minimum occupation period

Some people look forward to their BTO (Build-To-Order) HDB flats reaching the Minimum Occupation Period (MOP) like their ORD (Operationally Ready Date). Those who had served their two-year national service would know the feeling.

But what is so significant about the HDB reaching MOP?

To the majority, it means nothing. Don’t get me wrong. It’s perfectly normal. After all, you had waited in great anticipation for your BTO flat (likely your first matrimonial home) five years ago. You had put your heart and soul (and of course, money) to renovate the flat. So, it makes sense to continue to enjoy it for as long as you can.

To others, it signals the beginning of their roadmap to realise their property wealth planning or fulfil their aspirations of upgrading to private property. 

sales of newer flats hit 9-year high in 2019
More flat owners are selling their flats after reaching minimum occupation period (Straits Times Jan 30, 2020)

More Are Selling Their BTO HDB Flats Upon Reaching MOP

Based on a Straits Times report dated Jan 30, 2020, in 2019 the sale of HDB flats less than 10 years old numbered 4,578, which was an increase of 33.4 per cent over the preceding year.

It shows that to a growing number of Singaporeans, their HDB flat is not meant to be a home for life but a stepping stone to a bigger plan.

number of flats reaching mop
Between 2020 and 2023, there will be close to 100,000 flats that will reach their MOP

In the last few years, HDB has built a record number of BTO flats to meet the demand of  a growing population and new couples buying their first homes.

Between 2020 and 2023, there will be close to 100,000 flats that will reach their MOP! The potential number of upgraders will continue to fuel the private property market.

What is HDB Minimum Occupation Period (MOP)?

MOP is what sets public housing (HDB and EC) apart from private property.

Anyone who buys a BTO HDB flat, resale HDB flat and new Executive Condominium (EC) are all subject to the five-year minimum occupation period. During these five years, owners are not allowed to sublet the whole flat or sell it on the open market. If the flat owner has the approval to sublet the entire flat (eg. work or study overseas), the period of subletting will not be part of the five years.

The underlying reason why the government imposes the minimum occupation period for public housing is to curb speculations.

I frequently came across ‘investors’ who entertained the idea of buying an HDB to rent out since the entry price is relatively low, and the rental yield is attractive. But the moment they heard that they can’t rent out for the first five years, that shattered their dream.

Minimum Occupation Period (MOP) is an Important Milestone

HDB MOP is an important milestone because this is the point at which you can rent out your entire flat, or sell it on the open market.

But before you think about what to do, you must ask yourself if you have a game plan. Most people have no such plan, so they are happy to maintain the status quo by staying put. It is perfectly all right to be in this group of people. Upgrading and property wealth planning may not be for everybody. Different strokes for different folks.

If, however, you are keen to embark on the journey to grow your wealth through property investment, then you need to start planning. It is ideal for those who are in the 20’s to early 40’s. The younger you start, the better.

If you plan to sell to upgrade or to invest at the same time, it doesn’t mean you need to do it immediately upon hitting five years. Sit down with an experienced property agent and discuss your goals and aspirations, then devise a game plan.

Failing to plan is planning to fail.

Once you begin with the end in mind, then you can strategise how to execute the plans.

property wealth planning
Do you have a game plan? Failing to plan is planning to fail

On the other hand, it is also not wise to wait too long. The best time generally is the first three years after MOP when the price is at its peak. It is easier to sell and at a good price while the conditions of your flat are still very new.

It is not unusual for MOP flats to sell at more than 100% of their original prices. These include flats in Punggol/Sengkang areas. 50% to 70% is the norm.

Once you know your needs and plans, then you can consider the different options when your flat has fulfilled the HDB MOP:

  • Treating your flat as a pure rental asset and buy a private property
  • Purchasing another HDB flat
  • Upgrading to a private property
  • Taking a “sell one, buy two” strategy
upgrading from hdb to private condo
When your flat hit the five-year MOP, it opens up a world of possibilities because you can now sell on the open market or rent out the whole flat

Treating Your Flat as a Pure Rental Asset and Buy a Private Property

You may consider keeping your flat instead of selling it.

It might be an interim measure, such as by couples who need more time to accumulate cash before they upgrade. It can also be a contingency plan for those facing financial difficulties.

The idea is to move in somewhere else (such as with your in-laws) for a certain period. During this time, you rent out your entire HDB flat for income. This can help accelerate your savings rate to upgrade to a private property.

For those facing issues such as high-interest debt, renting out your whole flat for a brief time (e.g. two to three years) may be just what you need to pay it off.

In some cases, your spouse may already own a separate home (e.g. an inherited house from deceased parents). Under the circumstances, it might be viable to move into the second home, while renting out the whole flat.

minimum occupation period
Got somewhere else to stay? You can rent out your whole flat for a time, if you need to accumulate more savings to upgrade.

It’s not a bad idea to keep the flat and rent it out for a few years so that the rental income can become part of your reserves for future upgrading. But do be cautioned that if you have an irresponsible tenant who messes up your nice flat, it may affect the value when you decide to sell.

On the other hand, if you intend to buy a private condo while keeping the flat for rental income, you will have to pay 12% ABSD. If you were to buy a $1 million condo and slapped with $120,000 ABSD, that’s equivalent to four years of rental income (assuming you rent out your flat for $2,500 a month). Hence, from an economic point of view, it doesn’t make very good sense.

Furthermore, the rent is not much difference between a five years old flat and an old renovated flat, even though the disparity in their resale values is great. From that standpoint, it is a waste to keep your five years flat for its rental income. Besides, at some critical points, the value of the flat will start to depreciate.  

Purchasing Another HDB Flat

The idea of selling an HDB flat to buy another has fallen out of favour in recent years. Due to the declining prices of resale flats, there’s a chance these older flats won’t suffice as retirement assets.

is hdb a retirement asset
Read my article on "Is Your HDB Flat Still A "Retirement Asset Toady?"

HDB resale flats will likely see depreciation as they get older.

Since 2013, the overall HDB flat prices have trended downward after enjoying a strong run in the preceding years. This is due to a realignment of government policies to treat HDB flats more as a roof over your head than an investment. Also, diminishing lease of HDB flat has become a sensitive issue in recent years.

(This is good news for those who haven’t bought a home yet, as it keeps prices affordable; it’s not so good for those who seek to use their property as a retirement asset, or for wealth accumulation).

depreciation of hdb
Prior to 2013, both HDB and private property prices were appreciating. However, from 2013, HDB prices have declined whereas private property prices have appreciated

Selling your BTO flat and buying a resale flat is not always bad. It might be suitable for those who are already in a ‘retirement mode’. Downgrading to a smaller flat can free them up with cash for their retirement funds. There are also others who can only afford to upgrade to a bigger flat instead of private condo. So there is no right or wrong option but a matter of needs, affordability and prudence.

Upgrading to a Private Property

This is the time-worn, traditional method used by Singaporeans over the past few decades when their HDB flats reached MOP. You can sell the flat, and then use the cash proceeds to make the down payment to a private property.

Selling your flat first then buy a private property will help you save 12% of ABSD (Additional Buyer Stamp Duty).

For most home owners, this is to enjoy the improved facilities and privacy of condo living. However, there’s another advantage to doing this: it allows you to ensure your home is a better appreciating asset.

condo vs hdb prices
Private property prices have increased more than HDB since 2005

As such, many flat owners choose to use the proceeds of their flat to upgrade to a private condo or an Executive Condominium (EC)*. Assuming securing a full bank loan at 75% Loan-To-Value (LTV), you need just five per cent of the condo price in cash, while another 20 per cent can come from cash/CPF.

So you’d need $250,000 for a $1 million condo; it’s usually possible to meet this amount through the sale of your flat.

*EC is a viable alternative to a private condo, provided your household income does not exceed $16,000. Even though it has a similar five-year MOP, the prices are about 20 to 30 per cent cheaper than private condos

Upgrading to a private condo is not as difficult as many may think. Supposed a couple (both aged 35) with a combined income of $6,000, they can possibly borrow up to $800,000. If their flat is worth $600,000, they can buy a condo worth up to about $1.3 to 1.4 million.

If you need help with the numbers, please feel free to contact me for a non-obligatory discussion.

sell one buy two
For dual-income families in good financial position, “sell one, buy two” is a popular approach to optimising their property wealth

Taking a “Sell One Buy Two” Strategy

This is a popular strategy for dual-income families. Using this approach, the sales proceeds from the flat are used to purchase two properties; one by each spouse. For example:

Case Study:

Mr and Mrs Wee sold their five-room flat for $700,000 with an outstanding $100,000 loan. They have $40,000 each in their CPF account.

They want to buy a $1.5 million condo for own stay (under husband’s name), and a smaller $800,000 condo (under wife’s name) for investment. With the sales proceeds  ($600,000) and CPF, they can pay the down payments of $375,000 and $200,000 for each of the respective purchases (assuming they have no problem taking the maximum 75% loan).

Later in life, they have the option of switching. For example, they could move to the smaller condo and rent out the bigger one, once the children have moved out.

This approach allows the family to hold two properties, without paying the Additional Buyers Stamp Duty (ABSD). This is because, after selling the flat, each spouse is effectively treated as a first-time home buyer (they have no other property to their name).

This strategy does require a certain level of income however, as both the husband and wife will each be taking on individual mortgages. Proper financial planning is crucial.

I can help you through the main concerns of both transactions; do contact me for a non-obligatory discussion.

Read in more details: Sell One Buy Two Why & How?

Meeting your MOP for your HDB flat presents a huge financial and lifestyle opportunity. Don’t let inertia get in the way of taking full advantage of it.

I have come across so many people who never take action because they suffer paralysis by analysis. They have so many ‘what if’ that hold them back. In the end they fall back into their comfort zones.

Take action today! Make the first step to explore your various options. 

Consider how your property assets fit your overall portfolio and think long term (15 or 20 years) rather than just in the present.

You can make an appointment with me for a free consultation via Zoom using the calendar below.

“If you opt for a safe life, you will never know what it's like to win.”

Richard Branson (Screw It, Let's Do It: Lessons in Life)
virtual tour

Danny Han has been a licensed real estate agent since 2005. He also had five years of experience as a financial consultant. The insights and knowledge he shares in his blogs are the results of years of experience in helping many of his clients in their Property Wealth Planning.

Prior to becoming a real estate agent, Danny was a full-time church pastor (don’t be shocked!) for 23 years. Even now, he is still actively involved in church work and preaches regularly. He has also made six mission trips to Myanmar to-date.

Danny is a foodie, so during his spare time he would go with his kakis to try different “CNG” (cheap and good) food. (Be sure to check out his Holland food blog in this site).

Do feel free to drop him a Whatsapp message for a non-obligatory discussion if you are planning to grow your property wealth.

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