Can You Still Make A Profit From Selling Your HDB Flat ?
This knowledge has been passed down to us from our grandparents to parents and then to us. That our HDB flats are assets which will profit over the years. It’s been drummed into us over and over again that when we buy a HDB flat, we’re not just buying a home, but an asset which will be enhanced as time goes by.
But, HDB resale Price Index has dropped drastically over the years. Why is that so?
I have received several messages from my friends, who begin to question the intrinsic value of their HDB flats. Are they really a surefire investment? Are they going to make any money from their HDB when they sell? Well... let us explore further in this article, Can you still make a profit from selling your HDB?
And so the typical singaporean story goes like this... just like any other young couple would as they begin their next chapter of life, you ballot for a BTO flat, waited patiently for 4 years, move in happily into your first matrimonial home. Over the years, you start to have children, draw a greater salary as you progress up your career ladder at work.
As the 5th year of your HDB’s minimum occupation period (MOP) draws nearer, you start to toy with the idea of an upgrade to provide you and your family with a better standard of living.
The next question that will probably come into your mind would be whether to sell off your HDB flat or to keep it and lease it out. Many couples may choose to keep for sentimental reasons. After all, this is your first matrimonial home, and a subsidized flat from the government.
But before you make any decision, one important question that you ought to be asking yourself should be, does your flat has any investment value or simply put ‘Is my HDB going to help me make money?’
To answer this question, one should first understand the demand and supply of the current resale HDB market. Over the years, especially since 2013, the government has implemented several cooling measures that have resulted in the demand of resale HDB flats to decline. Let us take a look at some of them:
1. Implementation of the Mortgage Servicing Ratio
Since MSR implementation in January 2013, owners of HDB flats can only use 30% of their income to pay for the monthly instalments of their HDB. While this creates and promotes financial prudence for the buyers, MSR also limits the growth in HDB prices.
Let's take a look at the example below. Comparing TDSR (Private Property) VS MSR (HDB Flat). For a 40 yr old earning a monthly salary of $5000, he/she is eligible for a loan of $599,253 if the purchase is a Private property. Whereas, the loan amount drops drastically to $299,627 in the case for HDB flat purchase. HDB prices has since corrected and are "pegged" to income levels of the average Singapore worker. Large price increments of the past are unlikely to reoccur.
If you intend to sell your HDB above your buyer's MSR limits, chances are you are going to face difficulties selling the property at your ideal price.
2. Three Years Wait For Permanent Residents (PR) Steers Them Towards Private Homes or Rental (Aug 2013)
In 2013 there was another cooling measure that was announced. Permanent Residents (PR) will have to wait three years to buy resale flats after receiving their PR status.
This was a measure implemented by the government to ensure that PRs are not crowding the HDB resale market. The idea is to keep HDB flats affordable for Singaporeans. With such implementations, PRs who are looking at saving on rent may consider to purchase a private property instead of waiting for 3 years to purchase a resale flat.
Yes, these cooling measures do make flats more affordable for Singaporean buyers however once it comes to selling your flat when the MOP is up, your sale price will be dampened by the same cooling measures. The truth is, you might not even turn a profit from your sale.
3. Cash Over Valuation (COV) Removed
Prior to 2014, sellers focused on Cash over Valuation (COV) to determine asking price. COVs set by sellers would often get higher and higher based on what their neighbours have sold at. This brought about heightening quantum, whereby buyers ended up paying more than the fair valuation of price.
However, a change in the HDB sale process made the buyers responsible for doing the property valuation instead of the sellers. Buyers have since been very careful when it comes to giving an offer. Any offer above the valuation will cause the buyer to fork out additional cash to pay seller, on top of the valuation. This resulted in many cases where COV was at $0. Gone were the days where Sellers made good money from COVs!
4. Owners Of Private Property and Foreigners Are Not Allowed To Buy HDB
You may like to target Private property owners when selling your HDB flat, since they probably have a higher disposable income and would be able to afford a higher priced flat. Unfortunately, private property owners are not allowed to purchase a HDB flat unless they sell their private property within six months of the effective date of purchase. Therefore, this group of buyers will be relatively rare.
As for foreigners, it is a strict NO for purchasing HDB flats. Is in line with the government's policy to fend away competition for Singaporean's buyers as well as to keep HDB flats affordable.
5. Additional Buyer’s Stamp Duty
On 5 July 2018, the government announced that individuals who would like to purchase a second property would have to pay an additional 12% buyer’s stamp duty (ABSD) on top of the existing 3% buyer’s stamp duty.
This simply means that if you intent to keep your HDB flat and purchase another property, you will now have to pay an additional 12% of the property price.
Below is the ABSD one will incur when purchasing a property for the different buyer segments:
Assuming you want to buy a second property that cost $1M. You will have to fork out an additional 12% ABSD which works out to be $120K. You will pay 120k more than your neighbours for the same project and will need to sell at a higher price in the future to make the same profit.
This unfavourable position resulted in a rising trend where couples would sell their HDB. This frees their names up to each own a private property without having to pay ABSD. With more couples selling their HDB flats, this contributes to the supply of resale properties in the market, again challenging the already flooded market.
6. Increase In Supply of Build To Order (BTO) Flats
Between 2014 to 2018, there are some 25,000 BTO units which were released every year. From 2019 to 2023, we will see a record number of BTOs entering the resale market. Way surpassing that of Private homes and ECs.
The supply of resale HDBs in the market is another factor that may directly impact your ability to sell your property at the right price.
Can you imagine the number HDB resale units in the market when these BTO flats reach their 5 years minimum occupation period. It will be a challenge to sell with so many supply in the market.,
7. Not All Flats Will Be Eligible For Selective En-Bloc Redevelopment Scheme (SERS)
And here comes the last point. Our housing minister, Mr Lawrence Wong has through various newspaper articles addressed concerns with regards to home buyers forking out high prices to purchase older flats, hoping to benefit from SERS. However, SERS is a selective scheme, it is clear that not all HDB owners would benefit from it.
It was emphasised by the government that when HDB leases of 99 years runs out, they have to be returned back to the state. Hence, prices of flats near the end of their lease period may come down. This may further impact the resale market for HDB, bringing prices down.
As property is the preferred retirement asset in Singapore, it is natural for homeowners to want to leverage on it and enjoy a comfortable retirement. However, based on the above factors discussed, would your HDB flat really be a worthy asset to keep till retirement?
Now that you’ve made it to the end of this article, it should be clear why your HDB flat is no longer making money like how they used to for your parents or even grandparents. This is especially so for HDB bought after 2013. As such, it is not wise to buy a HDB flat just because you can afford it, or because all your friends are buying it.
HDBs are unlikely to experience much capital growth over the next decade. Upgrading to Executive Condos or Private property will enable you to better protect and grow your wealth for retirement.
If you are currently a HDB owner and would like to find out more information about how you can upgrade to own a private property, do visit my page on Property Wealth Planning where successful HDB upgrading cases are also documented and reviewed by my clients with testimonials.
About The Author
My passion is to serve my clients in building their wealth through property investments.
With my prudent planning, creative tax and financing strategies, it is possible to start your investment journey earlier in life and make time work in your favour for maximum wealth growth.
I will be glad to have a chat with you to learn more about your goals and current situation and provide you a step by step road map towards owning multiple properties.
Jacq Ng 9764 2556