"What should I do with my HDB after MOP (Minimum Occupation Period)? "
This is a common question people raised after their HDB BTO crosses over the MOP.
What is MOP ?
MOP (Minimum Occupation Period) refers to the period of time that you are required to physically occupy your flat before you can sell it on the open market.
Since 30 August 2010, the period is 5 years.
MOP commences from the time you collect the key for your HDB.
During MOP, you cannot sell your house , rent out your whole unit or buy any private property during this 5 years’ period.
You can, however, rent out a room, and continue to stay in the premise.
If you were posted overseas, and left the place vacant, the years where you were physically not present, cannot be considered as MOP.
What is the purpose of MOP?
The mission of an HDB flat is to provide housing for mass market and HDB is not intended for investment.
The MOP prevents buyers from buying and shortly afterwards, flipping the property by selling for profit. The policy is in place to prevent an unstable public housing market.
Why are people selling their BTO after MOP ?
These days, people are not keeping their BTO houses as HDB is not an asset. It is intended to be a place for stay as a residential home, not for wealth creation.
There is limitation on the price increase. New MOP units keep coming into the supply market and the cooling measures in 2013 has dampened price increases. You can find out more from the article, Why is HDB not an asset.
Applying the same reasoning, HDB is one of the least performing property investment when it comes to the capital gain over the last decade. You can find out more from the article, Why are people investing in property during COVID-19 Crisis?
What are the Options available after MOP?
So, if a HDB is not ideal for investment purpose, what is next? There are 5 options available :
1. Rent out HDB and buy a private property
2. Sell HDB and buy resale HDB
3. Sell HDB and buy resale EC or private property
4. Sell HDB and buy new launch EC or private property
5. Sell HDB buy one for stay and another for investment
1. Rent out HDB and buy a private property
The option of renting out your HDB and buy a property is only available to Singaporeans.
After MOP, your HDB can be rented out as a whole unit.
This will be most preferred by many young couple as the HDB house is the first matrimony home where much time was spent building their home as the couple settled in with their blissful marriage and started their family, celebrating the arrival of their children. Renting it out would thus be a way to retain those memories while earning income.
It also seems ideal, to start at one property and then to rent out another.
Let us work out the sums.
If the first HDB property is under a mortgage, then the second mortgage that is available is only 45% of the Loan to Value Amount.
This means that 55% has to come from the buyer’s own pocket. For a $1.5m private property, the cash requirement is 25% which is $375,000 and CPF usage is 30% which is $450,000.
The taxes involved will be Business Stamp Duty of $24,600 and Additional Buyer Stamp Duty(ABSD) at 12% of $144,600(about 14% of the property price).
In essence the buyer needs to come out with 55% plus 14%, close to 70%of the property price or $1,050,000!
This makes owning a private property simply impossible for many!
Likely, the couple will have to rent out the HDB house and stay with parents during this time, to build up the savings.
For example, if they are to collect a net rent of $2k a month from renting their house, they can accumulate a saving of $72k over three years. This would prepare for their cash deposit of $75,000 to buy a $1.5m private property.
Say during this time, the couple managed to pay off 100% of the HDB house.
Let us assume that the couple is able to qualify to borrow 75% of the property value.
It will take some time for the couple to accumulate the total cash and CPF to about $600,000(this includes the cash requirement of $75,000). Again the amount is hefty.
Also, the once beautiful renovated matrimony house may not be as well maintained once it is rented out.
2. Sell HDB and buy resale HDB
To move from one HDB BTO to another HDB does not seem ideal, since we know that HDB is not an asset. (Click to know more).
However, we should only move to private property and build wealth in asset investment, after we have are satisfied with our financial affordability.
Upgrading to a private property may not be within the financial capacity of everyone.
However, one may have to move out of their HDB to another HDB for practical reasons.
It could be because the family size has expanded or downsized. Or it could be to move nearer to parents for family support or nearer to the school for young children.
The next natural question will be, should one sell his current HDB first or buy the new HDB first?
The advantage of selling his current HDB first then buy is clean cut.
However, the disadvantage is that they cannot find their choice unit in time before they handover their HDB, they will have to find a temporary accommodation.
This will mean having to move the house twice where most sellers do not want to go through them. It is preferred that the time line is managed properly as to avoid moving twice where possible,
On the other hand, some sellers generally prefer to know where to move to before they commit to sell to their current house.
But take note that once they bought a resale HDB, they are required to dispose their current HDB within 6 months of purchasing a resale HDB.
During this time, they may be stressed if they cannot find a buyer to buy their HDB at their desired price under the time constraint.
3. Sell HDB and buy resale EC or private property
There is the option of selling HDB and buying resale EC or private property. We will have to consider selling HDB prior or after the purchase of resale private property.
Also take note that there is a need to pay ABSD first if the sellers buy the resale EC or private property first before disposing the current HDB.
If the sellers are a married couple, with at least one of them being a Singaporean Citizen, , ABSD remission is available if you sell the flat within six months of buying a second property.
If you can’t sell the HDB within six months, there is no refund to the married couple.
This could turn out to be risky. Imagine, for a EC or private property of $1,500,000 purchased, no remission of ABSD of $180,000 will be made if one cannot sell the HDB in time ! Years of savings would have evaporated into the thin air!
4. Sell HDB and buy new launch EC or private property
Similar to Option 3, instead of buying a resale it will be new launch. Likewise, there is a need to consider selling HDB prior or after the purchase of new launch private property.
Most people will sell their HDB first, so that there is zero property count, and hence need not worry of ABSD. They will rent a place while waiting for their new launch property to be completed.
5. Sell HDB buy one for stay and another for investment
John sold his HDB and invested into 2 properties. One for his own stay which he bought in his name and another as an investment in his wife’s name.
One of the reasons why you may want to sell your HDB BTO earlier is because of the accrued interest that will be accumulating as the years passes by.
The higher the accrued interest , the lesser the cash proceeds will be available to the HDB seller.
And this Option is one which many will aspire towards
because they can own two properties, one for their own stay and the other will be creating income for them.
We can see what drastic difference in terms of investment versus as to stay at status quo.
Conclusion
There is more than one option one can consider to explore.
But as to which is more appropriate for your current situation, I can walk through with you to explore what is best suited for you with your inputs of your financial capacity, preferences and other concerns.
Rather than wait for the 5 years to come, why not let us meet to walk through early so that you can make the necessary preparation to fulfill your dream.
Would you like to discuss with someone on your real estate matters?
They can be where to invest for your next home or property investment, or source out the best bargain, or market your property for sales or rental, or review your current property portfolio to grow your wealth ?
Let me be a friend to walk through these questions with you.
We can meet for a one time free 30 min Property Wealth Planning session. Schedule for meeting now.
A Property Wealth Planning session includes :
1. An in-depth financial affordability assessment
2. Highly relevant property insights
3. A clear and customized roadmap just for you on your property investment journey ahead.
I am Ruth Chia, a Senior Sales Director with Orangetee and Tie Pte Ltd.
Prior to joining the real estate industry, I was in the finance and accounting department of a corporation which engaged in the consultancy works for real estate owners.
I switched my career to assist others to achieve financial freedom through real estate.
Being financially trained has enabled me to value add to my clients to give them a balanced perspective in making their real estate decisions.
My greatest reward is to have meaning relationship established through servicing my clients.
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