Your HDB flat has finally completed its Minimum Occupation Period (MOP) of five years. Of course, you’re not planning to sell it and cash in. Instead, you’re going for the Singapore Dream of owning multiple properties. You plan to keep it and buy a second property. However, before you gleefully count your rental income, here are five facts you should know.

1. The Basics

We shouldn’t have to say this, but you’ll be surprised that some people are blithely blur about it. When we say ‘buy a second property’, we mean private property. We’ve actually heard several people boast that they intend to flip their Build-to-Order (BTO) flat for a handsome profit and buy two flats. Uh, no. Everyone is allowed to own only one HDB flat at any one time. These are subsidised public flats, so why would the government sell you an extra one for you to make rental income? 

2. The (Updated) Cooling Measures

Revised by the Monetary Authority of Singapore since July 6 in 2018, these measures are: 

Higher Additional Buyer’s Stamp Duty (ABSD)

For Singapore citizens buying a second property, it’s now 12 per cent (up from 7 per cent). For Permanent Residents, it’s 15 per cent (up from 10 per cent). For foreigners, a flat rate 20 per cent (increased from 15 per cent) applies regardless of the number of properties you’re buying.

Lowered Loan-to-Value (LTV) limits

This means you can borrow less money than before, resulting in a higher down payment. If you are getting a second property loan, your LTV limit has decreased from 50 to 45 per cent.

Tightened LTV limits for loan tenures exceeding 30 years or extending past age 65

If you’re thinking of stretching out your second loan over a longer period, your LTV is now slashed from 30 per cent to 25 per cent. Basically, it all boils down to one thing: get ready to pay more cash upfront. That 5 per cent difference in ABSD for a $1m property means a whopping $50,000 extra in cash – money that could have gone into renovation. And that’s just for the ABSD. Don’t forget to add another 5 per cent, thanks to the lowered LTV!

Basically, it all boils down to one thing: get ready to pay more cash upfront.

3. Waiting for BTO Flat + Buy Private Property = No-No!

#TRUESTORY. We know of a couple who had been waiting for their BTO flat for a few years. Supported by their wealthy parents, they shopped for a condominium that would be completed a few years after they received the keys to their BTO flat. Their grand plan was to stay in the flat for a while and then move to the condo while getting a nifty early start to their double properties dream.

They thought they’d done their calculations. By the time their condo would be ready, it would have been over five years since they started queuing for their BTO flat, so all is fine, right? Sorry, no.

According to HDB’s website, “The MOP is calculated from the date the sellers collect the keys to the flat.” This means the clock starts ticking only on the day they receive official ownership of the BTO flat, not the day they selected the flat. They would need to fulfil their five years before they can put down money for their private property.

The sad result? The couple had to give up their BTO application. Ah well, at least they had their wealthy parents’ home to crash in till they moved into their condo.

4. Should You Pay your HDB Loan First?

You don’t have to, but we recommend it if you can afford it.

Generally speaking, unless you live in one of those million-dollar HDB flats, yours should cost less than the private property. For some, the HDB flat’s remaining loan amount can be relatively low at under $100,000, which they can afford to pay off.

However, they are quite happy to leave it alone if the monthly deduction comes entirely from their CPF account since they don’t feel the pinch of having to pay cash.

Another common reason: “I already plan to rent out my private property. If the rental income can cover that loan, why would I trouble myself by running to HDB to pay off my flat?” Here’s why:

One housing loan = higher loan amount and LTV limit

If you pay off your HDB flat’s loan, your private property’s loan will now be counted as your only loan. This allows you to borrow 75 per cent instead of just 45 per cent if it were a second loan. Want to stretch that loan to over 30 years or extend it past age 65? Enjoy 55 per cent LTV instead of just 35 per cent.

Banks often offer better interest rates for new loans

My husband and I were paying 2.6 per cent on our flat’s loan from HDB. When we bought our second property years ago, banks offered interest rates as low as 1.38 per cent for the first year! You do the math. Of course, we had to wipe out a big part of our cash to clear the HDB flat’s loan and thus take a bigger bank loan for the condo. But money, no matter where you borrow it from to pay off something, is still the same money. It was a no-brainer since we saved 1.22 per cent in interest alone.

One housing loan = Less paperwork and logistics

Because we all want the best deal, we keep tabs on the lock-in period of our bank loans so we can shop around for better interest rates. But it’s such a pain keeping up with the paperwork and logistics! Keep things simple. Stick to one bigger loan instead of one small and one medium-sized loan.

Unlock your CPF Ordinary Account to finance your condo’s monthly payment

You may think you can count on rental income to finance your bank loan, but you never know. If you are not using your CPF to pay for your HDB flat, you can now use that to help finance your private property. During rental lull periods, having part of the loan covered by CPF will cut down on your upfront cash. 

5. Can You Rent Out Your HDB Flat to Finance Your Private Property?

For PRs: A flat NO

You need to dispose of your HDB flat within six months of buying a completed or off-plan private residential property in Singapore.

For Singapore citizens: Well…

You’re supposed to stay in your HDB flat unless you apply for and receive permission from HDB to sublet your entire flat. You have to meet the five-year MOP first. (Then again, if you didn’t, you wouldn’t have been able to buy your second property!)

Besides, short-term accommodation is not allowed, so no turning it into an Airbnb, please. Tenants must rent your flat or bedroom(s) for at least six months. There is a small administration charge of $20 for the application. Pay it and stump up the rental income when you report your annual income tax.

Besides, short-term accommodation is not allowed, so no turning it into an Airbnb, please.

Your property tax for the HDB flat will also be higher now that you don’t enjoy the Owner-Occupier tax rate.

Also, don’t pretend you’re living in your HDB flat when you are actually renting it out. If HDB catches you, thanks to noisy tenants who piss off your neighbours or jealous neighbours green-eyed about your extra moolah, it can compulsorily acquire your flat!