Can your HDB safeguard your retirement?
Today we will take a look at the HDB market to find out what are your options as an HDB owner and if your flat can see you through your retirement. As property prices continue to soar, we have witnessed some record-breaking HDB transaction prices in the recent years, the lifestyle and ambitions of the younger Singaporeans have evolved tremendously as compared to their parents. Many more young HDB owners are seeking upgrades to private homes. Are you one of them?
This might be a daunting process for some as there are many factors to consider and especially if you are not familiar with the finances and lack the insights of the market.
The illustrations probably can sum up the concerns one might have regarding the investment in private homes.
Factors such as the fear of servicing heavy mortgage loans, incurring additional expenses each month, and the constant nag by the older generation telling us that HDB flat as the first purchase is the safest bet and to work hard & save so as to have a better retirement.
It may then seem easier to just avoid this discussion altogether and choose the comforts of being ignorant and continue happily staying in your current home. It isn’t a bad choice or wrong choice, but ultimately, is that the best choice for one who wants a better lifestyle or earlier retirement?
Read on if you want to find out what is best for you. I am pretty sure by the end of this article; you’ll have a good idea on what’s the best move that would benefit both you and the family.
Figure 1: HDB resale price (%) index
Let’s take a look at the HDB price movement chart (Figure 1) above, which shows the quarterly resale price index over a 10-year period from 2011 to 2021. In 2013, the government introduced a cooling measure: Mortgage Servicing Ratio (MSR) which redefine how HDB buyers’ loans are assessed. This move has affected HDB prices causing the market to dip for several years and only rebounding in 2019. Why did the government do that? It is to slow down the escalating HDB resale prices that would cause the resale HDB market to be out of reach for many young couples. After all, government has to help keep public housing affordable for generations to come.
Even though it took about 8 years for the HDB resale market to hit its previous peak, there were many opportunities that a HDB owner could have taken during that period. Many have gone on to upgrade their property to an Executive Condominium or even a private property and have made capital gains. If you feel like you’ve missed the train, it is not true, there are still plenty of opportunities for you! Take this chance to learn more and avoid similar mistakes. Later in the article, we will be taking a look at some examples of those who took action and how they have benefited from it.
Before that, let's take a look at a particularly case of a hardworking couple who kept their HDB flat for 30 years expecting it to appreciate. In the end, they actually made a loss of more than $160,000!
As you can see above, the combined amount paid for the flat is over $700,000, and unfortunately, the valuation of the flat is only about $612,000. This is a typical example of a negative sale, as the sales proceeds is not enough to refund the accrued interest of CPF. Can your flat price appreciate enough to defray the interest incurred by your mortgage loans and CPF interest?
When your parents tell you to buy a HDB and stay there until you are old, does that strategy still work? After seeing the example above, do you want to end up with a loss when you are 65 and about to retire?
In late 2021, our government introduced another round of cooling measures to slow down the red-hot property market. The latest additional measure has little impact on the HDB market even with their plans to increase the supply in the market and the introduction of the new Prime Location Public Housing for HDBs. (Watch my video on the new Plus and PLH flats) Will these eventually cause a slowdown in the HDB market? No one will know for sure, but how much further can the prices of HDB continue moving upwards? Figure 1 clearly shows HDB prices hitting a new peak. With that in mind, what should HDB owners do?
Figure 2: Punggol 5-room HDB flat transaction history for 2012 & 2019/20
Looking at Figure 2 above, comparing the prices of a 5-bedroom flat for Punggol in 2012 & 2019/20 respectively we can see a huge difference of $200,000. What a painful loss for those who held onto their flats! On hindsight, with the right advice and immaculate timing, such things can be avoided.
Imagine you are one of those well-informed owners who exited at the right time and went on to buy a private property at Riversound condominium in 2012. You would have easily made a whopping profit of $300,000 on an average as seen in Figure 3 below.
Figure 3: Riversound condominium profitable transaction history
By now, many of you are probably thinking this is easy to say looking at all these charts and figures in retrospect. One of the biggest concerns you’d probably have is if you could pay off the monthly mortgage loans without over-leveraging? It might seem difficult when you do not know what options are available for you. When making such decision, it is important to work out a financial plan. With a fool-proof plan, many HDB owners managed to upgrade without the stresses of mortgage loans.
Hit me up if you hope to avoid being in the same situation as the the old couple above or want to know how to plan ahead.
If you are keen to find out what are your options, feel free to WhatsApp me for a non-obligatory discussion now!
