One of the most asked questions before people buy properties in Singapore is which do I buy? HDB or a condo?
Housing – It’s the most significant expense and the most common investment for most individuals and households. Whether you are opting for an HBD flat (new or resale), a private condo or premium landed properties (based on your affordability and housing needs), it’s likely that you’ll spend more on a housing transaction than anything else in your life.
On the other side of the spectrum, real estate is also the most significant asset you have for selling, and it’s a holistic investment asset. It can help you generate passive rental income (at or before retirement), once you’ve lived in it for the Minimum Occupancy Period for HBDs. It can serve as a retirement nest egg and offers capital growth as its value appreciates.
The important question is which housing type makes for a better investment: HBD or private.
HBD vs. Private Condos: The Better Investment Choice
For a true “apples to apples” comparison, we will stick with HBD flats and private condos. HBD’s predecessor SIT, did build a few landed houses, but the number is too small to be of statistical importance compared to HBD flats, which house about 80% of the Singaporean population.
So let’s assume your choice is between HBD flats and private condos, which is only practically a choice if you have a budget for both. You can buy both at the same time but in the right order, i.e., HBD first and private condo later. If you are a Singaporean permanent resident (PR), you have more choices than a non-Singaporean PR (who can’t buy HBDs at all), but still fewer choices compared to a citizen.
Let’s see how an HBD flat and a private condo serves as a/an:
- Retirement nest egg
- Capital asset (which relates to their appreciation potential)
One of the ways an HBD flat or a private condo in Singapore serves as an investment is by creating a passive income stream for you, in the form of rent. The rental income is taxable but there are a lot of expenses you can claim on the rental income to reduce your tax burden.
The two main factors that determine which one is the right investment asset for you (between an HBD flat and a private condo) are cost and time.
There is a significant cost difference between the two. A two-room Flexi BTO (in a mature estate) might cost you about $278,000 at most. The price is significantly lower in a non-mature estate (around $162,000 at max). On the other hand, the price for a two-bed private condo (lower range) would be somewhere around $800,000 and can easily be $900,000.
The price of private properties is usually three times higher than CBD flats and can easily be four times higher (for larger, five-room flats). Executive condominiums (ECs) are considered the bridge between the two but the price leans more toward private. Resale HBD flats, on the other hand, lean more towards BTOs.
The second factor is the time cost for HBD properties. You can rent out your whole HBD flat if you’ve lived in it for at least five years (Minimum Occupation Period). It’s the same for resale flats and BTOs. If you have a three-bedroom or larger HBD flat, you can rent out a bedroom (subjected to certain restrictions).
The time cost can be significant. Let’s say you can rent out your HBD flat for $2,000 a month and you have to wait for five years to rent it out, the lost cost of opportunity would be $120,000. But since you can’t hold two HBD flats together and the “choice” really kicks in once you have both, an HBD flat and a private condo, you can rent the private property out until you’ve passed the minimum occupation period barrier.
The occupancy cap might limit your tenant pool in the case of private property.
2. Retirement Nest Egg
A private condo can serve as a retirement nest egg in two ways: It can offer you rental income in retirement, to augment your CPF income. Or, you can sell it for a higher price than you bought it for and make a profit. You can invest the sum in a different asset or an annuity plan or take a vacation.
An HBD flat can serve you in retirement in three primary ways.
- You can rent it out (the full flat or a bedroom or two) to generate rental income in retirement. The benefit of partial rental is that you get to live your golden years in a familiar environment.
- You can take advantage of the Lease Buyback Scheme (LBS) which entails you selling your remaining lease to the HBD. The HBD pays you by topping up your CPF payments (via CPF Life) and once you’ve maximized it, you can get up to $100,000 in cash. You also get to live in your flat till your last days.
- You can pursue right-sizing (or down-sizing) with Silver Housing Bonus (SHB). The practice involves downgrading to a smaller flat after retirement and the difference between the price of the larger flat you sell and the smaller flat you purchase can fund your retirement (starting with topping off your CPF).
It’s important to note that once you’ve taken advantage of LBS or SHB, you can’t rent out or sell your HBD flat.
3. Capital Asset
In 2018, the Singapore government took steps to cool off a relatively hot property market, and its impact was quite drastic on the capital appreciation of private properties. Most properties are hit a peak around 2017 and started sliding down. For one property, the unit prices have actually dropped from mid-2015. The trend, while more or less the same for most projects, might indicate that private condos might not be a very rewarding asset for capital appreciation.
The same trend can be seen in some of the most popular HBD projects as well, although a few have started appreciating in 2021 again.
The problem is the long-term capital appreciation potential of real estate in Singapore. The government has introduced measures to keep housing costs manageable and relatively affordable by introducing measures (most significantly) in 2018 and 2011. While that’s amazing for homebuyers, it significantly reduces an attractive component of real estate as an asset (capital appreciation). What is the capital appreciation today?
There are several factors to take into account when you are considering investing in HBD flats or private condos in Singapore. The best place to start would be to identify your investment goals(what are some good investment goals to consider?). For sellers, it’s imperative that you study the market, your prospects, and your financial goals before you consider putting your hard asset on the market (for resale or rent).
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