5 Common Mistakes Singaporeans Make When Upgrading To A Condo

1. Lack of funds set aside for unexpected delays

No matter what type of property you buy, you need to be prepared for unexpected delays. It is not uncommon for developers to take longer than expected to complete a unit. Even if you are buying a resale property, you may experience issues with the interior design company or find the previous owners left quite a bit of junk around the property that will take some time to get rid of.

2. Not knowing the difference between HDB loans and bank loans

You will have to obtain a bank loan if you are not eligible for HLE loan, or if you are getting an Executive Condominium (EC) or another private property. It is important to note that the loan-to-value (LTV) is significantly lower than the HDB loan you may have used previously. The HDB HLE loan lets you borrow up to 85% of the flat’s value, with CPF covering the upfront 15% down payment.

Bank loans, however, will only cover 75% of your home’s value (assuming that’s your only outstanding home loan – otherwise it’s 45%). A minimum of 5% of the remaining 25% down payment must be in cash, with the remaining 20% in cash or CPF.

Additionally, if you are getting a resale private property, stamp duty must be paid via cash first, and the cash used can be reimbursed upon completion if you have excess CPF OA after deducting the CPF downpayment.

3. Extending the remission period for ABSD

Purchasing a second home before the sale of your old home requires the payment of Additional Buyers’ Stamp Duty (ABSD), which is due two weeks after the exercise date of your purchase. However, a married couple with at least one Singapore Citizen can apply for ABSD refund. This is subject to the condition that you sell your previous home within six months of buying your new resale private property in order to get the ABSD refund. If you have bought a new development for your second property without selling of the first home and paid up the ABSD, you still can get the refund of the ABSD paid, provided you sell the first home within six months of the TOP date of the second property.

There are some upgraders who try to maximise the six-month window, in hope of getting a better sale price for their first house. It is not recommended to do this as the buyer may not exercise the option at the last minute and you will have no time to find another buyer to exercise the OTP, causing you to lose your ABSD monies paid.

4. Taking out huge loans before upgrading

When you apply for a new home loan, it is mandatory to meet the Total Debt Servicing Ratio (TDSR). Under the TDSR, your total debt repayments – including the new home loan, your personal loans, car loans, and any outstanding home loans – are restricted to 55% of your monthly income.

Failure to meet the TDSR might result in a larger down payment or may prevent you from affording the house you want. Therefore, you should avoid racking up large debts in the 12 months leading up to your upgrade, or pay off as many outstanding debts as you can.

5. Selling your home and sharing the proceeds with your children to buy a big condo so that you can move in with them

This is especially a bad idea if you are a retiree, or nearing retirement. Unfortunately, not everyone gets along well with their kids and in-laws, and living in the same house together eventually becomes a challenge. It would be best to buy your own property, especially if you can afford it.