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Upgrading to a condo: Guide to buying a condominium in Singapore

For many HDB dwellers, buying a condominium is the winning aspiration. Some also purchase condominiums to yield rental returns. But how do the finances work out, and can you afford to make the upgrade?

If your Minimum Occupation Period (MOP) milestone on the horizon, let’s crunch some numbers and see if you can upgrade to a private condominium.

Cost of buying a condominium: Breakdown of expenses

When upgrading to a condominium, the big question is whether you need to sell your HDB flat first.

If you want to keep your HDB and buy a second private property, one of the owners must be a Singapore citizen. If not, you must sell the HDB flat within 6 months of buying a condominium.

But can you actually afford the cost of a condominium? Let’s breakdown your expenses.

The downpayment you need to pay for your condo depends on your loan-to-valuation (LTV) limit, that is, the maximum amount or percentage you can borrow from a bank for a housing loan.

The LTV limits for individuals change depending on the number of outstanding housing loans a borrower has.

Assuming you are a 35-year-old with no housing loans, you can enjoy the higher LTV of 75% with a 30-year bank loan and only need to pay 25% downpayment. If you are purchasing a million-dollar condominium, the downpayment would be $250,000, of which $200,000 can come from your CPF Ordinary Account (OA) and/or cash and a minimum of $50,000 has to be in cash.

If it’s your second housing loan, however, you have to fork out a higher downpayment.

 

First Housing Loan

Second Housing Loan onwards

Total Sum of Loan Tenure Plus Age of Borrower

Less than or equal to 65 years

More than 65 years

Less than or equal to 65 years

More than 65 years

LTV

75%

55%

45%

25%

Cash Downpayment

5%

10%

25%

25%

CPF / Cash Downpayment

20%

35%

30%

50%

For joint borrowers, your combined age is calculated based on your Income Weighted Average Age.

For banks, there are two main types of home loans, namely floating or variable rate loans.

Floating home loans are pegged to a reference rate such as the Singapore Interbank Offered Rate (SIBOR) and Singapore Swap Offered Rate (SOR). Fixed-rate housing loans will not change for the duration of the loan tenure. But the lender may change the rate for the next cycle.

So which one to choose? Consider the amoritisation period of your loan. The longer you take to repay the loan, the riskier it is to choose a floating rate home loan. However, it might be suitable for borrowers who plan to sell their property after a few years or to refinance in the short term.

To get a bank loan, you will need to meet the banks’ eligibility criteria for prospective borrowers which includes:

  • A minimum monthly income

  • Buyer’s minimum and maximum age

  • Loan quantum

  • Residency status

  • Fulfilment of the Monetary Authority of Singapore’s property loan rules and HDB’s/the bank’s internal credit requirements

Based on the Total Debt Servicing Ratio (TDSR), you cannot use more than 60% of your monthly income to service your debts — this includes your home loan, car loan, student loan, credit cards, and more. 

Purchase Price or Market Value of the Property

BSD Rates for residential properties 

First $180,000

                1%

Next $180,000

                2%

Next $640,000

                3%

Remaining Amount

                4%

Whether you keep your HDB flat or sell it, you need to pay a Buyer’s Stamp Duty (BSD) when you purchase a condominium.

If you choose to keep your HDB flat, or cannot sell it in time before buying your condominium unit, it will be considered as your “additional” or “2nd” property and you will have to pay an Additional Buyer’s Stamp Duty (ABSD) on top of the BSD. The ABSD is 12% of the second property’s purchase price or market value, and increases with each subsequent property you buy.

Note that if you or your spouse is a Singapore citizen, you can apply for ABSD remission if you sell your HDB flat within 6 months of buying the condominium. Still a little confused? IRAS has a Stamp Duty calculator that may help.

When you upgrade to a condominium, you will need to pay a monthly maintenance fee to Management Corporation Strata Title (MCST). The fees will be split into the condo’s maintenance fund and reserves.

Depending on the condominium, the fee can range from as little as $200 to a whopping $1,200. So be sure to find out the monthly MCST fee before inking the deal.

When purchasing a condominium, you will also need to hire a private lawyer to handle the mountain of paperwork involved. This will typically cost you about $2,000.

 

How to select a condominium in Singapore 

How to select a condo depends on whether it’s for your own stay or for investment purposes.

The fundamentals of purchasing a condominium property shouldn’t differ too much from buying an HDB flat. First, look at your lifestyle and what your family needs. If you have children, choose a place that is near good schools. Also, it goes without saying that proximity to MRT stations, bus stops and even park connectors make it convenient for living there. Of course, you’d want to be near to amenities such as supermarkets and food centres nearby.

If you want to do more research, look at the future planning of the area in Urban Redevelopment Authority’s Master Plan to get an idea of any proposed construction activity in your area over the next decade.

When purchasing a condominium unit to rent, consider the needs of potential tenants. Expat families are likely to prefer a district with international schools. For resale investment properties, have a look around the condominium and see if the common areas are well maintained. A shabby looking property can be a dealbreaker for tenants.

Resale vs new private property

Between selecting a new launch or resale condominium unit, most Singaporeans would prefer purchasing new to enjoy the most modern amenities and features. However, if you need to move in soon, resale would be the better option. Unlike a new unit, you will also get to walk around the condominium and get a real feel of the neighbours and what it is like to live there, and do your due diligence.

Layout

You may also decide based on the condominium’s unit configurations. Some condominiums have dual-key units which are perfect for multi-generational families. If you do not intend to have kids, a shoebox apartment would suffice. And if you can afford it, getting a penthouse unit could provide you with the luxury of space and comfort.

Facilities and features

The condominium’s facilities can greatly enhance your lifestyle. Imagine a lazy weekend watching your kids splashing around in the kiddy pool, or running amok in the jungle-themed playground; or entertaining friends at the stylishly decorated BBQ lounge area. If you are a gym rat, having a spacious gym well stocked with all the equipment you need could be a selling point. 

 

How much do you need to purchase a condominium?

Using a scenario where you are eyeing a 3-bedroom unit at private condominium that will cost you an average $1.5 million, we break down the costs and fees involved:

 

CPF/Cash

Cash

25% Downpayment ($375,000)

$300,000

$75,000

BSD

 

$44,600

Legal Fees

 

$2,000

Total

$300,000

$121,600

This means you will have to foot a total downpayment of $421,600, of which $121,600 must be in cash.

Let’s assume you and your spouse bought a 5-Room BTO flat in 2010 for $350,000 and moved in in 2015. You qualified for a $10,000 housing grant, and took a 25-year HDB loan with a monthly instalment of $1,413. You paid a 10% downpayment of $35,000.

Based on market estimates, you should be able to sell your flat for about $500,000 after fulfilling MOP this year. Of the sales proceeds, you will need to return the following amounts to your CPF OA, with accrued interest of 2.5% per year:

  • Housing grant: $10,000 + accrued interest = $11,250

  • CPF used to pay for the BTO downpayment: $35,000 + accrued interest = $39,375

  • CPF used to pay for mortgage so far: $84,780 + accrued interest = $90,394

That’s a total of $141,019 deposited into your CPF OA, which you can put towards your next house. And after settling your remaining HDB mortgage of $266,680, you get to keep the remainder of $92,301 in cash.

Now, you want to purchase the 3-bedroom condominium unit in the previous section. Remember, of the $421,600 downpayment, $121,600 must be in cash. $300,000 can be drawn from your CPF OA.

Hopefully, with $141,019 added to your CPF from the sale of your HDB, you’d have $300,000 from your CPF to pay that portion of the downpayment. For the cash portion, you’ll need to top up $29,299, since you have $92,301 from selling your HDB.

Phew, downpayment done and dusted.

That leaves you with $1,125,000 in mortgage. If you take up a 30-year home loan at 1.8% interest, you will have to pay an estimated monthly instalment of $4,047. 

Factoring in 60% TDSR and assuming you have no other loans, your combined income must be at least $6,745 a month to be eligible to buy a private condominium. 

 

Buying an executive condominium in Singapore

If you meet the income ceiling of  $16,000, you may opt for a more affordable option — the public-private hybrid executive condominium (EC) sold by HDB.

ECs are a unique property type in Singapore. For the first five years of buying an EC, rules of HDB flats apply. Which means that the owner cannot sell the unit before a minimum occupancy period of five years, and the unit cannot be rented out whole.

However, after five years, it can be sold on the market to Singaporeans and PRs and rented out as a whole unit. After 10 years, it is fully privatised and can be sold to anyone.

Let’s break down the costs and fees involved of buying an EC (3-bedroom unit) at an average price of $1m.

 

CPF/Cash

Cash

Downpayment ($375,000)

$200,000

$50,000

BSD

 

$24,600

Legal Fees

 

$2,000

Total

$200,000

$76,600

The total upfront cost is therefore $276,600, of which $76,600 must be in cash.

Selling your HDB to upgrade to an EC

Using the previous example, where you and your spouse sold a 5-Room BTO flat and received $141,019 deposited into your CPF OA and $92,301 in cash, let’s see how much more you’ll need to pay to settle the downpayment.

With $92,301 in cash proceeds, you can pay the $76,600 portion, with some extra. You can use it either top up the shortfall ($276,600-$141,091) or further draw down on your CPF OA.

With a home loan of $750,000 over a 30-year tenure at 1.8% interest, you can expect to pay a monthly instalment of $2,698. 

For ECs, the housing loan repayment must adhere to the stricter Mortgage Servicing Ratio (MSR), in addition to the TDSR. Under the MSR, no more than 30% of a borrower’s gross monthly income should go towards repaying all their property loans. 

Assuming you have no other loans, your combined income must be at least $8,990 a month to be eligible to buy an EC.

 

Conclusion

As you can see, housing is not cheap in Singapore. It’s one of the key things that contribute to Singapore’s high costs of living.

Buying a dream condominium is nice, but don’t overleverage yourself or do it simply for status. The more important things are to do your calculations and find a suitable property for you and your family.

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