4 Options After HDB Flat Reaches Minimum Occupation Period (MOP)
HDB Minimum Occupation Period (MOP), So What?
What’s the fuss about HDB Minimum Occupation Period (MOP)?
Some people look forward to their BTO (Build-To-Order) HDB flats reaching the MOP like their ORD (Operationally Ready Date). Those who had served their two-year national service would know the feeling.
To the majority, however, MOP may mean 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. It is your pride and joy. 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.
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.
Over the years, more and more HDB owners sold their flats within a year upon reaching MOP:
- 2016 6.5% (811 units)
- 2017 9.5% (1,091 units)
- 2018 11.8% (1,392 units)
- 2019 12.2% (2,736 units)
- 2020 13.4% (2,919 units)
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.
I have helped several HDB owners fulfil their upgrading dreams by selling their flats upon reaching MOP.
A 3-room flat owner in Yishun contacted me months before his flat reached MOP to discuss the plan to sell it and upgrade to private property. Immediately upon reaching MOP, I put the flat on the market. Within a few weeks, it was sold for a record price of $450,000 with a gain of almost 100%.! The record still stands today.
Very recently, I sold a 4-room flat in Toa Payoh, a few months after MOP, at $950,000 within a week. The high-flying young couple intends to buy a landed property.
These are just a sample of many HDB owners who cashed out on their MOP flats to realise their upgrading aspirations.
In the last few years, we have seen an increasing number of HDB resale flats sold for over a million dollars. They are not just flats in central locations but include estates such as Woodlands, Bukit Batok, Yishun and Jurong East.
These HDB owners recognised their acres of diamond and sold their highly-valued flats to upgrade to private property.
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.
Why Is There An HDB Minimum Occupation Period (MOP)?
The underlying reason why the government imposes the minimum occupation period for public housing is to curb speculations.
HDB flats are meant primarily to provide affordable housing for the public and not for profiteering.
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.
HDB 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.
Once you begin with the end in mind, then you can strategise how to execute the plans.
Don’t Sit On It Once Your HDB Flat Reaches Its MOP
It is not wise to wait too long to start planning.
I have clients who already started planning six months before the MOP.
If you intend to sell, the best time generally is within the first five years after MOP when the price is at its peak. In my opinion, it is better to sell earlier when your flat is still in tip-top condition. 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. 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
Four Options To Consider Once Your HDB Flat Reaches MOP
1. Rent Out Your HDB Flat 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.
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.
If your flat is only five year old, likely it would still be in a pristine condition. That not only means easier to sell but also can fetch a higher value.
If you are PR, do take note this option is not for you because you are not allowed to sublet the whole flat. If you intend to purchase a private property, you would be required to sell off your flat.
If you intend to buy a private condo while keeping the flat for rental income, do consider the cost.
You will have to pay 20% ABSD.
If you were to buy a $1 million condo and are slapped with a $200,000 ABSD, that’s equivalent to 4.16 years of rental income (assuming you rent out your flat for $4,000 a month). Hence, from an economic point of view, it doesn’t make very good sense.
Furthermore, the rent is not much different 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.
For those who have planned ahead even at the point when they purchase their BTO flats or resale flats with the intention to keep their flat upon meeting the MOP, the couple would have considered buying as owner-essential occupier instead of joint-owners. This would have saved them the ABSD.
2. Sell Your HDB and Purchase 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.
HDB resale flats will likely see depreciation as they get older despite the current red-hot HDB market which was partly caused by the Covid-19 pandemic. The current supply shortage of resale flats and delay of BTO flat completion which result in the spike in HDB prices may not last indefinitely.
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).
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 need a bigger home as their families get bigger and they 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.
3. Upgrade to a Private Property or Executive Condominium (EC)
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.
Do take note if you were to buy a private property first then sell your HDB flat, you will need to pay 20% of ABSD (Additional Buyer Stamp Duty). Subsequently, when you sell your flat within six months, you can get a refund of the ABSD, provided the new purchase is under joint-ownership of the couple. But having to pay the ABSD first may affect your financial planning. So do plan your timeline properly.
On the other hand, if you were to upgrade to a new Executive Condo (EC) from your HDB flat, ABSD is not applicable.
For those who choose to upgrade from an HDB to private condo, it 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.
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 challenging or far-fetch 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.
4. Take 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:
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.
Start Planning When Your HDB Flat Is Reaching Its MOP
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.
Danny Han has always been in the people’s business, having spent 23 years as a church pastor, five years as an insurance agent, and the last 16 years as a property consultant.
Danny has a genuine interest in people and firmly believes in personal integrity. While helping homeowners with their property needs, their interest always takes precedence over his personal gains. Hence, Danny has consistently earned his clients’ complete trust and loyalty. Many of them have become his personal friends.
Danny received his Diploma in Mechanical Engineering from Singapore Polytechnics and Bachelor of Science from Oklahoma Christian University of Science and Arts in Bible & Psychology.
Besides keeping abreast of the property market trend and constantly equipping himself to better serve his clients, Danny is a passionate foodie, a weekend cyclist, and an avid hiker.
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