So You’ve Met Your MOP; Now What Can You Do with Your Flat?
Flat owners look toward their MOP like NS Men look toward their ORD. Once it happens, you’re free to…carry on with any 20 years of debt? Obsess over the impact of a nearby columbarium on property price? Eh, here are some better ideas:
First, what is the MOP?
The Minimum Occupancy Period (MOP) is a five-year stretch that applies to most HDB properties (yes, including Executive Condominiums that have not yet been privatised).
During the MOP, you cannot sell your flat on the open market, and you cannot rent out the entire flat (although you can still rent out individual rooms, provided you still live there). In addition, you cannot buy a private property during the MOP.
One exception to the rule is if you own a one-room resale flat, which you purchased without any HDB grants. There’s no MOP on these units.
The MOP begins from the day you complete the sale transaction. If there’s a gap in which you’re not living in the flat (e.g. you fly overseas to work for two years), those years do not count toward your MOP.
So, that being said, what can you do after your MOP? Well, you can…
- Buy a private property in addition to your flat (if you’re a Singapore Citizen)
- Upgrade to a private property
- Move in elsewhere and rent out your whole flat (if you’re a Singapore Citizen)
- Sell and move to a different flat
1. Buy a private property in addition to your flat (if you’re a Singapore Citizen)
If you’re a Singapore Permanent Resident (PR), skip to point 2, or keep reading to rage at the unfairness.
A Singapore Citizen can buy a private property in addition to their HDB flat, once the five-year MOP is up. Also, do you have a lot of money? Because you’ll need a ton of it. Like, enough-to-take-a-year-off-work levels of money.
First, you need to pay all the usual taxes, such as the Additional Buyers Stamp Duty (ABSD) of 12 per cent on the second property. Then , you need to be ready for either a huge down payment, to pay off your outstanding flat loan.
That’s because, if you still have an outstanding flat loan when you buy the second property, the maximum you can borrow is 55 per cent of the property’s price or value (whichever is lower).
Assuming you settle all that in cash without triggering a Central Narcotics Bureau investigation, congratulations! You’re a proud owner of a flat and a CBD. You can generate rental income by living in one and renting out the other.
As an important aside, note that you can’t do this the other way around. If you own a private property and then buy an HDB flat, you’ll need to sell the private property within six months.
The only way to have both an HDB and a private property is to be a citizen, buy a flat, wait for the MOP to be over, and then buy a private property.
2. Upgrade to a private property
After the MOP is up, you can sell your flat and upgrade. There are two ways to do this:
First, you can buy a private property first, and then sell your flat. This is usually more convenient, as it can eliminate the need for temporary accommodations. But it’s also a much bigger hassle.
If you choose to buy a second property before selling your flat, you need to pay the ABSD as usual. Then, if you’re a married couple and at least one of you is a Singapore Citizen, you can get ABSD remission if you sell the flat within six months of buying a second property. If you can’t sell the flat within six months, then thank you for contribution to nation building.
Also, you’ll probably want a mortgage broker to sort out the paperwork with the bank. Unless your existing flat loan has been paid off, you may not get full financing for your private property. You’ll need documentation to prove to the bank that you’re in the process of selling your flat, and will do so in six months. Otherwise, maximum financing can fall to 55 per cent (see point 1).
The alternative to all this hassle is just to sell your flat first, collect the proceeds and pay off the flat loan, and then buy a private property. The downside is that there may be a delay, during which you have neither flat nor private property to stay in. You may have to find temporary accommodations for a while.
3. Move in elsewhere and rent out your whole flat (if you’re a Singapore Citizen)
Again, skip this if you’re a PR. Sorry, but only citizens get to rent out their entire HDB flat. PRs can only ever rent out rooms, but not the whole unit.
For you lucky citizens, this can turn your flat into a cash-generating asset. For example, if your parents have a huge flat or condo already, you can move in with them and rent out your whole flat. It’s common for some couples to do this for a few years after their MOP, as they can save up the rental income as down payment on a condo.
For example, say you want a $1.5 million condo. The minimum cash component is five per cent, or $75,000 (the rest of the down payment can normally come from your CPF). If you move in with mum and dad, and rent out your entire flat for $2,200 a month, you can more than cover this cost after three years.
4. Sell and move to a different flat
The end of the MOP is an opportunity to move somewhere more appropriate. Either to be closer to your workplace, to right-size for financial benefits, or to minimise the chances of appearing on Crime Watch, because you’re one argument away from throwing that annoying neighbour down the stairs.
There’s three things to note, if you want to do this.
First, you need to be prepared for the resale levy. This is the amount you need to pay back to the government, because they subsidised your first flat, remember? The amount is currently as follows:
- 2-room flats – $15,000
- 3-room flats – $30,000
- 4-room flats – $40,000
- 5-room flats – $45,000
- Executive flats – $50,000
For Single Grant recipients, the amount will be halved. For example, the resale levy for 2-room flat, for a Single Grant recipient, is $7,500 instead of $15,000.
If you’re going to buy the second flat before selling your current flat, the levy can be deducted from the sales proceeds – any shortfall will have to be paid in cash. Note that you must sell your previous flat within six months of buying a new one.
If you’re going to sell your existing flat first, you’ll have to pay the resale levy upon buying your second flat (this has to be in cash).
The second thing to note is that you need to put back any CPF monies you used, inclusive of the 2.5 per cent annual interest rate. You can visit the CPF board or give them a call, to verify the amount. You can still use your CPF monies to pay for your next flat.
(If you managed to for your flat without using CPF at all, then congratulations, you can keep the cash.)
Third, if you’re buying a resale flat, there are some differences to the loan.
You can take a second HDB loan and buy another flat immediately, instead of waiting for the sales proceeds from your previous flat.
But if you do this, the interest rate is not the usual 2.6 per cent. Instead, it’s pegged to the interest rates offered by local banks. Call HDB to find out the exact rate, at the time you buy.
After you’ve sold your previous flat and gotten the sales proceeds, you must pay back a portion of the proceeds into this loan (once again, contact HDB for the exact details). This also includes returning the CPF money you’ve used, as mentioned above. After this, the loan is converted to the usual HDB loan at 2.5 per cent per annum.
If you want to sell your existing flat first, and then buy a second one, you can use the Enhanced Contra Facility (ECF).
Simply put, ECF lets you tap on the sales proceeds and returned CPF monies to directly pay for your second flat (but note that stamp duties have to be paid in cash, instead of with CPF, if you use this method).
And those are your options! But before you pick any of them, just remember…
- Make arrangements for bulky furniture, especially if you’ll use temporary accommodations
- Check on 99.co to make sure you’re getting the best prices for your next home
- Call HDB and inform them of your intentions, to make sure you understand everything correctly
- Start the sale process early, especially if you’ll need to sell your flat within six months. Don’t end up paying ABSD when you’re not really buying a second house; that’s just ridiculous. Work with your real estate agent on a marketing strategy, well before the six month timer starts.
Looking for a property? Find the home of your dreams today on Singapore’s largest property portal 99.co! You can also access a wide range of tools to calculate your down payments and loan repayments, to make an informed purchase.
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