I hear you yelling already.
You don’t want to believe me, and that’s ok.
But you better believe this guy.
“Is it fair? I think it’s fair” – Prime Minister Lee Hsien Loong
Can we all stop yelling now?
Get it into your head.
Just like your car that has to be scrapped after ten years.
Just like your bread that expires in a week.
Your house comes with an expiry date. Sooner or later, you will lose.
Don’t ever forget it.
Your “Investment” in your HDB Flat gets worse each year as the 99-year leasehold shortens. Each year you’re staying in a HDB Flat is a year where your money is slowly evaporating.
To make things worse, these are things to note for when your flat has a leasehold of fewer than 60 years:
- It gets harder to sell. CPF usage is restricted further and bank loans are tightened for purchasers. Even if your HDB did appreciate in price (temporarily), you’d still have to find a buyer who’d be willing to jump through all the hoops with to buy your flat.
- With an ample upcoming supply of new BTOs in the market, buyers have more options to get in at a lower entry price if they qualify.
- Singaporean PRs who are looking to for a home requires a minimum of 3 years to be able to qualify for a HDB so part of the demand is also subdued.
- Cash Over Valuation (COV) has fallen after the government had launched its new scheme, meaning you get less money than you wanted.
Also, According to the HDB resale price index, we have seen a decline in HDB resale prices since 2014. Take a look and mind the curve from 2014 onwards.
It’s a horrible idea to treat your HDB flat as an investment.
And it’s only going to get worse each year.
The devaluation of your flat will continue until it’s worth less than a roll of toilet paper in the loo.
Why is this happening?
It’s really simple to understand why this is happening when you know what an investment is supposed to be and what it is supposed to do.
These are the benefits of an investment and what we want them to do for us:
- Generate Positive Cashflow (pays us money)
- Generate Capital Appreciation (grows in value)
- Provides us leverage for some additional value (Monetary or otherwise)
See the pattern? It’s all about putting money into your pocket or making more money from nothing. That’s key. Always remember what we want our investments to do:
We want our investments to pay us money or grow in value
Here’s why your flat is NOT going to be an investment. We’re going to start at the beginning. Right after you’ve purchased the flat.
#1 – Your Cash Flow Vs. Minimum Occupation Period
Right. So you just bought your flat. Congratulations. You’re now bound by the Minimum Occupation Period. Its a mouthful of words, but what it really means is that for the first 5 years after purchasing your flat, you can’t rent it out or sell it.
It’s a government policy meant to ensure that buyers are truly purchasing it for homestay purposes.
From an investment perspective, this means for the first 5 years of your investment, you’re actually paying the mortgage and utilities on the flat instead of renting it out to another person. If your flat miraculously went up in price thanks to maybe, the construction of a nearby MRT station, it also means you can’t capitalize and just sell it.
In other words?
This flat you just bought thinking its an investment doesn’t pay you and in fact sucks more money from your bank account with every passing month.
#2 – Your Capital Gains Vs. Government Policies
I know I just told you about the 5 years thing and you’re probably wondering, hey, but that means after the 5 years, I get to sell it and still make a profit right?
The answer is “maybe”. Between buying your next home and the Resale Levy, not to mention the 5 years of missed rental income and mortgage payments to the bank, it’ll take a monumental shift in your house’s value to effect a profitable sale.
In case you need a reminder, head to the Housing Development Board’s website, you will see their official “About Us” statement. Note the last line. It’s the most important one.
For over 50 years, we have provided quality and affordable public housing for generations of Singaporeans, and we are proud to continue doing so. – source
Their goal is to provide quality affordable housing.
To have the houses that they build appreciate upwards out of the range of affordability for new families looking for homes contradicts their interests.
The government is also ready, willing, and able to intervene with new regulations and laws when the property market starts to get too hot.
Here’s a press release they made this year, July, where they raised Additional Buyer’s Stamp Duty and tightened Loan to Value limits.
Loan to valuation limit went down from 20% to 15% and the downpayment for the second property has gone up to a flat 25%.
This means paying a lot more for your second property (additional stamp duties) while having to fork out yet more money for the down payment (because your loan amount is now more limited). That means for just a $400,000 unit, that’s a $100,000 that’s coming out of your own pocket.
But wait, doesn’t that affect only the people buying their second property? What does this have to do with me?
It has everything to do with you. Because these are what people in the business call “cooling measures”. Measures meant to lower the prices of properties across the board for everyone.
So your flat which you’re hoping has gained enough capital appreciation to sell?
Yeah. Not likely.
The 2018 cooling measures implemented were only the latest in a slew of cooling measures introduced by the Government over the past nine years, with the latest one before this being the introduction of the Total Debt Servicing Ratio (where the total amount of debt an individual is servicing cannot surpass 60% of their monthly income. This includes all debts such as credit cards, student loans and car loans.)
Taken together, the measures ensured lesser property speculation and curbed spiking property prices.
It’s best not to hope that your HDB Flat will appreciate in value well enough to cover everything you’ve spent. Not only are you facing tougher competition from the market, you still have to deal with the fact that your property is depreciating and buyer disadvantages for anyone who even wants to buy it over from you.
#3 – Capital Gains Vs. Leasehold (yet another Government Policy)
I get it.
You’ve heard from the Prime Minister.
You’ve read the policies that the government has implemented.
Somehow, in your head, you believe it’s going to be okay.
The government’s going to do something.
It’s going to step in and tell you everything’s alright, give you a nice big chunk of cash and let you buy a second house.
You want hard evidence. Show me the proof, you say.
Geylang Lorong 3, where the government is slated to take back 191 homes in 2020.
Their lease is going to be up in 2020 and the government is simply going to swallow the properties and redevelop them into something new.
One homeowner even bought an 854 sq ft flat at $88,000 just in December 2015.
That flat’s value will be worth zero dollars when it’s due to be returned to the government in 2020. The owners will even have to spend some cash to clear out all their furniture, not to mention the trouble of finding a new place to live in.
But wait, didn’t the government offer us an alternative via the Selective En Bloc Redevelopment Scheme?
I’d like to zoom in on this one sentence in the linked article:
SERS LIMITED TO ABOUT 5 PERCENT OF FLATS
Yep. 95% of homeowners will have to return their flat to the government.
Don’t be one of the 95%. It’s fine if you want your home to be a home. Just don’t make the mistake of thinking its an investment.
Don’t bet against the government.