Inheriting an HDB or condo? Here are 5 simple guidelines to help you decide whether to sell or keep

Most Singaporeans aim to keep property “within the family”. It’s one of the main attractions of buying freehold after all; and your children or grandchildren have a tremendous edge, if they don’t need to pay a mortgage. However, while Singapore has no inheritance tax, it doesn’t quite mean anyone can inherit a property, and do what they will with it. In this article, we’ll take a quick look at what options you have when inheriting, and how to make an informed decision:

Inheriting an HDB flat

This is the most common scenario faced by Singaporeans. Your options are as follows:

• Retain your existing flat and sell the inherited flat, or vice versa
• Sell your private property and move into the flat, or vice versa
• Retain your private property as well as the flat

1. Retain your existing flat and sell the inherited flat, or vice versa

It is impossible to own two HDB properties at once. Whenever this happens, you are required to sell one of the two flats. You will have 6 months to sell on the open market. Complications can arise here, such as if you’re struggling to sell the flat.

This will require you to make an appeal to HDB (if there’s difficulty selling the flat, they’re usually quite lenient, so long as you can prove you’re making every effort to sell the flat by showing listings, having a realistic asking price, etc.)

For parents who are reading this, do keep in mind that if you leave your children very old flats (e.g., a maisonette from the 1970s), the advanced lease decay can make it a tough sell.

2. Sell your private property and move into the flat, or vice versa

If the inherited flat was:

(1) a subsidised flat purchased on or after 30th August 2010, or

(2) you are a Permanent Resident (PR) and not a Singapore Citizen, then you must choose which to keep:

You can stay on in your private property and sell the flat, or move into the flat and sell your private property.

When making this decision, keep in mind that the Sellers Stamp Duty (SSD) still applies to your private property. This current rate is 12 per cent of the sale proceeds, if you sell within the first year of buying the private property. It falls to eight per cent on the second year, and four per cent on the third year.

So in cases where the SSD applies, it’s usually better to retain the private property and sell the flat.

As an aside, note that the usual eligibility requirements to own an HDB flat still apply in these cases (e.g., you must be 35 or older to inherit the flat, if you are single). This can sometimes remove the option of moving into the flat.

3. Retain your private property as well as the flat

To keep both your private property and the flat, you must be a Singapore Citizen. In addition, the flat must not be a subsidised flat, and must have been bought before 30th August 2010.

You must also meet the usual eligibility requirements to own the flat.

While this may seem like a windfall, this option has one major drawback: you and your family nucleus must live in the HDB flat, and not the private property. So while you could rent out the private home, it sadly means you can’t enjoy the condo facilities as an owner-occupier.

Given the high price of condo maintenance, this option often means using the private property as a rental asset (at least the rental income can cover the maintenance fees and higher property tax).

Inheriting a private property

If you currently own an HDB flat when you inherit a private property, you can only keep both if you have met the five-year Minimum Occupancy Period (MOP). If you haven’t reached the MOP when you inherit a private property, you must sell one of the properties.

You must also meet the other requirements as detailed above (e.g., you must be a Singapore Citizen, and you must meet eligibility requirements).

Your other options are as follows:

• Retain the property with your existing private home, or sell it
• If you’re a foreigner, apply to SLA to retain ownership of inherited, landed property

1. Retain the property with your existing private home, or sell it

If you choose to keep the property, bear in mind that your next property purchase will count as your third. For Singapore Citizens, the third and subsequent property will incur ABSD of 15 per cent, and not 12 per cent (this is comparable to PRs buying second or subsequent properties).

2. If you’re a foreigner, apply to SLA to retain ownership of inherited, landed property

Foreigners cannot inherit landed property on the mainland; only in Sentosa Cove. However, special permission is sometimes granted, based on your economic and other contributions to Singapore. You’ll have to appeal to the Singapore Land Authority (SLA) for special permission.

It’s difficult to get approval, but it’s worth a try if you’re in a down market (likely to sell for less), or if the house is unfortunately within the SSD period.

Key guidelines in deciding whether to sell or retain the property

• Existing tenancies
• Outstanding mortgage issues
• Ongoing maintenance fees
• Lease decay and state of property
• State of the Singapore property market

1. Existing tenancies

If you inherit a property with an existing tenant, the Tenancy Agreement (TA) may transfer over to you; you’ll have to check with a conveyancing lawyer, regarding your responsibilities here.

If you want/have to sell the property before the existing lease is up, you may be required to compensate the tenant accordingly. This is not often spelled out in the TA, and may come down to a negotiation.

If you have sufficient time to sell off the property though, you might consider waiting till the lease is up before selling; especially if the tenant is paying a good rate. You can check with us to find out rental rates for the development.

Gross rental yields, for most condos in 2021, average about two to three per cent. If there’s an existing tenant that’s giving you better rent than that, you may want to consider carrying on as the landlord, rather than rushing to sell (especially if the market isn’t great).

2. Outstanding mortgage issues

To our knowledge, this never happens with HDB flats, as the Home Protection Scheme (HPS) pays off the outstanding mortgage when the flat owner passes on.

However, outstanding mortgages sometimes happen with private housing, for which mortgage insurance is not mandatory.

The bank can demand payment of the outstanding mortgage right away. If you can’t qualify to take on the loan, or don’t want to, then do try to negotiate. Some lenders will give you time to sell the property on the open market and discharge the loan, rather than foreclose right away (but there’s no guarantee of this).

If you can take on the loan, we suggest doing so only if it won’t leave you over-leveraged. In general, the loan repayments – along with costs such as maintenance and tax – should not exceed 30 per cent of your monthly income.

If it would cross this threshold, it may be a better idea to sell rather than retain the property.

3. Ongoing maintenance fees

If you’ve never owned a condo before, the maintenance fees can be shocking compared to HDB conservancy charges.

Even if the mortgage is fully paid up, most condos have maintenance fees of $70 to $80 per share value (the share value is based on the size of the condo unit). For most three-bedders, this will come to a monthly cost of between $300 to $400 per month.

Note that most condos collect maintenance fees quarterly, so that’s about $900 to $1,200 every three months. Interest rates on late maintenance fees can be as high as 15 per cent per annum.

Again, total property costs should be kept to 30 per cent of your monthly income or below. As such, it may be a good idea to sell the property, if maintenance fees take you past this.

(Unless, of course, you have a tenant who more than covers this amount).

4. Lease decay and state of the property

As a loose rule of thumb, avoid holding on to properties that are more than halfway past their 99-year lease, unless you intend to live out your remaining years in them.

When a property has 60 or fewer years remaining, banks will sometimes decrease the financing available. This could see buyers having to make down payments of 45 per cent or higher.

Properties with 30 years or fewer cannot be financed, which greatly reduces their value in the eyes of any buyer.

So unless it’s a freehold property, you might want to reconsider holding on to any exceptionally old flats or condos – even if they’re bigger than newer counterparts.

You should also consider the repair or renovation costs if the property is old.

5. State of the Singapore property market

At the time we’re writing this, we’re in a sellers’ market; there’s a good chance that you’ll get a good price in July 2021. However, there are times when property prices will dive – such as right after cooling measures, or when there’s oversupply in a given neighbourhood.

In these instances, you may be better off retaining and renting out the inherited unit for the time being. You can consider selling later on, when the market shows signs of recovery.

This decision requires a direct look at the property in question; contact us with the details, and we can get you an expert recommendation.