If you’re choosing between a resale HDB and a condo, read this

8 min read

“Resale HDBs are bad investment, you sell confirm lose money”

That’s what every agent says when they’re advising you between a resale HDB flat and a condo. And you know what? They have a very good reason to believe so. 

That’s because investing in private property is one of the best ways to make money in Singapore. We have absolutely zero doubt about that. 

After the government finally clarified that HDBs do expire after their 99 year lease, the prices of resale flats have tanked. One thing is clear: HDBs will always be affordable housing for the masses. Don’t expect any massive price appreciation any time soon. Or later. Or ever. Affordable housing is one of the few things that holds Singapore together. 

HDB resale prices have fallen 11.50% since 2013, even before the government said that the 99-year thing was gonna be enforced. 
HDB resale prices have fallen 11.50% since 2013, even before the government said that the 99-year thing was gonna be enforced.

 

Condos on the other hand, have consistently made money since the beginning of Singapore’s existence… well sort of.  

Capital appreciation of Singapore condos is 32.49%, if you’re counting from 2009

They’re also pretty decent in the short term too. If you take advantage of a developer’s early bird discount – which sometimes is as much as 10 per cent – there’s a lot of money to be made.

After all, 10 per cent of a $1,000,000 condo is already $100,000.

Okay bla bla bla, so why the hell is a HDB a good investment?

#1 The Rental Yield Argument

Yes, apart from BTOs and other newish flat’s (and some other special cases), the future seems bleak for the HDB resale appreciation. If you buy a HDB with 50 years lease left today, it is most certain that you WILL sell it at a loss.

But hang on, property investment isn’t ALL about capital appreciation. It’s also about rental yield. 

And when it comes down to it, HDBs can have far better rental yield compared to their condo counterparts, simply by virtue of how affordable they are. (Note: Depends on rental income generated as well. Condos do tend to generate higher rental income than flats, which can sometimes offset their higher costs)

A case study: 

Suppose you get a really affordable three room $280,000 flat at Mei Ling Street. One of those with approximately 50 years left on the lease. 

If no reno is needed, that’s actually only $230,000 after your $50,000 resale grant. Assuming you rent it out after five years for a modest $15,000 or $18,000 a year, that’s actually a pretty decent rental yield, far better than what any condo can achieve – simply because of the sheer low quantum.  

Even assuming that you spent up to $300,000 paying interest, reno, taxes, conservancy fees and maintenance fees –  that would STILL be 6% rental yield.

You’ll break even in approximately 16 years, maybe even sooner, if rental rates keep up with inflation. 

That leaves a remaining 34 years left for you to collect rental income. 

“Wait… 16 years just to break even? Isn’t that a bad investment?” 

If you look at that alone, yeah sure. That $280,000 HDB resale is a shitty investment. Historically, some condos appreciated 300 per cent during the same time frame. 

So yes, if you could afford a condo but went to buy a resale HDB, you would be giving up on some pretty insane capital property appreciation. 

“And where are you going to stay if you’re renting out your HDB?”

Good one. You got us there. To even rent out your HDB, you’re going to need to buy another property/live somewhere else. If you buy another house, you’d be subject to ABSD. 

So all in all, this whole ‘rent your HDB idea’ is pretty optimistic – realistically only two groups of people can take advantage of the high rental yield for HDB flats:

1) Live with their parents 

2) Aren’t intending to live in Singapore

Which brings me to the second argument. 

#2 A HDB will never make you money. But it will tie up less capital: 

(No form of property investment truly gives you liquidity, as the asset class is by definition illiquid. There is no easy way to cash out in an instant)

Assuming you bought a $770,000 condo today in 2019, you would have locked up $225,000. 

If you bought the $230,000 HDB resale, you would have only locked up $57,500. 

Now, that’s a difference of $167,500. 

For the first option, you would be putting all your eggs in some basket (a pretty safe basket, no less). You’ll be giving up on other forms of investment – namely the stock market

Here’s what $167,500 might look like if invested into popular global index funds over the past 10 years (starting in 2009) vs a condo. 

Kept in a biscuit tin

(0%)

S&P500 (257.752%) MSCI  (IWDA)

(183%)

STI (ETF) 

(12%)

Average Condo prices

(67.91%)

$167,500 $430,475 $306,525 $187,600 $281,249

In terms of capital appreciation, the stock markets have shown the potential to beat the crap out of condo appreciation. Though with condos, you have to take account leverage. So that 67.91% capital appreciation, leveraged four times cos of a 25% downpayment will definitely be competitive with stock market gains.

My point is this: a HDB is an investment in your liquidity. Put that money elsewhere, and there’s the potential to match the gains made by any condo.

But wait, all this depends on whether or not you buy the right stocks…

You’re right. But the same argument can be made for property. Whether or not you make huge gains or painful losses depends on whether you buy the right property.

In the same way you can argue someone buying the Sail made 300 per cent in three years. You can argue that the same person could have made 60 per cent by buying Tesla stocks over the past three months. 

(Also, everyone knows hidden costs of the condo can add up to devastating amounts over many years, so if your condo doesn’t appreciate, you WILL lose money. )

Okay, now what? 

We’re not saying property investing is a bad idea. We’re also not saying you should sell your home and buy HAIDILAO stocks (Up 72% since Jan 2019 at time of writing)

Both assets have their pros and cons. 

What we’re saying is this that this notion of ‘buy HDB, sure lose money’ can be pretty dangerous. 

Why? 

Because it pushes people to over-stretch for a condo when their finances don’t allow it. In some cases, it might event result in property being the ONLY thing people invest in. Which results in a lack of diversification. It sees things purely from the eyes of a property investor, and even though we LOVE property, “Buy HDB sure lose money” isn’t a fair statement to make because it assumes the HDB buyer won’t make any other sort of investment. 

To oversimplify things, we’ll say this.

If you like commitment and aren’t concerned and can afford it, buy a good condo to invest. We’re a property portal site. We will always say property is our favourite investment cause that’s who we are. 

But if you can’t afford a condo yet, don’t fret. It’s better not to overstretch yourself. Save up money.  Buy an affordable HDB. Invest in the stock market – the gains are not to be scorned at, either.

You can always buy that condo later.

PS: Read more about stocks vs property here

PS: If you buy a condo first and then want to get an HDB, it’s not easy to reverse the decision. You can’t apply for a flat while you have a condo, so if you want to downgrade, you need to sell the condo, and then wait 30 months before you can apply for an HDB flat. If you need a flat for some reason within the first three years of buying (e.g. want to get married and shoebox condo is too small), there is the SSD to contend with, and the state of the market at the time you sell.

On the flipside, if you buy an HDB first and decide it’s a mistake, not too hard to sell and upgrade to a condo later (just wait for the MOP). If you buy a condo and realise you’ve run out of money, etc.then it’s much more problematic to downgrade (see above)


Picking between a resale HDB or condo? Let us know in the comments section below or on our Facebook post.

If you found this article helpful, check out HDB grants for singles and BTO vs Resale vs EC: Which is best for investment?

Looking for a property? Find the home of your dreams today on Singapore’s fastest-growing property portal 99.co! If you would like to estimate the potential value of your property, check out 99.co’s Property Value Tool for free. Also, don’t forget to join our Facebook community page or Telegram chat group! Meanwhile, if you have an interesting property-related story to share with us, drop us a message  — and we’ll review it and get back to you.

Looking to sell your property?

Whether your HDB apartment is reaching the end of its Minimum Occupation Period (MOP) or your condo has crossed its Seller Stamp Duty (SSD) window, it is always good to know how much you can potentially gain if you were to list and sell your property. Not only that, you’ll also need to know whether your gains would allow you to right-size to the dream home in the neighbourhood you and your family have been eyeing.

One easy way is to send us a request for a credible and trusted property consultant to reach out to you.

Alternatively, you can jump onto 99.co’s Property Value Tool to get an estimate for free.

If you’re looking for your dream home, be it as a first-time or seasoned homebuyer or seller – say, to upgrade or right-size – you will find it on Singapore’s fastest-growing property portal 99.co.

Meanwhile, if you have an interesting property-related story to share with us, drop us a message here — and we’ll review it and get back to you.

Reader Interactions

Comments

    • Suprised-Netizen

      Is it really appropriate to put swear words in this article?

      • Ruiming He

        Why not?

    • Kay

      Hi, alternatively, i still can buy a resale (without grant) right after condo sale, then go for bto after MOP right?

    • Kelvin

      Nice analysis, was doing a lot of contemplating, after seeing your articles I got a clearer view. Thanks!

    • Kram

      You only briefly mentioned the fact that the condo investment is a leveraged investment. As long as markets are going up you are happy with your leveraged investment. However if markets go down (or just the condo you selected as an investment!) your losses could also be leveraged. In a non-leveraged equity investment your losses are capped at the cash amount you invested. In the condo investment your loss could be more than the cash (and potential CPF) amount you invested.

      if you used CPF for the investment, you are double hurt: not only do you need to fork up to repay the bank on exiting an unprofitable investment you also need to top your CPF account plus interest.

      • Ruiming He

        Insighftul, thank you!

    • Sureen

      Nice article. Can I check is it possible to buy condo if you bought HDB first? Do I need to sell the HDB?

      • Ruiming He

        Yeah it possible but be prepared for ABSD if you wanna keep your HDB. If you sell your HDB, there’s no ABSD.

    • Albert Tan

      Isn’t THE SAIL one of the biggest losers in the leasehold condo market?! You better do your research on what condos actually lose and make money before you attempt to present your ideas as expertise.

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