Cons of upgrading to a condo
High bank mortgage rates
One of the most serious disadvantages of upgrading to a condo right now is that you will have to deal with high bank mortgage rates.
Now, when you upgrade to a condo, you are no longer eligible for a HDB concessionary home loan and its budget-friendly 2.6% per annum interest rate. Instead, you have to take a home mortgage from a bank.
The problem is, Singapore’s home mortgage rates are now at all-time highs, and with the U.S. Fed expected to continue raising interest rates, you will be looking at hefty home loan repayments for quite a while.
This can impact you in two ways – burning through your savings or CPF account in a short period of time and potentially derailing your other financial goals, or being forced to buy a smaller unit so as to keep your home loan payments affordable.
Neither of these scenarios are desirable, and to add to your troubles, you’ll also have to keep an eye on home mortgage rates and refinance your home loan every once a while, lest you get stuck paying high interest rates for longer than you need to.
Large cash outlay
In a bid to rein in the property market, the government has instituted various measures and regulations, forcing buyers to pay a large cash outlay.
You are only allowed to borrow up to 75% of the price of your condo, which means you’ll have to make a downpayment of 25%. You can use your CPF monies to pay up to 20% of the condo’s value, with the remaining 5% to be paid in cash only.
For a condo that costs S$1.2 million, that works out to
- S$60,000 mandatory cash payment (5% of purchase price)
- S$240,000 in CPF monies or your own savings (20% of purchase price)
Yep, that’s a total of S$300,000 just for the downpayment; upgrading to a condo is definitely not for the faint of heart!
Less floor space for your buck
Ok, we know that condos are expensive but have you ever wondered how much more expensive they are than HDB flats?
According to PropertyLimBrothers (who haunt my Youtube ads), a condo unit is around three times as pricey as an HDB flat with the same floor area, on average. This means that you are getting less floor space on a per-dollar basis, when you upgrade from a HDB flat to a condo.
In practice, this could see you spending three times the amount of money for a condo that is similarly sized as the HDB flat you are “upgrading” from, which is certainly something that warrants a second thought (or maybe even a third).
Should you upgrade from HDB to condo in 2023?
If you’ve read the article up till this point, you’ll know that there aren’t any easy answers to be found.
On the one hand, going for a condo is your best shot for skipping the BTO wait; for those whose life plans hinge on getting a property quickly, going for a condo is worthy of contemplation.
Yet, making the switch from a HDB flat to a condo unit will mean having to grapple with the formidable financial hurdles that stand in the way.
Our advice is to proceed carefully and triple check everything, lest you find yourself accidentally biting off more than you can chew.
And for those who aren’t in a hurry, putting your goal to upgrade on the backburner for now may one of the most financially prudent moves you can make right now.
Read these next:
How Will Rising Housing Loan Interest Rates in Singapore Impact You?
How Not to Get Ripped Off Buying Your First Condo in Singapore
New Launch vs. Resale Condo: Which is a Better Property Investment?
2023 Guide To Executive Condominiums (EC) In Singapore