Is Your HDB Flat an Asset or a Liability?

Is HDB an asset or a liability KaiHub

HDB prices rose in 2021 by a whopping 12.9% in 2021.  11.5% in Matured Estates and 14% in Non- Matured Estates.  But are HDB assets an Asset or liability?  The topic has become a hot debate over the years, and contested passionately many times in Kopi tiams all across the island. 

We’ll try to give some insights using data over the previous decades to see what we can uncover.   However, there is a slight problem. The past two years have witnessed impressive growth in the resale of these flats during covid.   People are again hopeful that these HDB could be treated as an asset in the future. Therefore, let’s take a deeper look into the world of HDB along with several important factors that decide whether these flats can generate considerable profit for their owners.


Understanding The Definition of An Asset


To understand whether HDB flats could be termed as assets, it is important that you first understand the definition of an asset. In simple words, an asset tends to be a resource with an economical value owned by an individual, corporation, Government, etc., with the expectation that it will provide benefit in the future. 

In addition to that, assets are also resources used by businesses to accomplish their main goal. Businesses can use these resources to invest and create multiple sources of income. Therefore, with time or at a certain point in the future, an asset benefits the owner when sold or exchanged.

What is Asset Progression? It sells one asset class and then moves up to the next class like climbing a ladder. Does HDB offer that?


Understanding The HDB Concept


Now that you are familiar with the concept of owning assets, it is now time to move towards the HDB concept. Back in the ’60s, Singapore was facing a serious housing crisis. In response, the Government introduced HDB on 1st February 1960. HDF flats aimed to provide affordable and quality public housing to those with nowhere else to live.

Therefore, it could be easily said that the Government using its mainland sales agent URA (Urban Redevelopment Authority), provided these flats solely for living purposes and not investment. The Government offers the flats at subsidized rates and provides Grants. These Grants help lower the prices of the flats even further, which does not leave any reason for Singaporeans to live without a home. 

However, there is a dark side to owning these flats as well. While subsidizing these flats is one thing, the Government puts a lot of restrictions and regulations on it. Even though the market decides the rate of these flats, the Government’s invisible hand mostly controls the entire process.

This is why the capital appreciation of HDB flats cannot be as high as private properties in Singapore. Today, the problem with HDB flats is that the previous years’ statistics are not so impressive. Things are changing drastically, and the past two years cannot guarantee a beneficial run in the coming years. 

Therefore, the HDB flats may not be sold at huge profits today, like they did 10-20 years ago. Remember in the 80s and 90s where you would buy a BTO for $250k and sell it 5 years later for $480K?  Those insane rise in appreciation hasn’t happened in Singapore in the last 20 years; At Least!!

An important factor to keep in mind is that the Government of Singapore allows people to draw some money from their CPF accounts to own HDB flats. However, people mostly neglect if they use the CPF fund for HDB flats; they will have to return the principal into their CPF accounts and accrued interest if they sell them.

This means that the accrued interest might accumulate to the point where you won’t be able to make a profit from the resale of your HDB Flat.   Unfortunately, this happens a lot more often than expected.


What Is the Impact of CPF Accrued Interest and the Case of Negative Sale


To understand the impact of CPF Accrued Interest, we will share an example. Suppose you have CPF OA savings of $200,000. With CPF, you would have gotten 2.5% interest each year. However, if you decided to use the funds to purchase an HDB flat. Here is how it would go down. 

First thing’s first, you will stop earning that 2.5% interest. Plus, you will have to return the $200,000 along with the interest that you were supposed to earn upon selling your house. At a 2.5% interest rate, your $200,000 will grow to $327,723 in 20 years. 

Keep in mind that this accrued interest will continue to grow even if you have fully paid off your mortgage loan. Assume that you need a huge sum of money for an important reason one day. You might want to sell your HDB flat to get some cash. 

But first, you will have to return the CPF accrued interest, which means you will receive less cash after selling your HDB. This also means that your HDB’s capital appreciation is not high enough to cover the interest loss. Hence, the Negative Sales. 


Is Your HDB An Asset or Liability?


To find out, we must consider the HDB price index.

HDB price index 1990 - 2021

According to the HDB resale price index, the prices have declined since 2014. Even for 2020, the first three months were flat. In addition to that, the HDB also offered thousands of new BTO flats last year. 

With thousands of BTO flats being offered, buyers will have several options to consider and may not look to resale HDB. As a result, the demand for HDB resale will drop. With that said, it is not appropriate to think of HDB flats as an asset or investment. 


Non-Landed Private Property Price Index Vs. HDB Resale Price Index


Apart from the HDB resale price index, there was a time when HDB RPI and PPI used to have some correlation. However, in the third quarter of 2017, the pattern stopped and took another direction. Now, the PPI was increasing while the HDB RPI was decreasing.

Straits Time published three articles in March, April, and June of 2017, which made people realize that HDB flats cannot be assets, after all, considering Singapore property prices trends. If the HDB RPI decreases while the Private Condo appreciates, what would happen to your HDB flat if you held onto it.

Then again, the main reason HDB flats are depreciated is that the Singapore Government has to regulate its prices and keep them affordable for the upcoming generations. Since they are meant for public housing, there is not much you can do about them to treat them as an asset. But now that HDB flats are seeing the best annual growth in 10 years, does it change anything?


Are HDB Flats Still Assets Today?


According to many, HDB flats are not assets. The primary reason is that they do not provide any considerable benefit to their owner. And since the URA master plan regulates them, the market cannot do anything much about their prices as they are not identical to other private Singapore property prices.




HDB Price index 2013-2021 kaihub

However, while the country appreciates that the Government is trying to make housing affordable, it is also trying to create a Catch-22 situation, especially with the cooling measures introduced. Yes, there is no doubt that these cooling measures make the flats more affordable for homeowners, but that is the Government’s perspective.

What if you are on the other side of the fence? Once the Minimum Occupation Period is over, you might be tempted to sell your condo, but the same cooling measures will bring the prices down. As a result, you might not be able to earn a single penny’s worth of profit from the sale.


The Accrued Interest Rate Is the Worst


There is only one upside to the CPF. If you are earning well, you can use your CPF money to pay off the entire flat without having to touch your cash savings. However, then again, you need to keep in mind that you will have to return the cash proceeds to the CPF account upon selling the flat, including the accrued interest and the sum you used to pay off the loan. 


What Does It Come Down To?


The thing is that when countries like Singapore, South Korea, and Hong Kong do well economically, the prices are meant to shoot up. Therefore, these countries also end up with the most expensive properties. Even though Singapore has had a fair share of the pie, considering the Singapore real estate and Singapore landed property price trends, it would be unrealistic to think HDB flats are profitable assets. 

With that said, you shouldn’t blindly purchase HDB flats, thinking that they will sell at a huge profit in the coming years. It did happen 10 or 20 years ago, but things have significantly changed today. And since no one knows what will happen in the future, unpredictability is another factor that worries homeowners. 


Final Word


In the end, it should be clear that HDB flats should not always be considered in the true classic definition of an Asset. It mainly depends on many important factors, such as the accrued interest rate and the market conditions. The only problem with HDB is that the Government controls it one way or another and for the the Greater Good; Keep Housing Affordable for the masses.  It is a lot better to consider it as a Stepping Stone on your Asset Progression journey and most importantly a place you that can shelter you.

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