Downgrading from a Condo to a HDB? Here’s How to Navigate the 15-month Wait-Out Period

This was originally posted on Planner Bee.

The real estate landscape in Singapore has witnessed a growing trend of homeowners choosing to downgrade from condominiums to HDB flats. This decision is often driven by financial considerations, and now comes with a unique challenge for those facing a 15-month wait-out period.

If you’re considering transitioning to a HDB, fret not. In this article, we explore the reasons behind this shift, the implications of the wait-out period, and strategies for navigating this transitional phase.

Why downgrade from a condo to HDB?

As a homeowner, there could be many reasons for you to consider transitioning to an HDB. Some of the reasons could include:

Financial prudence

The primary driver for many homeowners is the desire to enhance financial prudence. Condominiums come with higher maintenance costs, property taxes, and monthly fees. Downgrading to an HDB flat can significantly reduce these expenses, allowing homeowners to allocate funds more efficiently.

Market conditions

Changing market conditions can influence your decision to downgrade. With the real estate market exhibiting fluctuations, homeowners may opt for a more stable and affordable housing option, which an HDB flat can provide.

Lifestyle shifts

As your family evolves and your lifestyle preferences change, downsizing could become an attractive option. After all, an HDB flat offers a more practical and manageable living space, especially if you are seeking a simpler lifestyle.

Implications of the 15-month wait-out period

Regulatory requirement

The 15-month wait-out period is a regulatory requirement imposed by the government to discourage speculative buying and selling of residential properties, and keep resale flats affordable. During this period, homeowners who sell their private property must wait before being eligible to buy another subsidised HDB flat.

Financial planning

Homeowners must carefully plan their finances to cover the 15-month interim period. This means you’ll have to assess your living arrangements during this time, managing temporary housing, and ensuring financial stability during the transition.

Strategies for navigating the transition

While the 15-month wait-out period could hamper your transitional plans, a downgrade from a condo to an HDB is still feasible – as long as you take steps to plan things out.

Seek temporary housing solutions

Given the wait-out period, your top priority should be securing temporary housing arrangements during the transition. This could involve renting a property – or if you’re just looking for a space for yourself and a spouse, you could even consider a co-living space. Alternatively, staying with family and friends could be a viable solution. Proper planning ensures a smooth living situation during this interim period.

Financial assessment and planning

Understanding the financial implications is crucial. Assess the funds generated from selling the condominium and plan for living expenses during the 15-month wait-out period. Budgeting effectively will help you navigate this transitional phase without financial strain.

Explore investment opportunities

The wait-out period provides an opportunity for you to explore alternative investment avenues. This could involve putting funds into other investments, such as stocks, bonds, or real estate, to optimise financial returns during the interim period.

Engage legal and financial professionals

Given the complexities involved, engaging legal and financial professionals could prove to be beneficial. Seek advice on managing the legal aspects of selling a property, understanding the implications of the wait-out period, and ensuring compliance with regulatory requirements.

When can I purchase an HDB?

First, assess if you’re eligible to purchase an HDB by referring to the requirements outlined in the HDB Flat and Grant Eligibility. If you are eligible to purchase both a brand new HDB flat and a resale flat, here are the differences:

What about my existing condo loan?

To sell your condo, you will have to repay the loan you took up. Two critical factors to consider regarding your loan are the notice period and the lock-in period.

Notice period

In general, it’s advisable to notify your bank at least three months in advance if you plan to settle your loan ahead of schedule. Providing less than the stipulated 3-month notice period may result in a fee, which can range from S$3,000 to a percentage of your remaining loan amount, depending on the bank. It’s important to note that these terms can differ among various financial institutions.

Lock-In period

The initial years of your loan, typically spanning 1-5 years, constitute the lock-in period. During this phase, the bank provides specific interest rates, which could be flat, discounted, or other variations.

However, within the lock-in period, early repayment or switching banks is generally restricted. Should you settle the loan during this period, there might be prepayment penalties, typically amounting to 1.5% of the outstanding balance. After the lock-in period, no penalties are incurred upon repayment. It’s important to note that these figures and terms can vary among different banks, so it’s advisable to review them in the Letter of Offer for your loan.

What about my CPF?

A common misconception among condo sellers is overestimating the cash proceeds they will receive from the sale. Upon completion of the condo sale, it is necessary to “refund” the CPF amount withdrawn for the initial condo purchase to your CPF Account, along with accrued interest. Nonetheless, the returned funds are still yours and can be utilised for the subsequent purchase of an HDB.

To view your accrued interest, you can use my CPF Online Services, under “My Statement”.

Do I have to pay Seller’s Stamp Duty (SSD)?

The requirement to pay Seller’s Stamp Duty (SSD) upon selling your condo is contingent on the duration and timing of your property purchase. If you’ve owned your private property for a minimum of 3 years, there is no SSD obligation. The calculation of SSD is based on the higher of the actual price or the market value of the condo.

Can I get any HDB grants?

HDB provides a range of grants tailored for different categories of homebuyers, including singles, orphans, first-time HDB applicants, and families seeking proximity to parents or children. Each grant comes with specific eligibility criteria, which can be reviewed on HDB’s website, whether you are considering a resale HDB flat or a new one. It’s important to note that individuals are eligible for a maximum of two such grants throughout their lifetime.

To downgrade or not?

Downgrading from a condominium to an HDB flat in Singapore comes with its unique set of challenges, especially when faced with a 15-month wait-out period. Homeowners must navigate this transition with careful financial planning, temporary housing solutions, and strategic investment considerations. While the wait-out period may present a hurdle, with proper preparation and professional guidance, individuals and families can successfully make the shift to a more sustainable and cost-effective housing solution.

Read more: The Complete Guide to Purchasing a New HDB Flat