5 minutes read
During your festive visits (especially Chinese New Year), do you hear your uncle/aunty say “Nowadays, HDB prices are crazy, don’t know where the next generation going to live. . .”
Now if you haven’t, let me know, because every year, I seem to hear housing as a very common topic and I wouldn’t mind taking a break at your house for a festive season. Now if you have, let me know anyway, because I wouldn’t mind dropping a 80 slide presentation to that relative of yours so that the topic can be closed for a year (or two) 😂.
Jokes aside, it is now 2024. With 19,600 Built-to-Order (BTO) units launched this year, I sure am glad my uncle will be changing topics next year. However, as a property agent, I do get worried over my friends who get too comfortable with their first HDB flat as it is matrimonial home which holds sentimental value.
Being a matrimonial home, I do empathize that it can be easy to stay comfortable in a spacious flat with many amenities nearby. But why do people still choose to upgrade to a condo in Singapore? To illustrate this clearly, let’s name my friends as Bruno Mah and Taylor Swee. Now, Bruno and Taylor first moved in to their BTO at Bukit Batok in 2019, when they just got married and started their careers at age 25.
In 2024, they have become a small family of three, with their baby boy reaching his first birthday in April. With the unit having recently reached its Minimum Occupation Period (MOP), Bruno and Taylor find themselves contemplating whether to retain or sell their HDB, now that it has hit the five-year mark. As a property consultant who has assisted numerous clients in upgrading from their HDB to a condo, and as a close friend from our university days, they chose to consult with me to understand the implications of both options.
Let’s dive in on the advantages of keeping their HDB flat
- Size
No one can argue here that for the price you are paying, you can get bigger units at a lower price tag, and that is HDB units. With more and more private property downgraders flooding the HDB market, it is not a surprise that we have had 74 $1 million HDB units transacted in January 2024.
- Affordability
HDB prides itself in providing affordable, quality homes. With grants available and BTO units sold at an affordable price, Bruno and Taylor would have no issues paying their monthly mortgage.
- Amenities
Lastly, HDB also prides itself in providing various commercial, recreational, and social amenities in our towns for residents’ convenience. Hence, there are many eateries, supermarkets and amenities near their neighborhood.
Agree? Now let’s jump to the other side of the picture and take a balanced approach on why they should sell their HDB
- Flat depreciates faster as it gets older
Now, if you haven’t read carefully on the second point above, HDB prides itself in providing affordable, quality homes. While such is true for the BTO market, the Resale market prices has been increasing for the 16th consecutive month this year. Do you think that this will still happen in the near future?
“But Larry… my HDB has appreciated over time and not all HDBs are like mine.”
Yes, looking at the HDB Resale Price Index, your HDB flat has indeed appreciated and I do agree that not all HDBs lose money. But does your HDB appreciate 5% a year?
Based on the current interest rates… CPF has a total accrued interest of 2.5% and the HDB Loan interest rate is pegged at 0.10% above the prevailing CPF Ordinary Account (OA) interest rate, which means a total of 2.6%. This means that your HDB flat price must have an increase of at least 5% per year to BREAK EVEN (which means ZERO cash proceeds). - The buyer pool will get smaller as your unit gets older
Referring to the picture above – a property is not something that can be transacted within days. Should you wish to sell your house today, it may take a few months or even a year to complete the transaction as there has to be buyers that are willing to pay for your house. Not forgetting that as your flat gets older, the remaining lease has to cover your youngest buyer until 95 years or else their CPF usage will be limited. Even if your buyer wants to get a bank loan, it may be difficult. Furthermore, with 19,600 HDB flats in supply this year, will there even be buyers looking at your unit?
- Legacy or Liability?
As an evergreen parent, I understand that responsibilities have changed, and you would do everything you can for your kid. While I would also like to leave a legacy behind for my kids, I have to plan and ensure that my house will be an asset to my kid rather than a liability. 30 years later when my flat has 60+ years left, my kid would be pressured to sell my flat within 6 months or sell his own HDB flat in 6 months and stay in my old unit.
And even if my kid manages to sell my old unit, my kid may have to pay the accrued interest due to negative sales proceeds just to complete the transaction! Now whether that is a liability or legacy I leave it to your personal opinion. But if I had a choice now, I would choose an asset that has higher liquidity and is not restrictive in nature.
Why 2024?
Now, as an agent, I always get condescending looks after I share these 3 points. However, Bruno and Taylor are still not fully convinced as we were comfortably seated in their HDB flat dining area 😂, and that’s fine by me. Because a home is not just a house that can be broken down to numbers and materialised to profits. It is a place where memories are made in a family. So, I move on to sharing why not in 2025 or 2026?
Now, look at the trend of the HDB Resale Price Index above. Do you think HDB prices will remain high all the time? In 1997, it would’ve took you 11 years to breakeven if you wanted to sell at it’s all time high, and at best, it would take you 8 years to sell at breakeven price. Do you have many 8 or 11 years in 1 lifetime? I wouldn’t take a chance myself.
Next, let me share a coincidental finding with you. If you were to go through the 38 slides with me you will know better, but for now, the circled years are the years that the General Elections were held. After showing some news article at that time, Bruno and Taylor knew that this year would be the year.
Following the presentation, Bruno and Taylor’s perspective changed. A few days later, Bruno called me and they decided to upgrade with me as they wanted to improve their financial journey. We then met on the same day to discuss what to buy in today’s market.
In my next post, I will be sharing about their upgrading journey on what to BUY and what were the obstacles faced by them which you probably would face too. But if you don’t and would like to know more on why 2024 is a good time to sell your HDB, why don’t you consider dropping me a Whatsapp so I can share more with you? After all, it’ll be a short discovery call to understand your needs rather than being a transactional agent who do it for the sake of doing it. 🙂
