HOW TO UPGRADE TO EC? Should I Buy or Sell First?
Now you are finally convinced to upgrade to an Executive Condominium.
It’s time to reward you and your family with a luxurious yet affordable home after the many years of hard work, isn’t it? Besides, if you are an eligible Singapore Citizen, buying a new EC development should be your top priority among all other private properties.
On the other hand, if you are one of those HDB flat owners who are still uncertain why there is a need to upgrade, some of the reasons below might give you a bit of insights and who knows… you’ll soon find yourself making your way there too!
People are Eager to Upgrade Their Properties Because of:
Aiming for a change in lifestyle
When people are doing better in life, it is just a matter of time until they want to move to a better home with amenities and facilities, not just having a roof over their head. Career improvement followed by higher income has made luxurious lifestyle such as being a condo resident becomes a ‘want’ and ‘matters’.
Upcoming EC at desired location
BTO owners generally had to compromise a lot on locations as most of HDB BTO flats are built in less popular area. Nevertheless, the day will come when you eventually need to stay at a ‘better’ location either because of your job, your children’s school or the need to stay closer to your parents.
More and more Singaporeans have come to realize the necessity of upgrading, especially now they know what will happen to their aging flat after our two ministers shared their opinions on the future of this public property.
“We do not know when exactly
the value of an ageing flat
will suddenly plummet.
But when it does, it happens fast.”
Minister Khaw Boon Wan
Also in one of his blog post in March 2017, Minister Lawrence Wong wrote that SERS, as the name implies, is done on a selective basis only.
“So please do not assume
that all old HDB flats
will be automatically
eligible for SERS.”
The need of a bigger unit
There’ll be some changes in the course of life and your family grows. As you now have children and parents who might need to stay with you, the need to shift into a bigger house with more rooms becomes unavoidable.
Current flat is fully paid
Homeowners will usually start wondering what other options will be good when their housing loans are fully paid. It is very common to see that they will either think of upgrading or buying a second property.
Considering a Property Wealth Planning (PWP)
Today we have quite a number of smart homeowners who are aware about Property Wealth Planning for better retirement days. They look forward to make the most of their first and only property, turning it into some active assets which will provide them not with just a home but also the ability of earning passive income.
First, Check Your Eligibility
Before going further on whether you should sell or buy first, it is important to check if you are eligible to buy an EC. As we all understand EC is built by private developers but sold under HDB regulations, consequently anything sold under HDB policies means, not everyone can buy though they can afford it.
You must pass all the tight eligibility criteria and conditions. This involves a thorough checking not only on yourself, but also on the co-applicants or essential occupier (if any).
Are you a First or Second-timer?
An applicant is called as a First-timer if the person has never received any housing subsidy or grant, while a Second-timer as the name suggests, has in the past. In case you are a Second-timer but your spouse / spouse-to be is a First- timer, as a couple you will then be given the First-timer privileges and priority in the flat allocation.
Which eligibility scheme is yours?
You cannot apply an EC alone. You need a co-applicant or an essential occupier to be listed in the application form.
Under this scheme you must form a family nucleus with either one below:
- Spouse & children (if any)
- Parents & siblings (if any)
- Children under your legal custody, care & control (for widow / divorcée)
Fiance / Fiancee Scheme
Under this scheme you must form a family nucleus with your spouse-to be.
Under this scheme you are applying with your siblings. All applicants are orphans and singles (unmarried, divorced or widowed).
Joint Singles Scheme
Under this scheme you are applying with up to 3 other co-applicants. All applicants are Singles (unmarried, divorced or widowed), Singapore Citizens, at least 35 years old. CPF Housing Grant is not available for Joint Singles buying EC under this Scheme.
How much is your household income?
Be sure that your average gross monthly household income should not exceed $16,000.
Fulfilled all criteria? Congratulations you are eligible and may start planning now!
Meticulous planning is essential given the existence of cooling measures such as ABSD, TDSR, MSR and the tightening of LTV ratio might affect your purchase. With these cooling measures in force, upgrading either from HDB flat to ECs or Condos is not just a matter of affordability. In fact, it has often made buyers back off even though the entry price is good.
What is The Best Way to Upgrade?
“Should I sell my flat first?
Should I buy the EC first?”
Everyone has a unique situation. There is no answer that would fit in all circumstances. Financial situation, number of dependants and priorities are only among the few which must be taken into consideration to ensure a smooth transfer from your HDB flat to the new EC.
Like always, every plan comes with a pro and cons.
PLAN 1 – Sell first, buy later
You need to choose this plan if you do not have enough cash and CPF savings to pay the option fees, stamp duty and other related costs in the EC purchase. This plan is also good for upgraders with outstanding loan on their current HDB flat but do not wish to incur extra cost on the EC price by opting Deferred Payment Scheme* (DPS).
- Sufficient time for selling
This is the safest plan by far, because you will not be rushed by any deadline caused by the EC purchase. Having enough time to sell is important as you would not want to sell your flat at a too much compromised price.
- Secure Loan-To-Value (LTV) ratio up to 75%
In case your current flat is not fully paid yet, by selling it earlier not only you can avoid serving 2 concurrent home loans but you can get up to 75% LTV ratio as well. This convenience is not possible unless you opt for DPS as mentioned above, and that will make your purchase cost more.
- Missing the good deal
There is a high chance that you will miss your preferred projects by choosing this plan. EC projects are rare and pretty hard to come by, which is why people will rush to grab it upon hearing new launches. This relates to the current situation where people will usually avoid crowded places and large gatherings due to the Covid-19 pandemic, but the OLA EC sales launch at Sengkang is still able to draw crowds on preview day.
- Transition home is necessary
Once your flat is sold, you will definitely need to find a temporary place to stay, and this means rental cost will kick in. Besides, you do not know how long you’ll have to rent until the next EC launch arrives.
PLAN 2 – Buy first, sell later
In this scenario, you are still keeping your HDB flat at the point of the EC purchase. This plan is suitable if you have enough cash and CPF savings to settle the option fees, stamp duty and other related costs that might arise.
- Secure your dream unit in advance without shifting twice
As HDB upgraders, you could take this advantage since HDB allows you to buy the EC first, then dispose off your current flat within 6 months from the Temporary Occupation Permit (TOP) date of your EC.
To finance the unit, you can opt for Deferred Payment Scheme. Under this scheme you may loan up to 75% of the EC’s price despite your unsold flat. Furthermore, you will only be serving the loan after the EC receives its TOP and upon key collection.
Do take note that by opting this, your property price will be slightly higher by approximately 2-3% compared to using the Normal Payment Scheme** (NPS).
- No ABSD required at the point of booking
It is definitely a great relief knowing buyers generally have difficulties with ABSD rates. Even attractive prices became a challenge when ABSD is added into the calculation. ABSD percentage is paid following the property price, meaning the higher the price is, the higher the ABSD is. In many cases buyer will have to overstretch their budget but not everyone has the capacity to stretch.
Though CPF OA can be used to pay stamp duties but in most cases you’ll need to settle it with your own money first due to the time constraint in meeting the 14 days deadline.
- Sufficient Cash & CPF Savings is a must
If you need to use the sales proceeds and CPF returns from your previous flat to settle the option and option exercise fee, then this plan might not work for you. You need to have enough cash and CPF saving in your Ordinary Account to pay the following:
Booking / Option Fee: 5% of the unit’s price by CASH ONLY. However if you choose not to exercise, 75% of this Option Fee will be returned by the developer.
Option Exercise Fee: 20% of the unit’s price by CASH & CPF Ordinary Account (usually within 21 days). If you need financial help on this, you can source a ‘Bridging Loan’ from a bank. Please take note that the interest rate for such a loan will be around 5-7%.
- Time may not be on your side
According to HDB rules, you must sell your existing flat within six (6) months from the TOP date of the new EC. Some upgraders are very confident that 6 months is sufficient to get buyers and complete the whole process. However, we must also bear in mind that it could be quite difficult to sell a house when the market is quiet.
Now you should be ready to visit your selected EC project, submit the E-Application, get a queue number and join the ballot. I wish you all the best in this new journey with the hope you’ll be able to secure your dream house!
*Deferred Payment Scheme
Buyers who have not sold their existing flat are only required to pay their loans upon collection of the EC keys.
**Normal Payment Scheme
Also known as Progressive Payment Scheme, under this scheme buyers’ loan repayment will commence earlier following the stage of the property construction.
Thinking of ‘Property Wealth Planning’ or Considering to ‘Upgrade’?
Drop me a message for a non-obligatory property consultation if you still have questions or doubts. I am here to help you exploring your best potentials and options, be it for your own stay or investment.
Lina Halim is on a mission to assist you in reaching your real estate goals.
As a Senior Associate Director with OrangeTee & Tie Pte Ltd, she takes the time to listen and understand your unique needs, only to plan and tailor a custom strategy that will help you acquire the specific property assets.
Never a fan of high pressure tactics, Lina centers her business on being committed, sincere and genuine with her clients.
She uses her real estate experience and property market knowledge to scope out only the most fitting opportunities for her clients.
Be it a need to get the right buyer or seller, she always put the client’s interest and ultimate goals as her priority.