Am I Benefiting From My Existing HDB?

Published by Jasleen Yeo on


This has been a hot topic recently that set lots of us thinking hard about it. And we should be, cos it is our hard-earned money and possibly our retirement fund. And the scenario today is very different from our parent’s era.

Why? Let’s explore.

In February 1960, the Housing and Development Board (HDB) was established to develop public housing and improve the quality of the living environment for its residents.

In 1964, the Home Ownership Scheme was also introduced to help citizens to buy instead of renting their flats.

Government has done a great job in providing all Singaporeans a roof over our heads since they gained independence. We have done so well that other countries are so impressed and said we are the best’ and we even have some tried to model after us!

And we are probably the only major city in the world where nearly every young couple getting married can afford to buy their first home immediately. In other major cities, young couples can only hope to rent a flat, and the monthly rent can cost up to 40 per cent of their household income, how are they going to save for their holidays, children’s education or even retirement?

However, the primary goal back then was just to provide a roof over our heads and to improve the living standards of a Singaporean. However, as the economy grows, as people gets more educated with more disposable income, HDB flats are no longer serving that simple need. We want more!

We have seen our parent’s flat appreciate over the years, sell after 20 years and still gained a healthy profit to provide for their own retirement fund. They had grown with Singapore and had seen their estate from nothing to a mature estate with schools, market, bus interchange and maybe even the best, MRT.

But these has changed over the years. If we had bought a flat near our parents, to enjoy ‘near parent proximity’ grant, to have them to babysit our children or easier for us to take care of them, when the flat was 20 years old. After staying for 20 years, our flat will be 40 years old and we suddenly realized we are holding a depreciating flat. So sad and cruel!

Why is that so?

Our property prices are very much affected by the government policy, if HDB flats are going to remain affordable for most Singaporeans, how much more appreciation will we be expecting? And how long will we expecting it to happen? And can our balance lease catch up with it?

How does our flat depreciate over time?

Let’s take a look at this chart

Thank you for reading hard into the chart and face the reality! Who want to stay in a depreciating flat!

So now, we banged on this thought, ‘no worry, government will en bloc my flat, they will give me a new flat in the vicinity and will give me a higher value of my old flat’. But it is not something that sure to happen anymore.

Do not assume that your flat will be chosen for Selective En bloc Redevelopment Scheme (Sers) when the lease runs out, warned Wong in a blog post in March 2017. Singaporeans, many probably for the first time, found out that only 4 per cent of HDB flats have been chosen to undergo Sers since the programme’s launch in 1995. The post was meant to caution some home buyers who were shelling out as much as $1 million for older flats, gambling on their Sers potential. But, judging from the online chatter and letters to The Straits Times’ Forum page, the post has got many owners of ageing HDB flats worried and increasingly frustrated.

And not forgetting the longer we used our cpf fund to finance the flat, we end up with lesser cash proceeds. There goes our retirement fund!

Assuming you used $400k from your CPF, the accrued CPF interest is about $10k per year. Do take note it is a compounding 2.5% interest rate. You need to use a compound interest calculator to check.

Now, the moment when your HDB flat doesn’t appreciate by $10k that year, you are actually losing your funds.

These are basically funds or “property appreciation” you have made previously from a good property market.

So when the HDB flat gets older and appreciates slower than your interest, then you will end up actually losing a lot of your funds unknowingly.

As more time passes, the CPF accrued interest increases in a compounding manner.

For a bigger principal, the accrued interest will be just become larger and larger.

And at the point when you have fully paid off the HDB, that is when the accrued interest really starts to increase significantly.

Let’s say you have a place to stay and could rent out your hdb, what kind of figures are we looking at?

Assuming $2k x 12 months x 30 years* = $720k Rental Income

(You will need 30 years to make $720K!)

However this rental income is NOT guaranteed. You will have some months not rented out, some maintenance/renovation cost along the way, replacement of furniture/white goods and agent’s commission. At the same time, you also lose 30 years of the HDB lease.

Remember, an older HDB flat might not be attractive to tenants. There is also a good chance that your HDB flat will not appreciate as much once the flat turns 40 years old.

So, what are our options?

Buy new cond? Buy old condo?

Everyone wants to be able to upgrade to a new condo, right? Everyone wants new condo, right? But we are complaining about a smaller built-in area and higher psf. But the developer hears you, cos if they build an area as big as the lower condo, it will meant many of us will not be able to afford a private apartment! It is about quantum now, not psf. The market can absorb the high psf eventually

And you always ask, why should I buy a new condo.

Let’s do a comparison between the new condo then, Commonwealth Towers vs the older condo, Queens.

Location between the 2 condos.

See the price appreciation between the 2?

And look at the profits gained in about 5 years, and who says low floor are not good units. It gained $345,300 vs $336,300 for a 26th floor unit.

Looking back at the profits, it is a cool $69,000 a year which is not the rental to expect for Queens! And you do not have to worry about not having the right tenant, renovation/maintenance, and yes, no maintenance cost during construction. Not forgetting a lower instalment when the condo is still under construction. That is how much you had saved to have if you had a unit in Commonwealth Towers back then!

You though you had missed the boat, don’t worry, there are many more units in the market for you to choose and make that kind of profits!

And we need to know benefits of an investment and what we want them to do for us:

  • Generate Positive Cashflow (pays us money)
  • Generate Capital Appreciation (grows in value)
  • Provides us leverage for some additional value (Monetary or otherwise)

I hope the above do take away some of your headache, if not all.

But don’t worry, we are more than happy to sit down to clear your doubts over a cup of coffee.

Categories: HDB


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