Getting to MOP is almost what every BTO-er looks forward to. When their flat reaches MOP, most want to sell and upgrade to a private condo.

What is MOP?

According to HDB, MOP (Minimum Occupancy Period) is the “period of time that you are required to physically occupy your flat before you can sell it in the open market.” MOP also applies to Executive Condominiums that have not been privatised.

You are not allowed to rent out the entire flat, purchase private property or sell your flat in the open market during the Minimum Occupancy Period.

The only exception to this are the 1-room flats purchased in resale market without CPF housing grants.

The MOP is calculated from the day you collected your keys to the flat. If there were some years you were not living in your flat (you were overseas), those years will not be counted. This is because you most likely would have applied to get your flat rented out during your absence.

To check if your flat has met the MOP, you can log in to My HDBpage with your Singpass.

If your flat hasn’t met the MOP but you need to sell, what do you do? HDB could make exceptions, you can try writing in to appeal.

So now you’ve met your MOP, what can you do?

Keep your HDB, buy an additional Private Property

Sell your existing HDB, Upgrade to private property (EC or private condo – to buy EC, you have to sell your HDB)

Move somewhere and rent out your flat (if you’re a Singapore Citizen)

Sell and move to a different flat

Should you do that? What are the considerations?

Most people believe that continue staying in an HDB after MOP is not as good as upgrading because the rate of appreciation for an HDB is slower than a private condo. Is that true?

Consideration #1: Appreciation of ECs, Private Condos & HDBs

Take a look at the chart of growth (10-year chart) for Executive Condominiums, Private Apartments (non-landed) and HDBs.

How much did ECs appreciate in 2009-2019? How much did ECs appreciate in 2009-2019?

HDB flats on average rose from S$381 psf to about S$415 psf last year. That is about 9 per cent compared to private condo prices rising by more than 30 per cent in the same period.

Condo price average of S$1,170 psf to more than S$1,600 psf in this current market.

The appreciation for ECs (which become privatised after 5 years, and after 10 years, you are able to sell to foreigners) is 29.1%. Private Condominiums come out the winner at 34.8% and HDB only at 11%.

There is also a record number of BTOs entering the resale market from 2019-2023.

Do you think you should take advantage of the moment and sell when your BTO has appreciated in price judging from the supply and demand situation? More supply, the lower the price.

Consideration 2: Do you want to start creating an asset that can generate you passive income?

An asset is something that gives you money passively, like dividends. A liability is something that drains money from you every month.

We all need a roof over our heads. While your MOP HDB may not generate income for you every month, it is also not considered a liability.

All HDB flat owners have “dormant capital” in CPF and Cash in their flats.

Whatever CPF and cash that’s paid up in your flat is not creating any passive income for you. Therefore, the term “dormant capital”.

Dormant capital in your propertyDormant capital in your property

The key is in unlocking your “dormant capital” into “active capital” (income-generating).

When you deploy “active capital” into real estate, this helps you accumulate wealth quicker and save for retirement with surety.

Consideration 3: Sentimental Value vs Investment Value

If you hold on to your HDB, you will need to pay ABSD for private property.

Assuming you purchase a $1M private property, you will need to pay $120K of ABSD. And if you rent your HDB at $2k a month, this adds up to $120K in 5 years, which is equivalent to the amount you paid for your ABSD.

Compared to the other buyers of the same $1M private property, you will need to sell at a higher price to recover the ABSD cost.

And most likely, you would have used CPF for your HDB property, which means there’s accrued interest that you will need to return to CPF if you sell your HDB.

The longer you use your CPF, the more accrued interest you will need to return to CPF.

This results in lesser cash proceeds from selling your HDB property.

Also, the longer you hold on to your HDB, the likelihood of the value depreciating over time is high.

What happens to the prices of HDB when the tenure gets lesser?What happens to the prices of HDB when the tenure gets lesser?

However, on the flip side, the government did introduce the enhanced housing grant and allowed more freedom in the usage of our CPF. This counteracts some of the negativity surrounding older resale flats.

Consideration 4: Invisible Ceiling for HDB

The Singapore Government aims to make HDB affordable to all.

Since the MSR (Mortgage Servicing Ratio) was introduced in January 2013, buyers can only use 30% of their income to service their monthly mortgage instalments.

Whilst the goal of MSR is to safeguard buyers from overstretching themselves, this creates a limitation of the growth of HDB prices.

TDSR vs MSRTDSR vs MSR

The effects of MSR on HDB prices since 2013The effects of MSR on HDB prices since 2013

HDB prices have experienced a correction and is now tied to the salary of the average Singaporean worker. It is very unlikely that HDB prices will experience large surges in prices.

In August 2013, SPRs (Singapore Permanent Residents) have to wait three years after obtaining their permanent residency to be able to purchase an HDB. This restriction makes purchasing private and renting more favourable than waiting to purchase an HDB.

There is also an equity loan restriction for fully paid HDBs. Owners cannot take up an equity loan on their HDB property even if the property is fully paid up.

Private owners have a lot more flexibility especially if they need cashflow like in today’s current Covid-19 situation. I wrote an article about what property owners can do in the current Covid-19 crisis. You can read more here.

Other points of views relating to upgrading to a private property vs staying in your current BTO:

1) When you upgrade to private property, the likelihood of you living in a space larger than your current flat is slim. Most new condos are getting smaller in size to make the price point attractive.

2) What comes with a private condo is also the higher property taxes and maintenance fees

3) Even though historically private properties appreciate three times more than HDB, it does not mean this will definitely be the future trend. Nobody knows for sure if Singapore’s private property is overheated and due for a correction.

So do you want to live more comfortably i.e. not in a shoebox apartment or do you want to make money? Tough decision! But never overcommit and end up buying something that you cannot afford to keep!

A good guide:

– The home that you’re upgrading to should be more than 5 x (max 7 x) your annual household income

– Your home loan instalments plus other financial commitments should not exceed 40% of your monthly income

Conclusion: Know what your priorities are and your goals.

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