3 Ways To Avoid The Drop In Value Of Your HDB Flat

Updated: Nov 18, 2020

Critical factors to consider when your HDB is reaching MOP

HDB Flat - How To Upgrade To Condo Today

Have you been planning on upgrading your HDB once it has reached it's MOP (Minimum Occupation Period)? But have decided to halt your upgrading plans due to the current Covid-19 situation in Singapore. If yes, this article is for you!

We understand that upgrading to a bigger HDB flat or private residential property can be a big step to take. Especially more so with the virus outbreak and the economy not looking too good as we progress into the second half of 2020. It comes as no surprise that both buyers and sellers like yourself are concerned about where the real estate market will go and how the virus will affect the property market in the months to come.

Before we dive in, let's take a look at HDB's current price trends..

HDB resale prices have dropped 22 quarters since Q4 2012. There are many reasons for the decrease in price index, such as cooling measures, Enhanced Housing Grant, ageing HDB flats, supply and demands etc. There are of course some lucky owners who have made a profit after selling their MOP flats as they bought direct from HDB (BTO flats) at a subsidised rate.

However, there are also owners who have made a loss as they bought these flats at a premium and have spent thousands of dollars on renovation. Fast forward 5-10 years later, these owners choose to hold on to their flats knowing that if they sell, their paper loss will become an actual loss.

Despite noticing that the value of their flat is decreasing each year as their flat gets older, they don't do anything or rather have no idea how to exit and choose to continue living in their flat thinking its the safer option.

It is important to protect your hard earned money and savings by learning the right time to exit the market. But why you ask? Did you know that throughout the lifespan of your HDB flat, the value varies? So, in order to enjoy the highest possible profit from your flat, it is crucial to understand HDB price trends, understand which stage you are at now as well as the supply and demand in the market.

1. Avoid Huge Competition

Huge supply of HDB flats entering the resale market

Did you know that there is an estimated 126,935 units reaching MOP from 2019 to 2023?

In 2020 alone, there is an estimated number of 24,163 HDB flats reaching their MOP. This means that there is an estimated of 24,163 units who might want to sell their flats. Over the next few years, the number of HDB flats reaching MOP increases. With more units reaching MOP, what does it mean for you as a seller? With that many flats in the resale market, your potential buyer will be spoilt for choices.

On average, there were about 23,000 HDB Resale Unit Applications Registered per year, about 15% increase around 3000 units since 2016. This increases the supply of resale flats in the market.

Think about this, would you want to compete with other sellers who will be fulfilling their MOP over the next few years? Or would you want to be ahead of them?

Last year, there were 30,169 HDB flats which have fulfilled their MOP. This was one of the contributing factors causing resale volume to increase by 30% in Q2 2019.

Source: The Straits Times

2. Avoid Selling Later (Your Flat Grows Older Every Year)

When should you sell your BTO flat? 5th year, within 5-10 years or after 10 years?

Are you aware that there were 33.4% more sales of "newer flats" (5-10 years old) in 2019? Why is that so?

Would you want to sell your flat when it is at it's peak (highest profit) or when the value of it has dropped?

Let's take a look at HDB transacted prices in a matured estate, Ang Mo Kio versus a young estate, Punggol. Chart below shows prices they were sold at, at different ages of the flat.

In Punggol alone, prices dropped as much as $180,000 in the same block! Selling 6 years later has caused this owner to lose $180,000...

Assuming your flat has reached MOP and you were expecting to profit $200,000 after selling but you chose not to sell right after MOP. You chose to wait. 6 years later you decide to sell but only to realise that you can only sell $180,000 lower than 6 years ago.

Now, after selling, your profit is only $20,000 ($200,000-$180,000) all because you sold 6 years later.

Can you imagine? To majority of us living in a HDB flat, $180,000 is a lot of money!! It's like saving $2,500 ($180,000/ 6yrs) every month. Can you save $2,500 every month for 6 years? This $180,000 could be used for your kid's university tuition fees.

Some owners might be thinking "that won't happen in my area", "We are very comfortable living here, It's our first home. It's so convenient, the MRT is within walking distance, there is a 24-hour supermarket, eateries nearby, shops etc."

Now let's take a look at Sengkang estate Blk 275 cluster.

The area next to Buangkok MRT seems almost perfect, EXCEPT...

The resale price X-Value at it's 5th year is about $580,000. But fast forward at its 10th year, the X-Value drops to $506,000. That is a difference of $74,000!! A pretty substantial drop in value. But why is this so? Is it location? Condition of the unit? Or is it the increase in supply of resale flats in the area?

Ask yourselves this, if you were the buyer, would you prefer a 5 year old flat or a 10 year old flat?

Source: The Straits Times

The government will keep HDB housing prices under control because HDB flats are public housing meant to be affordable for the mass. So, you probably only have one chance to make as much profit as you can by selling your BTO at the right time. It is important to plan ahead and understand what options are available to you.

3. Choose A Property With Higher Growth

Let's take a look at the performance of a HDB flat vs a private property over the last 10 years as a guide (so you can better plan for your next 10 years).

The overall growth performance for HDB Resale is 16.38% or 1.53% (Line 1) per year.

As for private properties, overall growth is at 45.65% or 3.83% (Line 1) per year.

Source: HDB, URA and Agencies

The HDB median price is $405,000 (as of Q4 2019) and growing at 16.38% over the next 10 years. It will be $471,339 or an estimated $66,339 increase in price. Now, lets take the price of private property to be at $1,000,000 and growing at 45.65% over the next 10 years. Calculating to be an estimated $1,456,500, $456,500 more in 10 years.

There is a difference of $390,161 ($456,500-66,339) in profit in the same time period.

Which property would you choose to grow your wealth with in the next 10 years?

Let's take a look at the trend of residential households by type of dwelling in the last 15 years.

Source: Propnex Research, Singapore Department of Statistics

As seen above, we are seeing a rise in the number of households who own private properties. Statistics have shown an increase of about 5.85% per year since 2005. More and more couples/families are choosing to upgrade to private properties over the years. Why? With more and more households choosing to upgrade over the last few years, what are you missing out on?

Majority of HDB owners like yourself are in their early 30s when their flats are reaching MOP. You are now in your prime years of your career with a lots of dreams and aspirations. But what are your housing plans for the next 10 years? How much do you need to save for your children's university studies? What type of property do you wish to own? How much do you need for your retirement? How can you create a property saving plan for yourself? How can you hedge yourself against inflation?

We understand that your HDB flat is not only a shelter but a home to you and your family. But did you know that majority of owners spend most of their income on their property? Wouldn't you want the value of your property to grow and increase? Wouldn't you want your money to work as hard as you? 

As you are enter into the next phase of your life (most probably with kids), it is important to work out a 5-10 year plan for your property journey. Just like when you applied for BTO, don't stop there, continue planning your next step after you have fulfilled your MOP.

We encourage you to continue growing your assets, do not let your hard earned money and value of your property depreciate. Avoid massive competition in the market, sell when it is still "new" and choose a property with better potential growth.

#weeproperty #singapore #covid19 #realestate #propertymarket

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This article is not intended to give investment advice or recommendations.