Time flies! You’ve been living in your very first HDB flat for almost five years now. And with that Minimum Occupation Period (MOP) milestone fast approaching, you might consider a property upgrade for your next housing move.
For most HDB upgraders, upgrading from an HDB to a condo or an Executive Condominium (EC) is the goal. However, it’s important to check if the profit earned from selling your HDB flat is enough for you to upgrade without burning a hole in your pocket.
In this article, we’ll do the math for a typical Singaporean family looking to sell their first home and ‘upgrade’ to a different property type – be it an upgrade from HDB to EC, upgrade from HDB to condo, or upgrade from HDB to landed house. But first, let’s talk about your current HDB flat.
Selling Your HDB Flat After MOP: How Much Can You Make?
When it comes to first homes, many Singaporean couples opt for BTO (Built-to-Order) flats, and for a good reason: there’s a high chance that you will make a decent profit when you sell it after the five-year MOP.
That’s because BTO flats are sold directly by HDB at a government-subsidised price. After the MOP, you can sell the property on the open market at a price that is generally significantly higher.
This ‘investment strategy’ has been such a roaring success that HDB BTO flats for prime locations are regularly oversubscribed. The potential windfall from selling your HDB flat is such a phenomenon that the Government has stepped in with a new Prime Location Public Housing (PLH) model to manage the ‘lottery effect’.
With that in mind, let’s look at the example of Mr and Mrs Wong, who bought a 4-room BTO flat in Punggol for $300,000 in 2011, and moved in in 2016. They qualified for a $5,000 housing grant and took a 25-year HDB loan with a monthly instalment of $1,203. Back then, the Loan-to-Value (LTV) limit for HDB-granted loans was 90%.
After meeting the MOP requirement, they sold it in 2021 for $480,000 (this is an estimate based on similar properties on the HDB Resale Flat Prices portal, which you can apply to your own flat).
Of the sale proceeds, the Wongs will need to return the following to their CPF accounts, with interest (2.5% per year, compounded over five years):
- Housing grant: $5,000 + accrued interest = $5,657
- CPF used to pay for the BTO downpayment: $30,000 + accrued interest = $33,942
- CPF used to pay for a mortgage so far: $72,180 + accrued interest = $94,110
That’s basically an injection of $133,709 into their CPF OA, which can, of course, be used for housing. As for cash, the Wongs can pocket $57,571 – that’s what’s left after settling their remaining mortgage of $288,720.
In total, that’s about $191,280 of funds that can go into their next home purchase. Hurray!
How Much Does It Cost to Upgrade HDB to EC or Private Property?
So we’ve seen an average Singaporean couple ‘profit’ quite substantially from their BTO flat. But is it enough for the property upgrade of their dreams?
Well, it depends on whether they want to upgrade from HDB to an EC, a private condo, or a landed house. Here’s a sneak peek of how much the Wongs need to top up for each type of property upgrade, based on sample property prices:
| Upgrading from | Top up required |
| HDB to EC | $58,720 |
| HDB to condo | $183,720 |
| HDB to landed house | $558,720 |
Upgrade HDB to EC: How Much Is It?
The most affordable of the three options is to upgrade from HDB to EC, or executive condo. For the uninitiated, HDB’s executive condo scheme was set up to provide hybrid public-private housing for upper-middle-class Singaporeans.
Private developers build ECs – so they look like condos, complete with condo facilities – but are sold by HDB. To qualify for an executive condo, buyers have to meet a number of HDB executive condo eligibility criteria.
Luckily, the Wongs still meet the income ceiling of $16,000 and are eligible to apply for an EC. They also found a bargain among the new HDB EC launches – a 2-bedroom unit for just $1 million.
So far, so good. But here’s the kicker: although ECs fall under HDB, buyers cannot take out an HDB loan for EC purchases.
Given that an HDB loan for EC isn’t an option, the Wongs will need to get a bank loan instead. And going to a bank also means they’ll have to fork out 25% ($250,000) for the downpayment, of which 5% ($50,000) must be in cash.
With the $191,280 they made from their BTO sale, the Wongs fall slightly short of that downpayment. They must top up at least $58,720 in cash or CPF to afford it.
The remaining $750,000 will be the mortgage. With a 25-year loan at 3.5% interest, the Wongs can expect their monthly instalments to cost about $3,755.
For ECs, the housing loan repayment must adhere to not only the Total Debt Servicing Ratio (TDSR) but also the stricter Mortgage Servicing Ratio (MSR), which caps your home loan repayments at 30% of your income.
Working backwards with the $3,755 per month payment, the Wongs’ combined income must be at least $12,517 a month. If they are not earning enough, they will have to increase the downpayment and borrow less to become HDB to EC home upgraders.
Upgrade HDB to Condo: How Much Is It?
Looks and feel-wise, private condominiums are pretty similar to ECs. The main difference is that because it’s 100% private, there’s none of that income ceiling or MOP to deal with. There are also more options when it comes to location and lease.
Oh, and EC prices tend to be lower than private condos. In the case of the Wongs, let’s say the couple searched for a budget-friendly private condo on PropertyGuru and finally found a 2-bedroom unit they liked for $1.5 million.
With a bank loan, that means a downpayment of $375,000 – of which 5% ($75,000) must be in cash. Since the $191,280 from their BTO sale is not enough, the Wongs will need to top up at least $183,720.
They must top up at least $17,429 for the cash component (since the $57,571 from the BTO sale is not enough). The rest of the money can be in their CPF OA.
With a home loan of $1,125,000 at a 3.5% interest rate for 25 years, the estimated monthly instalments will be $5,632.
For private property, only the TDSR (but not MSR) apply to your monthly loan repayments. So as long as your total debt obligations don’t exceed 55% of your income, you’re within limits.
Assuming the Wongs have no other loans, buying a private condo would be acceptable with a combined income of at least $10,240. Paradoxically, that’s lower than the income required for an EC.
Upgrade HDB to Landed Property: How Much Is It?
Not many Singapore HDB upgraders are willing to take such a giant leap regarding their property upgrade goals. But for the sake of completion, let’s look at the numbers for upgrading from BTO to a landed house.
An ‘entry-level’ landed house in Singapore would cost around $3.5 million. With a bank loan, a 25% downpayment is $875,000, of which $175,000 must be in cash. Yikes! We sure hope the Wongs have a spare $169,249 lying around for the cash component of their downpayment – and we haven’t even considered how much money they need in their CPF OA.
After making the downpayment, the Wongs will be saddled with a home loan of $2.625 million, which works out to $13,141 in monthly instalments, assuming a 3.5% interest rate for a 25-year loan.
The couple must collectively earn at least $23,893 a month to fall within the 55% TDSR requirement. Even so, we’re talking about more than 13 grand a month in mortgage instalments, which is not for the faint of heart.
Upgrade Your Property Within Your Means
Once you crunch the numbers, upgrading from an HDB flat to a condo is not as easy as it sounds. More often than not, it requires a top-up out of your own savings.
But for those who have their heart set on upgrading your HDB flat to a different property type, know that it is certainly possible. However, it does require planning. Potential HDB upgraders should work out a savings plan for their dream home upgrade, and not just count on capital appreciation alone.
To help you work out the sums, use the PropertyGuru mortgage affordability calculator.
Also, do consider the increased home loan obligations that come with an upgraded property. Upgrading your home can double, triple or even quadruple your monthly repayments! Unless you earn so much that your current HDB mortgage is practically child’s play, think carefully before committing to an upgrade.
For more advice on home affordability and working out your loan, reach out to PropertyGuru Finance’s mortgage experts to get free, honest, no-obligation expert advice.
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