Minimum Occupancy Period: What you can do with your flat after the 5-year period ends
The Minimum Occupancy Period or MOP means flat owners can’t sell or rent out their property for five years. But after that, there ways of either upgrading or monetising your home.
Flat owners look forward to the end of their MOP like NS Men look forward to their ORD – once it’s done, you’re free to do what you want with the place.
Minimum Occupancy Period is a five-year stretch that applies to most HDB properties, 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 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 (say, you work overseas for two years), those years do not count toward your MOP.
With all that said, what can you do after your MOP? There are a few options.
BUY A PRIVATE PROPERTY IN ADDITION TO YOUR FLAT
But only if you’re a Singapore citizen. If you’re a Permanent Resident, feel free to skip to the next option.
Singapore citizens can buy private property in addition to their HDB flat once MOP is up – but there’s a lot of money involved.
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 any problems, you can choose to 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.
UPGRADE TO A PRIVATE PROPERTY
After the MOP is up, you can sell your flat and upgrade. There are two ways to do this.
You can buy a private property first, and then sell your flat. This is usually more convenient, as eliminates 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, well, thank you for your contributions 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 the previous point).
The alternative to all this hassle is to 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.
MOVE IN ELSEWHERE AND RENT OUT YOUR WHOLE FLAT
Again, you can only do this if you’re a Singapore citizen. Permanent Residents can only rent out rooms, not the whole unit.
If you do this, you can turn your flat into a cash-generating asset. For example, if your parents live in a huge flat or condo, you can move in with them and rent out yours. 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 S$1.5 million condo. The minimum cash component is five per cent, or S$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 S$2,200 a month, you can more than cover this cost after three years.
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 pushing that annoying neighbour down the stairs.
There are 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, which your first flat. The amount is currently as follows:
2-room flats – S$15,000
3-room flats – S$30,000
4-room flats – S$40,000
5-room flats – S$45,000
Executive flats – S$50,000
For Single Grant recipients, the amount will be halved. For example, the resale levy for a 2-room flat, for a Single Grant recipient, is S$7,500 instead of S$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.
The second thing to note is that you need to put back any CPF monies you’ve 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.
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).
Before you pick any of these options, there are a few more things to take note off.
Make arrangements for bulky furniture, especially if you’ll use temporary accommodations.
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.
Work with your real estate agent on a marketing strategy, well before the six month timer starts.
This story first appeared in 99.co.