Selling your flat soon after MOP: Smart or dumb move?

Upgrading to a condo is considered a rite of passage for some Singaporeans — like getting through NS, or appearing on Stomp. But are these Singaporeans making a smart or dumb move, by rushing to sell their flat right after MOP?

Here are the main considerations.

Why would anyone want to sell soon or right after the MOP?

Mostly, they believe that time spent holding on to the flat — as opposed to getting a condo — is money lost. This is based on the premise that, with few exceptions, HDB flats do not appreciate as well as a condo.

For example, let’s look at how the prices have moved from 2012 to 2022:

On average, HDB flats island-wide have seen prices rise from around $449 psf in 2012 to about $531 psf last year. That’s up by around 18 per cent. Conversely, condo prices have risen by around 48per cent in the same period — from an average of $1,214 psf across Singapore to just over $1,801 psf by the end of last year.

In fact, here’s something to note about HDB prices over the last 10 years.

Before prices started increasing in 2020, HDB prices had been struggling like an asthmatic grandma up the steep side of Bukit Timah hill, after a peak in 2013. The average price of a resale flat was about $475,000 in 2013, reaching a low of $433,000 in 2019 before rising to a peak of $549,000 in 2022.

HDB resale prices are still increasing, albeit slower at 0.2 per cent in December 2022 as price resistance starts kicking in. But given factors such as cooling measures, rising interest rates and economic uncertainties, prices are expected to moderate this year.

Here’s the scenario that some upgraders have inside their head

Say they buy an HDB flat at $430,000, and resale prices start moderating. Roughly 10 years from now, if prices were to continue hovering around the same price range, they may sell their property at close to the same price (if not lower).

For instance, they sell it at $430,000, with an outstanding loan of about $160,000 (the outstanding loan is owed to HDB). That leaves them with $270,000.

But they’ve been paying the interest on their home loan as well. And after 10 years, that amounts to roughly $90,000*. Now, they’re left with $180,000.

But we’re still not done. Remember they need to refund all the CPF money used for the down payment, monthly loan, Buyer’s Stamp Duty (BSD), etc back into their CPF account. This has to be refunded with the CPF interest rate of 2.5 per cent. Assuming this comes up to another $250,000, that would leave them with negative $70,000 in cash proceeds.

Now they don’t have to pay back that remaining $70,000 to their CPF account if they don’t have it, but it does mean they’ll have zero cash on hand after selling their home.

This can make it hard to upgrade to, say, private property. A bank loan will require a minimum of 5per cent cash down for a condo or Executive Condominium. And while they can use their existing CPF savings for another property again, they would still have lost money due to the interest paid, conservancy fees, home maintenance, etc.

The people who believe this thus prefer to offload their HDB flat as soon as they can, and upgrade to private property.

*10 years of interest estimated using a full HDB loan of 80per cent, at 2.6 per cent with a 25-year loan tenure. 

But are they actually being smart?

If upgrading is an affordable move for them, then it comes down to where you believe HDB and private home prices are going.

There’s also concern that the 99-year leases of HDB flats loom bigger in our consciousness today, and worries of the 99-year time bomb will grow as the country ages. That can continue to make resale flats less attractive than before.

On the other hand, some people will point out that more liberal use of CPF and the new Enhanced CPF Housing Grant (EHG) will mitigate some of these effects. Some other valid arguments are:

• Upgraders often end up trading up in value but down in size; the condo units they can afford tend to be smaller than their flats
• Upgraders shouldn’t lose sight of the fact that condos mean higher property taxes, and average condo maintenance fees of about $1,200 to $1,500 per quarter; this is even higher in more premium developments. HDB flats may not appreciate as much, but HDB conservancy charges are usually two-digit figures every month.
• We don’t know how private property prices will move either. While flat prices don’t appreciate as sharply anymore, condo prices may be too high.

With this regard (i.e. making more money or being more comfortable), it’s a bit of a toss-up.

It does become a dumb move, however, if they end up going beyond their means

For those who end up with big cash proceeds from selling the flat, it can make them take leave of their senses. Some of them over-leverage by getting a condo that’s way beyond their means, or even have one spouse go and buy a whole condo on their own*.

As we’re fond of saying, the home you’re upgrading to shouldn’t cost more than five times your annual household income, seven times at maximum. And your home loan repayments, plus outstanding debts, should remain at 40 per cent of your monthly household income or below.

If you can be prudent while upgrading, it’s a viable strategy. Otherwise, it’s a dumb move; wait till you can afford it, MOP or not.

This article was first published in 99.co.