Singapore’s first HDB flat comes with a five-year Minimum Occupation Period (MOP). As this five-year period nears its end, many people may consider moving and upgrading their property.
The goal for most HDB upgraders is to move from an HDB flat to a condominium or an Executive Condominium (EC). However, before doing so, it’s important to check if the profit earned from selling the HDB flat is sufficient to offset the costs of upgrading.
This article will use a typical Singaporean family as an example to calculate the profits and expenses incurred when they sell their first HDB flat and “upgrade” to different property types—an EC, a condominium, or a landed property.
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How Much Can You Earn from Selling an HDB Flat After MOP?
The first home for many Singaporean couples is a Build-To-Order (BTO) flat, as selling it after the five-year MOP is highly likely to yield a considerable profit.
This is because BTOs are sold directly by the Housing & Development Board (HDB) at a subsidized price. Generally, after the MOP is met, they can be sold on the open market for a much higher price than the original purchase price.
This “investment strategy” has been so successful that BTOs in prime locations are often oversubscribed. The potential gains from selling an HDB flat are so significant that the government has introduced a new Prime Location Public Housing (PLH) model to prevent a “lottery effect.”
With this in mind, let’s start with an example. Suppose the Wang couple in Singapore bought a four-room BTO flat in Punggol for S$300,000 in 2011 and moved in in 2016. They received a housing grant of S$5,000 and secured a 25-year HDB loan with a monthly installment of S$1,203. At that time, the Loan-to-Value (LTV) limit for HDB loans was 90%.
After meeting the MOP, they sold the flat in 2021 for S$480,000 (this is an estimate based on similar properties on HDB’s Resale Flat Prices portal, which both buyers and sellers can use to assess HDB flat prices).
From the sale proceeds, the Wang couple needed to return the following amounts, including principal and accrued interest (compounded at 2.5% annually over five years), to their CPF accounts:
- Housing grant: S$5,000 + accrued interest = S$5,657
- CPF used for BTO down payment: S$30,000 + accrued interest = S$33,942
- CPF used for mortgage payments up to the point of sale: S$72,180 + accrued interest = S$94,110
This is effectively an injection of S$133,709 into their CPF Ordinary Account (CPF OA), which can, of course, still be used for housing. In terms of cash proceeds, after paying off the remaining mortgage of S$288,720, the Wang couple would also receive S$57,571 in cash.
In total, the Wang couple’s financial gain is approximately S$191,280, accumulating a substantial amount of capital for their next property purchase.
How Much Does It Cost to Upgrade from an HDB Flat to an EC or Private Property?
From the example above, we can see how substantial the “profit” a typical Singaporean couple can make from a BTO flat is. But is it enough to achieve their dream property upgrade?
This depends on whether they want to upgrade from an HDB flat to an EC, a private condominium, or a landed property. Assuming the Wang couple, from the example property above, upgrades to one of these three property types, the top-up amounts required would be as follows:
| Property Upgrade Type | Top-up Amount Required |
| HDB to EC | S$58,720 |
| HDB to Condominium | S$183,720 |
| HDB to Landed Property | S$558,720 |
How Much Does It Cost to Upgrade from an HDB Flat to an EC?
The most affordable of the three options is upgrading from an HDB flat to an EC, which is an Executive Condominium introduced by HDB, designed to provide a public-private hybrid housing option for upper-middle-income Singaporean families.
ECs are built by private developers, so they look like condominiums and come with condo facilities, but they are sold by HDB. To be eligible to purchase an EC, buyers must meet a series of HDB eligibility criteria.
Let’s assume the Wang couple meets the income ceiling of S$16,000 and is eligible to apply for an EC. They find a super affordable two-bedroom unit in a new EC project priced at just S$1 million.
But now a problem arises: although ECs are under HDB’s purview, buyers cannot apply for an HDB loan to purchase an EC.
Given that they cannot apply for an HDB loan, the Wang couple will need to take out a bank loan. A bank loan means they must pay a 25% down payment (i.e., S$250,000), of which 5% (i.e., S$50,000) must be in cash.
The S$191,280 they gained from selling their BTO is slightly less than the down payment, so they must top up at least S$58,720 in cash or CPF.
The remaining S$750,000 is the mortgage. For a 25-year loan with a 3.5% interest rate, the estimated monthly repayment is about S$3,755.
Repaying an EC mortgage must comply not only with the Total Debt Servicing Ratio (TDSR) but also with the stricter Mortgage Servicing Ratio (MSR), which limits housing loan repayments to 30% of the monthly income.
Working backward from the monthly repayment of S$3,755, the Wang couple’s total income must be at least S$12,517 per month. If their income is insufficient, they would have to increase their down payment and reduce the loan amount to achieve their dream of upgrading to an EC.
How Much Does It Cost to Upgrade from an HDB Flat to a Condominium?
Private condominiums look and feel very similar to ECs. The main difference is that they are 100% private property, so there are no income ceilings or MOP requirements, and there are more options in terms of location and tenure.
Another difference is that they tend to be more expensive than ECs, with an affordable and satisfactory two-bedroom unit starting from at least S$1.5 million.
Using a bank loan means a down payment of S$375,000, of which 5% (i.e., S$75,000) must be cash. Since the S$191,280 the Wang couple gained from selling their BTO is not enough to cover the down payment, they will need to top up at least S$183,720.
The cash portion requires a top-up of at least S$17,429 (as the S$57,571 cash from the BTO sale is insufficient), and the rest of the money can be in their CPF Ordinary Account.
With a home loan of S$1,125,000, a 3.5% interest rate, and a 25-year loan tenure, the estimated monthly installment is S$5,632.
For private properties, monthly loan repayments only need to meet the TDSR, not the MSR. Therefore, as long as the total debt does not exceed 55% of their income, they are within the limit.
Assuming the Wang couple has no other loans and their total income is above S$10,240, they can purchase a private condominium. Paradoxically, this is lower than the income required to purchase an EC.
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How Much Does It Cost to Upgrade from an HDB Flat to a Landed Property?
Not many Singaporean HDB upgraders are willing to take such a huge step on their property upgrading journey, but for the sake of completeness, we will provide the costs required to upgrade from a BTO to a landed property.
The price of an “entry-level” landed property in Singapore is around S$3.5 million. With a bank loan, the 25% down payment is S$875,000, of which S$175,000 must be in cash. The Wang couple’s first challenge would be to consider if they have an extra S$169,249 to cover the cash portion of the down payment, without even calculating the part to be paid from their CPF Ordinary Account.
After paying the down payment, they would be saddled with a S$2.625 million home loan. Assuming a 25-year loan at a 3.5% interest rate, the monthly repayment would be S$13,141.
Therefore, their total monthly income must be higher than S$23,893 to meet the 55% TDSR requirement. Even so, a monthly mortgage of over S$13,000 is not for the faint of heart.
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Property Upgrading Advice: Proceed Within Your Means
The calculations above are enough to show that upgrading from an HDB flat to a condominium is not as easy as it sounds. Typically, HDB upgraders need to be prepared with savings to cover the difference.
For those determined to upgrade their HDB flat, it is not impossible, but it is essential to plan well. Potential HDB upgraders are advised to create a savings plan for their dream property upgrade, rather than just relying on capital appreciation.
Furthermore, it is crucial to consider the increased mortgage that comes with upgrading a property; the monthly repayments could be double, triple, or even quadruple what they were before! Unless your income is high enough to handle your current HDB mortgage payments effortlessly, please consider carefully before proceeding with an upgrade.
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