There has always been a debate on whether HDB owners, especially BTO owners, should sell immediately when their flat reaches the 5 Year MOP mark.  The debate mainly revolves around whether you will be able to make a higher profit if you hold on to your HDB longer or the peak growth of your HDB will be its MOP year.

However, some points have to be considered that might be more important than profit from the sale of your HDB.

In this article, let us explore some of the key considerations that you need to pay attention to.

Top of the list is Age.

For many young Singaporeans, most of us will go with the route of balloting for a BTO flat for our first home. Taking myself as an example, I balloted my flat in 2011, and my flat only hit MOP in 2020. At that point, it had already been nine years since I balloted my BTO flat.

Similarly, most BTO buyers will be waiting between 9-11 years, depending on the time it takes to build their flats.

If a couple had balloted their BTO at a young age of 25, that would mean that they would only be able to sell their first home at age 34-35.

Couples who found love later might be looking at selling when they are almost 40 years old.

Why is that important?

With the current monetary policy, any individual will only get a 75% loan with tenure up to a maximum of 30 years, suppose they are 35 years or younger. For anyone above 35 years old, the banks will only be allowed to offer a loan tenure using 65 minus their current Age. 

For a 40-year-old, that will be 25 years.

So, why would it matter?

The main concern would be the monthly instalments.

For a couple looking to upgrade to a $1.2m property in the OCR region, the monthly instalment for a 35-year-old will be $3,104 at an interest rate of 1.5%. 

The 40-year-old will be paying $3,599.

That's a difference of close to $500 per month. 

I don't know about you, but $500 per month makes quite a big difference in the monthly expenses column for my family.

The older you are, the more you would have to pay in monthly mortgages.

Second, when HDBs rise in prices, so does Private Properties

As we can see in the graph above, private properties over the past 20 years have grown more than HDB.

It would mean that while you are waiting for the price of your HDB to go higher, the cost of the private property that you are eyeing would have gotten higher too.

When I sold my HDB in 2020 and purchased my private condominium, it was a price that I could afford comfortably.

If I were to wait until today, I could have made an extra $40,000 from my HDB sale ( based on actual transactions recorded in both periods ), but the same unit that I bought would have cost me close to $100,000 more.

It's a lose-lose situation! 

I could have made $100,000 on the private property instead of $40,000 if I had made a move earlier. 

I also run the risk of not being able to afford the unit if it has risen too much! The recent cooling measures which reduced the Total Debt Servicing Ratio would have also affected my ability to purchase the unit. Also, the same unit would not be available 2 years later if it's a new launch development.

Luckily I sold in 2020 and avoided this wrenching situation.

Third, the opportunity cost of dormant capital

Say you and your wife bought a $300,000 BTO HDB and took a HDB loan on it.

Together, you paid down $150,000 over 5 years, and your loan amount is $150,000 now.

Currently, you can sell your HDB at $450,000.

Scenario 1:

You choose to sell and subsequently buy a private property at $1m. You paid a $250,000 ( $150,000 in CPF and $100,000 in cash proceeds) down payment and took a loan of $750,000 from the bank. 

You used the remaining $50,000 cash proceeds for Buyer Stamp Duty, Agent Fees, Lawyer Fees and Renovations.

Your monthly mortgage is $2,588 at 1.5% interest rate.

You both contribute a total of $1,260 per month to your CPF OA account and need to top up $68 in cash per month to pay the monthly mortgage.

Scenario 2:

You choose to stay put in your HDB and refinanced your HDB loan to a bank loan at 1.5% interest rate.

Your monthly mortgage is $518, fully paid with CPF.

3 years later.

During these 3 years, the property market saw a boom, and the price of all properties rose by 20%

In scenario 1, your $1m property is now worth $1.2m, and in scenario 2, your HDB is now worth $540,000.

The difference in profit is a whooping $110,000.

Please wait a minute. What about the money I saved in my CPF generating interest if I did not sell my HDB?

Ok, let's calculate that.

You would have saved $72,000 in your OA account, growing at 2.5% per annum. For simplicity, let's calculate the interest earned as thou $72,000 appeared right at the start.

You would have earned roughly $5,500 in interest.

So the difference in profit is now $104,500.

Wait again, how about the interest I would have paid over the years?

Ok, let us add that too.

For scenario 1, the total interest paid over 3 years is $32,400. For scenario 2, it's $6,500, and that's a difference of $25,900.

So now the difference in profit is $78,600.

Even if you add up the property tax, maintenance fee ( you get to use the facilities, and car park fees are included ), and the $68 per month paid with cash, the difference in profit will still be more than $60,000.

Obviously, these overly simplified scenarios assumed that the HDB and private property both grew a fascinating 20% over 3 years. ( Between May 2020 and today, the average growth of private properties in the OCR region was 19%, and HDB entirely was 20%, see graph.)

But you get my point. 

Using only the capital from your HDB, you could earn $60,000 more in a home you are staying in, with minimal difference in monthly cash output.

It is not difficult to find a private property in the same neighbourhood as your HDB that will grow at the same rate as your HDB. So, effectively, you still stay in the same area and access the same amenities in the immediate region.

( If you want to learn how you can identify high growth private properties, reach out to us to learn about the 7 Steps Framework we use to help our clients find such properties ) 

These 3 considerations are the critical ones that you should carefully think about, especially if you already have an idea of upgrading. 

So, Is it worth waiting?

If your HDB is coming close or at its 5-year MOP mark, I strongly suggest that you evaluate whether the value of your current HDB can allow you to upgrade to private property without touching your savings.

And suppose your income can allow you to afford your next dream home for your family at minimal changes in your monthly expenditure in cash ( as portrayed in the above scenario ). In that case, I recommend you make your move now.

If you need assistance with your plan, reach out to us here.

Conclusion

In Summary, the 3 points above all show that moving early into the private market has big advantages. If you had never considered moving on to a private property, I hope this article has given you an insight into why more and more young Singaporeans are choosing to do so.   

We recommend starting your planning by going through all these points yourself or with a professional.

• Thorough Financial Calculation

• Affordability Assessment

• Timeline Planning

• Property Purchase Evaluation

• Property Portfolio Planning

If you do not know how to do that yourself, we can help.

Reach out to us to book a consultation session to cover them entirely. 

The session is entirely free and can be done via Zoom.

Fill out the form below, and we will reach out to you or simply click the link below to go to our appointment booking page and book your consultation slot.