We make $324k per year: Should we sell our 28-year-old HDB flat to upgrade to a new launch or resale condo?

Hi team,

It’s been a pleasure reading your informative articles and I really enjoy your data-driven approach.

My family and I have been staying in a five room HDB for more than five years (in Boon Keng area) and we are considering moving in early 2024 (fixed 1.3 per cent 2-year loan breakable from April 2024). We hope to be in our next purchase for at least 10 years for my children’s (2yo and newborn) preschool (near Tanjong Rhu) and Primary School (Kong Hwa School).

We have evaluated a few options below but are gravitating towards the last option due to the following reasons:

1. Sell current HDB, buy a new launch in the area — not ideal because of longer waiting time and upfront deposit payment.The deposit payment would require us to sell our current HDB, move into a rental unit while waiting for the new launch to be completed. We are also quite DIY so we don’t need a brand new development with new designs that comes with a new launch.

2. Sell current HDB, rent a place (for two years) while looking for the ideal property in the area. We are not inclined to this option since this would entail moving twice (or more) which is troublesome for a family of five (three adults including helper, and two young children). Also, the rental market seems to be quite stretched now.

3. Stay put in current HDB. Not inclined as we think our HDB price has peaked now (it is a 28yo resale unit) and we are currently around 15mins drive from my child’s preschool. Not only that, I feel that we are currently underleveraged for our risk appetite as we are only taking around 400,000 of loan.

4. Sell current HDB, buy an older resale unit. We plan to ask for an extension during the sale of our HDB to accommodate some buffer for renovation and moving in.

Our requirements for our next purchase: 

• 3 or 4 bedroom with at least 1.300 sq ft in size
• 5-10mins walking distance to nearest MRT, 
• Generally good connectivity to expressways,
• Preferably stable property value (avoid losing money at the end of the stay)
• Mid to high floor and not too close facing to another unit for privacy
• Have to be near children’s schools

Further details of our background:

• I am 36 years old while my wife is 33 years old
• Our HDB estimated sale price is $900,000-950,000 (x value from SRX is $850,000 but we think we can get higher as we did an extensive renovation before moving in)
• Mortgage loan balance $420,000
• CPF Used and Accrued (both) $330,000
• My annual income is around $27,000 per month (including bonus) while my wife is currently between jobs (took a break for childbirth and is now actively looking for employment, estimated monthly income is around $6,000)
• Current cash savings: we estimate to save up around $120,000 by April 2024. My parents have also committed to lend us around $200,000 if needed — looking at current prices, we probably need to utilize some of this but we want to be self-sustainable if possible.

Could you please let us know if our preferred option is realistic? We would also be keen to explore other options that we have not considered [we did consider decoupling but concluded that we don’t need to have two properties in Singapore and we value unit size a lot more]. If you have some developments that we can shortlist/keep an eye out for the coming months, that would be great!

Thank you!

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Hi there,

Thank you for writing to us, and it’s great to hear that you like our data-driven approach.

It’s evident that you’ve thoughtfully considered your plans and already have a clear vision of the property you want to purchase next. This proactive approach not only helps steer you away from the overwhelming and often time-consuming process of aimless browsing but also sets a solid foundation for making informed decisions.

We will start by looking at your affordability before running through the four options you’re looking at.

Affordability

Selling of HDB

Based on the limited number of HDB clusters in the Boon Keng area and considering the age of your unit at 28 years, we can reasonably infer that it is situated in blocks 4 to 6. Looking at the transactions in the past 12 months, there was just one five-room unit on a low floor that was sold in December 2022 for $920,000. For the purpose of our calculations, we will use this figure as the assumed selling price.

Buying

Description	Amount
Maximum loan based on ages of 33 and 36, fixed monthly income of $6K and $27K, and an interest rate of 4.6per cent	$3,484,354 (29 years tenure)
CPF	$330,000
Cash (Not including the $200,000 from your parents)	$290,000
Maximum affordability with down payment of $620,000	$2,480,000
BSD based on $2,480,000	$93,600
Estimated affordability	$2,386,400

In the event that you do take up the $200,000 loan from your parents, your estimated affordability will be:

Description	Amount
Maximum affordability with downpayment of $820,000	$3,280,000
BSD based on $3,280,000	$136,400
Estimated affordability	$3,143,600

Now that we have a better understanding of your numbers, let’s look at how your current HDB has been performing.

HDB Performance

Year	Average PSF for blocks 4 to 6 Boon Keng Road	YoY	HDB Resale Price Index (RPI) – Q1 of each year	YoY
2012	$506	–	138.5	–
2013	$501	-0.99per cent	148.6	7.29per cent
2014	$553	10.45per cent	143.5	-3.43per cent
2015	$517	-6.57per cent	135.6	-5.51per cent
2016	$537	3.87per cent	134.7	-0.66per cent
2017	$544	1.30per cent	133.9	-0.59per cent
2018	$546	0.37per cent	131.6	-1.72per cent
2019	$571	4.58per cent	131	-0.46per cent
2020	$576	0.88per cent	131.5	0.38per cent
2021	$629	9.20per cent	142.2	8.14per cent
2022	$637	1.27per cent	159.5	12.17per cent
Annualised	–	2.33per cent	–	1.42per cent

Source: Edgeprop, HDB

Over the past decade, it is evident that your HDB cluster has outperformed the overall HDB market. Despite the stabilisation of HDB prices following the procedural change in 2013, the prices in your cluster have continued to rise gradually.

The central location and limited availability of HDB flats in the Boon Keng area likely contribute to the property’s resilience in spite of its age. A closer examination reveals that within the limited supply of HDB flats in Boon Keng, the percentage of 5-room flats is even smaller, which could further explain why prices remain relatively stable.

However, as you mentioned, it is possible that prices might be peaking or have peaked, especially when considering that for a similar price range or with a top-up of less than $100,000, buyers can opt for a 12-year-old five-room unit in the same area. As obvious as it sounds, buyers will lean towards newer properties particularly if the price disparity between that and an older flat is not too significant.

With this in mind, it might be a good time to consider cashing out from the HDB.

Now let’s look at the options you’re deliberating.

Options

1. Sell current HDB, buy a new launch in the area

Seeing as you’re looking to buy a place near Kong Hwa School, the two new launches within 1 km are Grand Dunman and The Continuum. However, with the requirement of a minimum unit size of 1,300 sq ft and a budget of $2.3 million – $3.1 million, you don’t have many options — only the units at Grand Dunman will match this.

Unit type	Size (sqft)	Level	Price
3-bedroom	1,302	18	$2,904,000
3-bedroom + Study	1,335	18	$2,980,000

To purchase either one of these units, you will have to take up the $200,000 loan from your parents. Let’s look at the costs involved if you were to acquire the three-bedroom unit and hold it for 10 years. Since Grand Dunman is projected to obtain its TOP (Temporary Occupation Permit) in 2028, and you’re considering selling your HDB next year, you would need to plan for at least four years of renting.

Description	Amount
Purchase price	$2,904,000
CPF + cash	$820,000
BSD	$114,800
Loan required	$2,198,800

For the loan, we will assume an interest rate of 4.6 per cent with a 29-year tenure. The following is the progressive payment plan.

Stage	per cent of purchase price	Disbursement amount	Monthly estimated payment	Monthly estimated interest	Monthly estimated principal	Duration	Total interest cost
Completion of foundation	5per cent	$145,200	$756	$557	$200	6-9 months (from launch)	$5,009
Completion of reinforced concrete	10per cent	$290,400	$2,269	$1,670	$599	6-9 months	$15,030
Completion of brick wall	5per cent	$145,200	$3,025	$2,226	$799	3-6 months	$13,356
Completion of ceiling/roofing	5per cent	$145,200	$3,782	$2,783	$999	3-6 months	$16,698
Completion of electrical wiring/plumbing	5per cent	$145,200	$4,538	$3,340	$1,198	3-6 months	$20,040
Completion of roads/car parks/drainage	5per cent	$145,200	$5,294	$3,896	$1,398	3-6 months	$23,376
Issuance of TOP	25per cent	$726,000	$9,076	$6,679	$2,397	Usually a year before CSC	$80,148
Certificate of Statutory Completion (CSC)	15per cent	$435,600	$11,345	$8,349	$2,996	Monthly repayment until property is sold	$551,034
Total interest paid in 10 years	–	–	–	–	–	–	$724,691

All amounts are rounded to the nearest dollar and we are assuming the longest duration for each stage

For calculation purposes, we will presume you rent a three-bedroom unit at The Sunny Spring which is just across the street from Kong Hwa School. The average rent from April to June this year for a three-bedder is $4,200.

Description	Amount
BSD	$114,800
Interest expense	$724,691
Maintenance fee (Assuming $400/month, payable only after project has obtained its TOP)	$26,400
Property tax (Payable only after project has obtained its TOP)	$51,786
Rental cost (Assuming $4,200/month for 4.5 years)	$226,800
Total cost	$1,144,477

Let’s consider the pros and cons of this option:

Pros	Cons
Brand new development with a 99 year lease	Will have to rent for 4.5 years, incurring substantial costs
Able to predict purchase timeline	Will have to move twice
Entering at a similar price range with your neighbours

2. Sell current HDB, rent a place (for two years) while looking for an ideal property

Considering the specific area you are interested in, it can be quite challenging to anticipate when a suitable property will become available on the market. Additionally, the majority of developments near Kong Hwa School are boutique projects, which while good on the own stay front, might not be the best option from an appreciation perspective.

However, the renting of a place may not be a necessary step especially since it will incur a substantial amount of cost. We will touch more on this in Option 4.

3. Stay put in current HDB

Based on the data presented earlier, your flat has demonstrated better performance compared to the overall HDB market over the past decade. While it is unlikely that prices will experience a significant drop in the short term, no one can predict the market with certainty over the next 10 years.

Year	Avg PSF of 5-room HDBs aged 20 years and below	YoY	Avg PSF of 5-room HDBs aged 30 years and above	YoY
2012	$479	–	$426	–
2013	$508	6.05per cent	$445	4.46per cent
2014	$465	-8.46per cent	$434	-2.47per cent
2015	$450	-3.23per cent	$422	-2.76per cent
2016	$458	1.78per cent	$431	2.13per cent
2017	$478	4.37per cent	$432	0.23per cent
2018	$475	-0.63per cent	$424	-1.85per cent
2019	$488	2.74per cent	$409	-3.54per cent
2020	$489	0.20per cent	$406	-0.73per cent
2021	$536	9.61per cent	$458	12.81per cent
2022	$580	8.21per cent	$498	8.73per cent
Annualised	–	1.93per cent	–	1.57per cent

Source: Edgeprop

Analysing the performance of younger and older HDB five-room units over the past decade, we observe only a slight disparity in their annualised growth rates. However, upon closer examination, it becomes evident that in the years leading up to the pandemic, prices for older five-room HDBs remained largely stagnant or experienced a downward trend. It was during and after the pandemic that larger flat types experienced increased demand, coupled with a shortage of available units on the market, and prices of older flats started gaining traction.

As mentioned previously, it’s worth noting that for a similar price range or with a top-up of less than $100,000, buyers have the option to purchase a five-room flat in the same area that is half the age of your current flat. Additionally, the new BTO blocks (Kempas Residence) right in front of your cluster are scheduled to complete next year, which means they will reach their Minimum Occupation Period (MOP) in 2029. This upcoming development could potentially impact the prices of your unit as well.

On a wider scale, there’s also the upcoming BTO supply that’s been increased by 35 per cent over 2022/23.

Let’s look at the cost involved should you continue to stay in your flat.

Description	Amount
Interest expense (Based on an outstanding loan of $420,000 and assuming an interest rate of 4.6per cent and remaining loan tenure of 20 years)	$158,961
Town council service & conservancy fees ($83/month)	$9,960
Property tax	$7,840
Total cost	$176,761

These are some pros and cons of this option:

Pros	Cons
Low cost incurred	Flat will be 38 years old in 10 years’ time
No moving required	Flat will be 38 years old in 10 years time
	Price may be adversely impacted by younger flats in the vicinity

4. Sell HDB, buy an older resale unit

This is essentially the same as option 2, except there won’t be any rental involved. Consequently, you’ll need to find a suitable property to buy within a relatively short timeframe.

An alternative would be to buy a unit first before selling. This approach requires conducting both the selling and buying processes concurrently to ensure a smooth transition. We have covered this process in a previous write-up, which you can read for more details.

For the calculation, let’s assume that you purchase a unit at The Waterina which happens to be one of the development that meets your requirements. It is a freehold development within 1 km of Kong Hwa School and under 10 minutes walk to Dakota MRT station. From January to date, there have been three transactions for three-bedroom units larger than 1,300 sq ft, with an average price of $2,522,667.

Date	Size (sqft)	Price	Level
Jul 2023	1,346	$2,480,000	#07
Jun 2023	1,378	$2,600,000	#04
Apr 2023	1,346	$2,488,000	#06

Let’s say you were to buy a unit at The Waterina for $2,522,667.

Description	Amount
Purchase price	$2,522,667
CPF + cash	$820,000
BSD	$95,733
Loan required	$1,798,400

Description	Amount
BSD	$95,733
Interest expense (Assuming 4.6per cent interest and loan tenure of 29 years)	$748,086
Maintenance fee (Assuming $400/month)	$48,000
Property tax	$62,160
Total cost	$953,979

Here are some pros and cons of this option:

If you were to sell first

Pros	Cons
Only need to move once	Will have to find a suitable unit fast
You are not rushed to sell your current property and have the ability to wait for your targeted sale price

If you were to buy first

Pros	Cons
Only need to move once	Might have to accept a price lower than your initial expectations due to the constrained timeline for selling your current property
Can choose your choice unit	Finding a seller who is willing to grant a longer option period for your purchase could prove challenging

Comparing costs

When comparing costs alone, it’s evident that holding the HDB would result in the lowest expenses due to its lower loan amount, maintenance fee, and property tax.

Surprisingly, the second most cost-effective option is renting for two years while searching for an ideal property, primarily because of the elevated interest rate at this point in time. If you were to buy the unit at The Waterina and take up a loan of $1,798,400 with an interest rate of 4.6 per cent, the monthly interest payment exceeds the cost of renting a three-bedroom unit at The Sunny Spring. Moreover, when renting, there are no maintenance fees or property taxes to consider.

Looking at historical data, you’ll notice that high-interest rate periods don’t usually last for more than five years. So let’s look at how the interest rate will affect the cost incurred in this option:

Interest rate	Interest expense over 8 years	Cost incurred
2.5per cent	$323,906	$617,692
3per cent	$391,514	$685,300
3.5per cent	$459,915	$753,701
4per cent	$529,045	$822,831
5per cent	$669,239	$963,025

The option of selling the HDB and buying a resale unit ranked third due to the mentioned high-interest rates. However, there are two perspectives to consider here. Some may view the interest payment as an expenditure without building equity, but it’s important to note that a portion of the monthly repayment still contributes to ownership of the property. If the property appreciates in value over time, there is a possibility of making a profit from it.

Now, let’s compare this with the earlier option of renting for two years while searching for a property, to assess potential savings in case of any fluctuations in interest rates.

Interest rate	Option 2 – Cost incurred if you were to rent for 2 years and hold the property for 8 years	Option 4 – Cost incurred if you were to buy a resale unit and hold it for 10 years	Savings if you were to pick option 2 instead of 4
2.5per cent	$617,692	$598,502	-$19,190
3per cent	$685,300	$681,297	-$4,003
3.5per cent	$753,701	$765,310	$11,609
4per cent	$822,831	$850,450	$27,619
5per cent	$963,025	$1,023,752	$60,727

It is evident that when interest rates are lower, option 4 will result in lower costs, whereas during periods of high interest rates, option 2 will be the more cost-effective choice.

Lastly, buying a new launch incurs the highest cost. Apart from the high interest expenses, there is a substantial cost involved in renting for 4.5 years while waiting for the project to be completed.

We will now do a simple projection to take a look at the possible profits for the 4 options.

Projection

We will assume the following growth rates for the projection:

Year	Property Price Index (PPI) of Residential Properties	YoY	HDB Resale Price Index (RPI) – Q1 of each year	YoY
2012	151.5	–	138.5	–
2013	153.2	1.1per cent	148.6	7.29per cent
2014	147.0	-4per cent	143.5	-3.43per cent
2015	141.6	-3.7per cent	135.6	-5.51per cent
2016	137.2	-3.1per cent	134.7	-0.66per cent
2017	138.7	1.1per cent	133.9	-0.59per cent
2018	149.6	7.9per cent	131.6	-1.72per cent
2019	153.6	2.7per cent	131	-0.46per cent
2020	157.0	2.2per cent	131.5	0.38per cent
2021	173.6	10.6per cent	142.2	8.14per cent
2022	188.6	8.6per cent	159.5	12.17per cent
Annualised	–	2.21per cent	–	1.42per cent

1. Sell current HDB, buy a new launch in the area

Time period	Capital gains	Property price
Starting point	$0	$2,904,000
Year 1	$64,178	$2,968,178
Year 2	$65,597	$3,033,775
Year 3	$67,046	$3,100,822
Year 4	$68,528	$3,169,350
Year 5	$70,043	$3,239,392
Year 6	$71,591	$3,310,983
Year 7	$73,173	$3,384,156
Year 8	$74,790	$3,458,945
Year 9	$76,443	$3,535,388
Year 10	$78,132	$3,613,520

Total gains: $709,520

After taking the cost of $1,144,477 into account, you will incur a loss of $434,957.

2. Sell current HDB, rent a place (for 2 years) while looking for an ideal property

Time period	Capital gains	Property price
Starting point	$0	$2,522,667
Year 1	$55,751	$2,578,418
Year 2	$56,983	$2,635,401
Year 3	$58,242	$2,693,643
Year 4	$59,530	$2,753,173
Year 5	$60,845	$2,814,018
Year 6	$62,190	$2,876,208
Year 7	$63,564	$2,939,772
Year 8	$64,969	$3,004,741

Total gains: $482,074

After taking the cost of $897,535 into consideration, you will incur a loss of $415,461.

3. Stay put in current HDB

Time period	Capital gains	Property price
Starting point	$0	$920,000
Year 1	$13,064	$933,064
Year 2	$13,250	$946,314
Year 3	$13,438	$959,751
Year 4	$13,628	$973,380
Year 5	$13,822	$987,202
Year 6	$14,018	$1,001,220
Year 7	$14,217	$1,015,437
Year 8	$14,419	$1,029,856
Year 9	$14,624	$1,044,480
Year 10	$14,832	$1,059,312

Total gains: $139,312

Taking the cost of $176,761 into account, you will incur a loss of $37,449.

4. Sell HDB, buy an older resale unit

Time period	Capital gains	Property price
Starting point	$0	$2,522,667
Year 1	$55,751	$2,578,418
Year 2	$56,983	$2,635,401
Year 3	$58,242	$2,693,643
Year 4	$59,530	$2,753,173
Year 5	$60,845	$2,814,018
Year 6	$62,190	$2,876,208
Year 7	$63,564	$2,939,772
Year 8	$64,969	$3,004,741
Year 9	$66,405	$3,071,146
Year 10	$67,872	$3,139,018

Total gains: $616,351

After deducting the cost of $953,979, you will incur a loss of $337,628.

Please note that these projections are basic and intended solely as a general reference. Each development behaves uniquely and is also subject to fluctuations in the market. Additionally, depreciation has not been considered in these projections.

Based on the projections provided above, all four options would result in losses. Among them, holding onto the HDB property would lead to the lowest overall loss due to its lower incurred costs. On the other hand, purchasing a new launch property would result in the highest loss.

Even though the cost incurred in option 2 is lower, the total losses accrued are higher compared to option 4. This is because in option 4, you retain ownership of the property for 10 years, allowing it to appreciate in value over time. In contrast, in option 2, you rent for two years and then hold the property for eight years, missing out on the two years of potential capital appreciation while still having to cover rental expenses.

All this is because of the high-interest rate environment now at 4.6 per cent (which we used over the 10-year period). While based on historical data this is unlikely to persist for so long, we wanted to take on a more conservative approach here.

So what should you do?

Option	Cost	Profit
Sell current HDB, buy a new launch in the area	$1,144,477	-$434,957
Stay put in current HDB	$176,761	-$37,449
Sell HDB, buy an older resale unit	$953,979	-$337,628

While holding onto the HDB property incurs the lowest costs and losses, there are concerns regarding lease decay if you choose to retain it for another 10 years. Additionally, the proximity of a new BTO cluster reaching its MOP within that timeframe and the availability of younger blocks in the current market at a similar price or with a slight top-up of less than $100,000 might make cashing out from the HDB a sensible consideration. Moreover, staying in the HDB would mean not being within 1 km of your desired primary school for your child.

When considering the purchase of a new launch property, it’s essential to recognise that you may incur substantial rental expenses. Given that you would have to rent for at least four years before the completion of the development, this can be a significant cost. Furthermore, since you’ve mentioned that you may not require all the modern facilities that come with a new development, it’s not worth paying the premium for it, in that regard.

Buying a resale unit has the potential to yield higher profits due to the longer holding period and absence of rental costs. However, this might entail a time constraint when it comes to purchasing a unit, unless you take the route of buying your next property first.

To answer your question, Option 4, which involves selling the HDB to purchase an older resale unit, is a realistic route to consider. The key decision lies in choosing whether to sell the HDB first or buy the resale unit first. This decision ultimately comes down to weighing the trade-off between finding your ideal unit and potentially accepting a lower selling price.

ALSO READ: Living near a popular primary school: The data on HDB unit prices within 1km may surprise you

This article was first published in Stackedhomes.