How You Can Upgrade To An EC Before Selling Your HDB

How You Can Upgrade To An EC Before Selling Your HDB
Upgrading to an EC may be alot more accessible and affordable than you thought!

In an ideal world, we can all sell our existing flat, take the sales proceeds, and move into a new Executive Condominium (EC).

But it's rarely as simple as that: besides the issue of financing and down payments, there's the simple fact that we still need a roof over our heads, while the EC is being built.

Here are some possible solutions if you are thinking of upgrading to an EC:

First, we need to take a look at some important financing issues

If you previously used a bank loan to buy your HDB flat, you can skip this section; you probably know most of this.

If you used an HDB Concessionary Loan to buy your flat however, read this first.

Back when you used an HDB loan, you were able to borrow up to 90 per cent of the flat's price or valuation (whichever is lower). The remaining 10 per cent could come from a combination of cash or CPF. It was easy and, if you're like many Singaporeans, you probably didn't pay any cash at all.

But this won't be the same for an EC, because there are no HDB loans for ECs. You will have to take up a bank loan.

Now, for a bank loan, the maximum financing is 75 per cent of the property price or valuation (whichever is lower). Another 20 per cent of the property can be paid through a combination of cash or CPF, but an absolute minimum of 5 per cent of the property price has to be paid in cash.

So if you are buying an EC unit with a price of $900,000, you must be prepared to pay at least $45,000 in cash. Under MAS Notice 632, Singapore banks cannot lend you money to cover this amount, or any part of your down payment.

On a positive note, with an EC, you won't have to pay the Additional Buyers Stamp Duty (ABSD)

Those who are upgrading from HDB to private condos have to pay the ABSD within two weeks of signing the purchase agreement.

They can then apply for a Matrimonial Home ABSD remission upon selling their 1st property and get a refund if certain conditions are met (Read more).

For example, 1 of the condition is that a couple will have to sell their HDB within 6 months of Option Acceptance of their 2nd property (For resale properties) or 6 months of TOP (For building in progress properties) in order to qualify for the ABSD remission.

If you're moving from an HDB to an EC though, this won't apply to you.

Moving on, there are two ways to pay for your EC

The 1st method is to use a Progressive Payment Scheme, which is also referred to as the Normal Payment Scheme (NPS).

Under the NPS, you will have to service the loan for your EC while continuing to service any loan repayments for your flat. As such, it can be financially straining if your finances are not properly planned for.

progressive payment scheme structure singapore
Progressive Payment Scheme's payment waterfall - More discounts but with earlier outflow of funds

The upside is that the purchase price is usually around 3% lower for those who choose this payment method.

One other factor of the NPS is that the monthly repayments gradually increases over time, and it can be pretty affordable during the earlier stages of building.

Here's the 10 stages of a Normal Payment Scheme in the typical case of a buyer who uses 5% cash, 20% CPF and takes a 75% maximum loan, over the course of a Normal Payment Scheme.