the HDB Build-To-Order (BTO) flats released for selection then may not always locate at our preferred locations.


Of course, there are some lucky ones who by chance had gotten BTO flats at our ideal locations. We are more likely to think twice before deciding to shift from the current flats, as the lady luck may not strike again if we will to upgrade or downgrade to a second subsidised HDB flat.


Even if we intent to acquire an HDB resale flat or upgrade to a private condominium, we may not have enough money to pay the additional premium for the prime location we are residing or our idea location at other parts of Singapore.




Furthermore, having been living in a place for a long time, familiarity with the people and surrounding places will inevitably become something hard to forgo. Therefore, it is very likely that most of us would prefer to stay put at where we are – continue holding up at the same HDB flat.

Option 2: Rent Out Entire Flat


Although HDB flats are meant to be homes for the owners and their families, SC may opt to rent out the entire HDB flat at MOP, especially if we have an alternative place to stay. For example, we may stay with our elderly relatives to look after them, or we have been posted overseas for a few years.


HDB flat owners who have decided to upgrade to private residential property may also consider renting out the HDB flat, if we can afford not selling it.


By renting out the entire unit, we are to monetise and earn additional passive rental income from our HDB flats.


There are some requirements to rent out the whole HDB flat:


  • Owner must be a Singapore Citizen (SPR cannot rent out their HDB flats).

  • Lease must be at least 6 months.

  • Not allowed to rent out to non-Malaysian work permit holder in manufacturing, construction, manufacturing, marine, and process sectors.

  • Fulfill the ethnic quota of the block.

  • Meet the maximum quota of the number of tenants for different flat types.


However, we can still rent out our flats with HDB’s approval if we are posted overseas within the MOP. Do note that the days when we do not physically occupy the flat will not be considered in the counting of the MOP.

The regulations for renting out HDB flats can be obtained from this link: https://www.hdb.gov.sg/cs/infoweb/residential/renting-out-a-flat-bedroom/renting-out-your-flat/eligibility

More readings for things to observe before renting out HDB flat:

https://www.jacqng.com/post/what-savvy-landlords-look-out-for-when-signing-a-tenancy-agreement


https://www.99.co/blog/singapore/subletting-hdb-flats-trouble


Whatever the reasons which lead us into renting out our flats, we will be collecting passive income that move us a step closer in actualising our financial freedom.

Click on the link to read more on how we can achieve financial freedom:

https://www.christinekangproperties.com/post/is-it-still-possible-to-achieve-financial-freedom-through-property-investment



Option 3: Sell and Upgrade/ Downgrade to Another HDB Flats

It is common that family size grows over time from the day we booked our HDB flats. Many HDB owners will seek to upgrade to a bigger HDB flat to provide more space for our children or to get a flat that provide amenities at the doorstep to enhance our lifestyles.


While others may have financial objectives or other consideration to downgrade to a smaller HDB flat. There are two possible options to upgrade or downgrade to another HDB flat.


Option 3a: Buy another subsidised HDB Flat (BTO or EC) and sell existing HDB Flat

Every Singapore citizen has the privilege of buying a subsidised flat from HDB for two times in our lifetime. It is understandable that most of us would like to make full use of this privilege. Hence, looking for another subsidised new BTO or a Executive Condominium (EC) is not uncommon.


Moreover, we are only require to sell the existing HDB flat within 6 months after collecting the keys to the new flat.


However, as subsidised HDB flat is meant to provide an affordable and comfortable housing for the citizens in Singapore, policies are set in place to prevent people from capitalising on our public housing system.



As such, there is a Resale Levy imposed on the sale of the first subsidised flat and it is mandatory to pay the levy before purchasing the second subsidised HDB flat.


Click on the link to find out in more details on this Resale Levy: https://www.hdb.gov.sg/cs/infoweb/residential/selling-a-flat/financing/computing-your-estimated-sale-proceeds/selling-a-flat---resale-levy

In view of the need to pay Resale Levy, proper financial calculation must set in place before proceeding to book the second subsidised flat.


Do we have enough money for the Resale Levy payment after selling our current flat?


Crucial point to note is that Resale Levy must be paid in cash after deducting from our sale proceed of the first subsidised flat.


Not forgetting that if we only sell the existing HDB flat after collecting the keys for the new flat, a few years would have passed after booking the new BTO flat/ EC. The market conditions may have changed, though it is rather stable for HDB property.


Some sellers may think that they are able to cash out a good sum of money, from this option, to supplement future expenses in life.


However, it may be too late for them to realise only after selling the existing flat, that what is left over may not be enough to meet such purpose.


Eventually, it may not worth the time and effort to purchase another subsidised flat as the Resale Levy might have reduced the gains in monetising from another subsidised flat.


Nevertheless, buying another subsidised HDB flat is less taxing on our finances and cause less inconvenience as we are still able to stay in the current HDB flat while waiting for our new BTO/EC to be ready.

Option 3b: Sell then Buy a Resale HDB Flat

Some may choose to go for a resale HDB flat to avoid paying the Resale Levy. However, there are also other considerations for resale over new HDB flats:


  • Buyer can see the unit physically and gauge the suitability to ensure the family’s requirements for the flat are met.

  • Some may choose to buy resale flat for the bigger space it offered as compared to the new HDB flats.

  • Buying a new HDB flat entails waiting time and there may not have new HDB flats launching at a location for a certain period when we needed it most. The location of available new HDB developments may require long travelling time to our workplaces or far away from our children’s schools.

  • Resale flat market provides a wider choice of locations, which would likely meet most buyers’ preferences, especially those who need to stay near our parents to help look after our children.


However, there are also some issues that buyers need to take note for resale flats.


Resale HDB flats will have passed a minimum 5-year mark before it can be sold. The capital appreciation has already been enjoyed by the first owner. This will pose a higher risk in terms of future growth if the new buyer so decided to throw in a high premium for the desired or coveted unit or location.


Apart from the huge sum of money thrown in to acquire the flat, almost all resale flats will need another substantial amount for renovation, especially if we want to redesign the unit to our liking.


If we so decided to buy a second subsidised new HDB flat some years later, we will still need to payback the Resale Levy plus interest for our first subsidised flat.

Our age may pose a restriction in using our CPF Ordinary Account to finance the resale flat, if it has a remaining lease of 20 years or less.


Read on by clicking on the link:

https://www.christinekangproperties.com/post/should-cpf-be-used-to-buy-house


Option 4: Sell HDB Flat and Upgrade to Private Residential Property


There are many HDB owners who aspire to upgrade to private residential which is more exclusive and have facilities within to convenient their family members.



New Launch or Resale?

We have the options to purchase a new launch or resale private residential property.

But the timeline for new launch or resale must be taken into consideration. For more details on the timeline and factors to consider in buying New Launch or Resale Private Residential, click the link https://www.christinekangproperties.com/post/new-launch-vs-resale-which-is-better


Sell or Buy First?

There is also the option to sell first then buy or buy first then sell later. The decision will depend on individual’s circumstance and financial position.

As for the new launch property, we cannot sell away the HDB first, unless we have an alternative place to stay, because it will take 3 to 4 years for the new project to complete.


Buy First Sell Later.

As mentioned earlier, private residential property (resale or new launch) can also be purchased first and then the HDB flat to be sold within 6 months upon collection of keys to the newly purchased private residential property.


This procedure is more comfortable for most buyers as we need not look for a transition home before obtaining the keys to the new private residential property.


ABSD.

However, if we have yet to sell the existing HDB flat, the Additional Buyer Stamp Duty (ABSD), which is 12% for second property, will apply and must be paid together with the Buyer Stamp Duty within 2 weeks upon exercising the Option to Purchase or Sales and Purchase Agreement for the second property.



Nevertheless, ABSD remission can be processed upon selling of the HDB flat.

However, some people may feel uneasy to pay the ABSD upfront and getting the remission later. Then the option to sell the HDB flat first and get a temporary accommodation while the sale process is underway may work just as well.


Please read criteria for ABSD remission before buying your next property at the following link:

https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/Other_Taxes/Stamp_Duty_for_Property/Claiming_Refunds_Remissions_Reliefs/Remissions/ABSD%20Rates%20or%20Remission%20for%20Joint%20Purchase%20by%20a%20Married%20Couple_2018-07-06.pdf

Bridging Loan. If we need cash to pay for the down payment for the next property while waiting for the sale of our current HDB flat to be completed, we can apply for a bridging loan from the bank.


Nevertheless, bridging loan, which charge a higher interest and usually for a duration of up to 6 months, may not be appropriate for the purchase of new launch property that takes years to construct, unless it has just obtained Temporary Occupation Period (TOP).

Summary


In summary, upon reaching the MOP, HDB owners have the options to continue staying in the flat; renting out the entire unit; sell the existing HDB and upgrade or downgrade to a new (BTO/EC) or resale HDB unit; or to sell the HDB and upgrade to a private residential property.


Notwithstanding, the situation and financial ability of individuals differs and the considerations on the ABSD, buy first or sell first should not be taken lightly.


Furthermore, not only the timeline is crucial for the sale of your existing property and the purchase of the next property, but also the financing of the next property needs to be put in place to facilitate the smooth transaction.


It will be advisable to discuss with a professional real estate agent, who will understand your conditions and aspirations before committing to any action.

Feel free to contact me @ +65 94742623 for a non-obligation discussion.



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I am a Real Estate professional with proven records and 10 years’ experience in helping clients to acquire their dream homes and fulfilling their property investment goals. Skilled in facilitating purchase, sale and leasing of commercial, industrial, private residential and HDB properties, I enjoy my interactions with clients and find joys and sense of fulfillment whenever they found the properties that met their needs or when they benefited from their investments in the properties that I had helped them purchase.

Get a one-time period of free consultation@+65 94742623

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