How can I buy an Executive Condo when my money is stuck in my HDB?

With the recent launch of Executive Condominium, Piermont Grand, the question of how an HDB upgrader can afford a brand new Executive Condominium is back again.

In general, upgrading from an HDB to a brand new executive condominium is less financial taxing compared to a brand new private condo. An HDB owner can purchase a brand new Executive Condominium without incurring Additional Buyer Stamp Duty and with a loan-to-value ratio of 75%. In other words, HDB upgraders can stay in their HDB and sell their HDB after their purchased Executive Condo has obtained TOP.

Financing an Executive Condo

Normal Payment Scheme (NPS)

A buyer can choose to purchase the Executive Condo under a normal payment scheme (NPS) or deferred payment scheme (DPS).

Under normal payment scheme, also known as progressive payment scheme, buyers make payments each time the developer hits a pre-defined milestone in its development phase.

An illustration of the NPS for an SGD 1,000,000 property is as followed:

If a buyer is financially strong, that is, he can secure up to 75% loan and can pay off the balance of 25% or more of the property price together with the buyer stamp duty, he could purchase the Executive Condo under normal payment scheme (NPS). NPS is the preferred payment scheme to take up as the purchase price of the Executive Condo under NPS is 3 to 5% lower than the purchase price of the Executive Condo is purchased under deferred payment scheme.

Useful Tool: Progressive Payment Calculator

Deferred Payment Scheme + Bridging Loan

However, in most cases, HDB upgraders who are in their late 30s and above are unable to purchase the Executive Condo as (1) their money is stuck in their existing HDB and (2) they are unable to secure up to 75% loan due to age/income. Henceforth, their next option is to “cash-out” their HDB by selling it. After the sales of their HDB, they would have the funds to purchase the Executive Condominium.

Fortunately, they do not have to “cash-out” immediately, they can instead “cash-out” when the Executive Condo is nearing its TOP date. To do this, they have to purchase the Executive Condo under the Deferred Payment Scheme (DPS) and take up a Bridging Loan.

Under the deferred payment scheme, the buyers need only to pay 20% of the purchase price before the project obtained its TOP. After the project has received its TOP, the buyer is then required to pay the outstanding 80%.

Here’s the illustration how DPS works:

So, with a deferred payment scheme, if the HDB upgrader can pay the 20% and buyer stamp duty, he would have had a better shot at buying an Executive Condominium.

However, an HDB upgrader, due to age and income, may not be able to secure sufficient loan. For example, an HDB upgrader who can only obtain around S$700,000 to purchase an S$1,000,000 home, he would have a shortfall of S$100,000 (S$800,000 – S$700,000), rendering him unable to buy the Executive Condo without selling his HDB. In this case, if the estimated sales proceed from the sales of his HDB flat in future is more than S$100,000, he could utilise a bridging loan to make up for the shortfall of S$100,000 and buy the executive condo.

Useful tool: Click here to use my property tracker to find out your property value and keep track of its value.

What is Bridging Loan and what you need to know about bridging loan?

A bridging loan is a short term loan that helps you “bridge” the fund shortfall between the sale of your existing property and the purchase of your new property.

However, you would need to note the following when using a bridging loan:

• The typical loan tenure for bridging loan is 6 months max, so you would need to sell your old property within 6 months.
• A bridging loan can cover around 15 to 20% of the price of your new property only.
• The interest rate for bridging loan is around 5% per annum. The interest payable is based on the loan period.
• You have to make full payment upon receiving the sales proceeds from the sale of your old property.

Why can I not just take the deferred payment scheme, raised the shortfall while waiting for TOP and eliminated the need of a bridging loan?

Well, you can do that if you can pay off the 20% down payment with cash only.

If you are using your CPF for the 20% down payment, then no.

Before CPF board release your CPF funds, you must show to have the financial capacity to purchase the property. That is, at the time of purchase, you can finance 80% of property price by a combination of CPF and bank loans.

Final Words

The use of a bridging loan can help you cover the shortfall, but it comes with its own set of caveats you need to be mindful of:-

• There is interest payable,
• timeline to adhere to between the sale of your old property and collection of the keys to the new home, and
• the need to plan the order of disbursement of funds (Cash, CPF and Bank Loans – this is important, wrong order of disbursement of funds will have costly financial consequences) to ensure the successful execution of the deferred payment scheme coupled with bridging loan.

Therefore, it is wise to seek the advice of an experienced real estate salesperson and banker when you plan to use a bridging loan to assist in the purchase of your new property to minimise the cost and ensure a smooth transition from your old property to a new home.

If you have any other questions regards to the purchase of Executive Condo, please feel free to drop my team a note using the contact form below.