If you’re choosing between a resale flat and a condo, read this - 99.co
“Resale HDBs are bad investment, you sell confirm lose money”
That’s what every agent says when they’re advising you between a resale HDB flat and a condo. And you know what? They have a very good reason to believe so.
Because it’s true. Investing in private property is one of the best ways to make money in Singapore
After the government finally clarified that HDBs do expire after their 99 year lease, the prices of resale flats have tanked.
HDB resale prices have fallen 11.50% since 2013, even before the government said that the 99-year thing was gonna be enforced.
Condos on the other hand, have consistently made money since the beginning of Singapore’s existence.
Capital appreciation of Singapore condos is 32.49%, if you’re counting from 2009
They’re also pretty decent in the short term too. If you take advantage of a developer’s early bird discount – which sometimes is as much as 10 per cent – there’s a lot of money to be made. After all, 10 per cent of a $1,000,000 condo is already $100,000.
So, why the hell is a HDB a good investment?
#1 The Rental Yield Argument Yes, apart from BTOs and other newish flat’s (and some other special cases), the future seems bleak for the HDB resale appreciation. If you buy a HDB with 50 years lease left today, it is most certain that you WILL sell it at a loss.
But hang on, property investment isn’t ALL about capital appreciation. It’s also about rental yield.
Which to oversimplify things is the <total cost of your property>/<how much rental income you can collect for a year>
And when it comes down to it, HDBs can have far better rental yield compared to their condo counterparts, simply by virtue of how affordable they are. (Note: Depends on rental income generated as well. Condos do tend to generate higher rental income than flats, which can sometimes offset their higher costs
A case study:
Suppose you get a really affordable three room $280,000 flat at Queens Close. One of those with approximately 50 years left on the lease.
If no reno is needed, that’s actually only $230,000 after your $50,000 resale grant. Assuming you rent it out for five years after your MOP for a modest $15,000 or $18,000 a year, that’s actually a whopping 7.8% rental yield.
You’ll break even in approximately 13 years, maybe even sooner, if rental rates keep up with inflation.
That leaves a remaining 37 years left for you to collect rental income.
“Wait… 13 years just to break even? Isn’t that a bad investment?”
If you look at that alone, yeah sure. That $280,000 HDB resale is a shitty investment. Historically, some condos appreciated 300 per cent during the same time frame.
So yes, if you could afford a condo but went to buy a resale HDB, you would be giving upon some pretty insane capital property appreciation.
“And where are you going to stay if you’re renting out your HDB?”
Good one. You got us there. To even rent out your HDB, you’re going to need to buy another property/live somewhere else. If you buy another house, you’d be subject to ABSD.
(If you bought the HDB with a spouse, you can decouple, and then one party can buy the house while the other holds the flat. Then there’s no ABSD).
So all in all, this whole ‘rent your HDB idea’ is pretty optimistic – realistically only people who:
1) live with their parents
2) aren’t intending to live in Singapore can take advantage of the high rental yield for HDB flats Which brings me to the second argument.
#2 A HDB will never make you money. But it will tie up less capital:
(No form of property investment truly gives you liquidity, as the asset class is by definition illiquid. There is no easy way to cash out in an instant)
Assuming you bought a $770,000 condo today in 2019, you would have locked up $225,000.
If you bought the $230,000 HDB resale, you would have only locked up $57,500.
Now, that’s a difference of $167,500.
For the first option, you would be putting all your eggs in some basket (a pretty safe basket, no less). You’ll be giving up on other forms of investment – namely the stock market.
Here’s what $167,500 might look like if invested into popular global index funds over the past 10 years vs a condo.
Kept in a biscuit tin
(0%)
S&P500 (257.752%)
MSCI (IWDA)
(183%)
STI (ETF)
(12%)
Average Condo prices
(67.91%)
$167,500
$430,475
$306,525
$187,600
$281,249
But wait, all this depends on whether or not you buy the right stocks…
You’re right. But the same argument can be made for property. Whether or not you make huge gains or painful losses depends on whether you buy the right property.
In the same way you can argue someone buying the Sail made 300 per cent in three years. You can argue that the same person could have made 90 per cent by buying Tesla stocks over the past three months.
Okay, now what?
We’re not saying property investing is a bad idea. We’re also not saying you should sell your home and buy HAIDILAO stocks (Up 72% since Jan 2019 at time of writing)
What we’re saying is this that this notion of ‘buy HDB, sure lose money’ can be pretty dangerous.
Why?
Because it pushes people to over-stretch for a condo when their finances don’t allow it. In some cases, it might event result in property being the ONLY thing people invest in. Which results in a lack of diversification. It sees things purely from the eyes of a property investor, and even though we LOVE property, “Buy HDB sure lose money” isn’t a fair statement to make because it assumes the HDB buyer won’t make any other sort of investment.
To oversimplify things, we’ll say this.
If you like commitment and aren’t concerned and can afford it, buy a good condo to invest.
But if you can’t afford a condo yet, don’t fret. It’s better not to overstretch yourself. Buy an affordable HDB. Invest in the stock market – the gains are not to be scorned at, either. You can always buy that condo later.
