BTO – “Decoupling” & 2nd Property

2 Important Steps for Asset Progression with BTO, I have missed them and I hope you (BTO-to-be-owners) wouldn’t.

Having attended so many of my clients’ HDB resale completion, finally, I have done mine today.

Photo: Finally attending my own HDB resale completion =)

Upgrading from an HDB to private property comes with its own set of challenges due to several cooling measures implemented back in 2013 and beyond.

With the implementation of Additional Buyer Stamp Duty (ABSD) on 2nd property, buying a home first then selling your existing home requires a substantial financial outlay. For example, if you buy a 2nd property at SGD 1.5 million before selling your place, you would have to fork out SGD 180,000 to pay for the ABSD on the purchase of the 2nd property. Yes, you can apply for ABSD remission (conditions applies). But how many of us could afford to cough out the “refundable” SGD 180,000?

Furthermore, if you are still financing the loan for your 1st property, the loan you can secure for your 2nd property is up to 45% of the property value or purchase price, whichever is lower. That is to say. You have to cough out 55% of the cash and CPF for the purchase of your 2nd property! That’s a lot of funds needed!

We have two options to avoid the substantial financial outlay: sell our home then buy, which is stressful considering the timeline. The other options are selling, renting and buying, which is too much of a hassle and additional costs incurred in moving and renting.

So, if I could do it over again, here’s what I would have done with hindsight.

Holding Structure

To be fair to me, we (my wife and I) bought the property before 2013 and before I became a property agent. We would not have seen the implementation of cooling measures that would affect our real-estate progression and HDB disallowing of decoupling in 2016.

Above infographic: The usual 4 scenarios where HDB ownership structure can be changed.

With this manner of holding the BTO, both of you (husband and wife) have to fulfil the minimum occupation period before you can sell your BTO or purchase private property.

The exciting part is after you have fulfilled your MOP, the essential occupier can purchase the following property as their first property. At the same time, the other spouse can continue to hold onto the BTO. Then it is up to you if you would like to buy, sell your BTO, or keep your BTO for rental income. For this ideal scenario, I am also assuming that your income has improved.

Outstanding Loan

There’s always a debate about whether to pay up your mortgage loan as fast as you can. For the case of HDB, I would recommend NOT to pay up the loan as fast as you can if you plan to buy a 2nd property or upgrade to an executive condo or private condo.

The transition from HDB to a brand new executive condo is easier for most as you do not have to fork out additional funds for ABSD and can loan up to 75% of the property price or value, whichever is lower.  However, if you were to use your cash and CPF to reduce your mortgage loan for your BTO, you may have an issue coming up with the 25% downpayment for your executive condo. I have witnessed several clients lamenting that they shouldn’t have paid down their loans.

Similarly, to purchase a private condominium, you would need to come up with 25% of the downpayment.

As a side note, this recommendation does not apply to owners of an executive condominium or private condominium. Unlike BTO owners, owners of the executive condo and private condo can get an equity term loan to “unlock” the cash locked in their executive condo and private condo.

Conclusion

BTO remains one of the most popular choices among 1st-time property owners due to its affordability and high chances to enjoy decent paper gains. With all the pluses of a BTO, I hope my 2 cents worth of opinions will make your real estate journey that begins with a BTO an even better one — not forgetting that BTO is a subtle way to propose to your other halves. Good luck!

P.S: If I could restart my real estate journey, I would get started with an executive condo, but that’s a topic for another day.