August 23, 2022
Can Your HDB Flat Safeguard Your Retirement?
With property prices continuing to rise and the lifestyle and ambitions of the Singapore youth evolving, it's no surprise that more and more young HDB owners are looking to upgrade to private homes. So, are you one of them?
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Now, let us look at the HDB market today to find out your options as a HDB owner and if your flat can help you secure a comfortable retirement.
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I understand that this might be intimidating for some as it requires much consideration and thought, especially if you are unfamiliar with the finances and lack insights on the market.
When it comes to buying a home, the options are endless.
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However, if you wish to retire early, you must start thinking about your future now.
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These illustrations probably can sum up your concerns about investment in private homes.
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People are often worried about taking on heavy mortgage loans, incurring additional monthly expenses, and the older generation's constant nagging about buying HDB flats as their first purchase and working hard and saving for a better retirement.
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While it may be easier to avoid the situation altogether and remain in your current home, is ignorance really bliss? It's not a bad or wrong choice, but ultimately, is that the best choice for someone who wants to live a better lifestyle or retire earlier?
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If you want to find out what's best for you, keep reading. I think by the end of this article, you'll have a good idea of what the best move would be for both you and your family.
In 2011, the HDB price rose slowly but steadily. Then in 2013, the government introduced a cooling measure that restricted buyers' loans to their Mortgage Servicing Ratio (MSR), which determined how much of their income they could use to pay their monthly mortgage payments. This move caused the market to dip for several years until it finally rebounded in 2019.
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Many people question why this regulation was put into place. They wonder if keeping HDB prices affordable for future generations of Singaporeans is more important than encouraging homeownership among young couples. After all, isn't it our elected representatives' job to help keep public housing accessible for everyone?
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Figure 1: HDB resale price (%) index
Even though it took about 8 years for the HDB resale market to hit its previous peak, many opportunities were available for a HDB owner during that period. Many have gone on to upgrade their property to an Executive Condominium or even a private property and have made capital gains. This is especially true for those who have kept their flats since the previous peak in 2012/2013. Don't fret if you feel like you've missed the train. There are still plenty of opportunities awaiting you! But how long this window period will last is a golden question no one can answer. However, do take this chance to learn more and avoid similar mistakes. Later in the article, we will be taking a look at some examples of those who took action and how they benefited from it.
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Thinking of your HDB flat as your retirement plan can be tempting. After all, it's a place you'll call home for years—and in the end, you'll still have it. But before you start counting on your home to fund your golden years, let's look at a particularly sad case of a hardworking couple who kept their HDB flat for 30 years expecting it to appreciate.
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But lo and behold, they actually made a colossal loss of more than $160,000.
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As you can see below, the combined amount paid for the flat is over $700,000, and unfortunately, the valuation of the flat is only about $612,000. This loss you witnessed here is lost due to the accrued interest by CPF. Can your flat price rise enough to defray the interest incurred by your mortgage loans and CPF interest?
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When your parents tell you to buy a HDB and stay there until you're old, does that strategy still work? After understanding the example below, do you want to end up with a loss when you're 65 and are about to retire?
In late 2021, our government introduced another round of cooling measures to slow down the red-hot property market. The latest slew of additional measures has seemingly little impact on the HDB market, even with their plans to increase the market supply and introduce the new Prime Location Public Housing for HDBs. Will these eventually cause a slowdown in the HDB market? No one will know for sure, but how much further can the prices of HDB continue moving upwards? Figure 1 clearly shows HDB prices hitting a new peak. With that in mind, what should HDB owners do?
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Looking at Figure 2, comparing the prices of a 5-bedroom flat for Punggol in 2012 & 2019/20, respectively, we can see a stark difference of $200,000. What a painful loss for those who held onto their flats! In hindsight, with the right advice and immaculate timing, such things can be avoided.
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Figure 2: Punggol 5-room HDB flat transaction history for 2012 & 2019/20
Imagine you are one of those well-informed discerning owners who exited at the right time and went on to buy a private property at Riversound condominium in 2012. You would have easily made a whopping profit of $300,000 on average, as seen in Figure 3 below.
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Figure 3: Riversound condominium profitable transaction history
By now, many of you probably think this is easy to say, looking at all these charts and figures retrospectively. One of the biggest concerns you'd probably have is if you could pay off the monthly mortgage loans without over-leveraging. Well, the fact is, it might not seem easy when you do not know what options are available for you! The important thing when making such decisions is to work out a financial plan. With a full-proof plan, many HDB owners managed to upgrade hassle-free and live without the stresses of mortgage loans.
Hit me up if you hope to avoid being in the same predicament as the unfortunate case of the old couple above or want to know how to avoid losing unnecessary money. I have another article for you on how to steer clear of all these mistakes and how you can actually take advantage of your HDB flat, given the appropriate timing.
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Source: https://r056757h.propnex.net/42600/mt-Can-Your-HDB-Flat-Safeguard-Your-Retirement---A-#/
For more information:
Drop me a message at +65 9422 8000 or Wa.me/6594228000 for enquiries or real estate matters.
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