We own a jumbo HDB unit and make $500k per year: Is it worth keeping or selling to upgrade or rent?

Hi there,

I have a unique question, if you can help me with some analysis - I would love to sign up with you for my future property purchases.

My current situation:

Currently we are a family of four, Singaporean and residing in a Jumbo HDB in Bukit Merah (TOPED in early 2010s). It's more than 1,500 sq ft in size and I feel we can sell it at around $1.35 million. As a family we make around $500K a year and am 34 years old.

We have various options that we are considering (and confused about):

Option 1

Continue to stay at this big HDB and buy a single/two bedder condo for my parents stay at Skyline residences or close to our home. 

My plan is to buy an investment property every five years after that.

Option 2

Sell this property and invest in twocondo units at close locations (would love to be at Telok Blangah/Pasir Panjang) - if this is the option, I am not sure of the affordability. Any advise you can provide would be nice.

Ideally one four bedroom and another one two bedrooms.

Option 3

Buy a penthouse unit with two floors and we can reside as a family.

Option 4

Sell this house, rent a four bedroom for our own stay and buy a two bedder for my parents stay.

I know these are many options, any help you can provide - I would be very grateful.

Thank you

Editor's Note: Some details were omitted/altered for privacy reasons.

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Hi there,

Thanks for reaching out. This is definitely a very unique place that you have and one that would be hard to replace at that same price point.

You do have a lot of options available at hand, and while we will go through the options from a numbers perspective, perhaps it is better that you narrow it down based on what is the most ideal option for you and your family from a lifestyle choice as well.

A few of the options do require a lot of moving about and even uncertainty, and that can be an often overlooked stress factor - whether it is for you or your elderly parents.

That aside, let's look at your affordability.

Affordability

First, we'll look at the cash proceeds from selling your HDB. This would help us determine your affordability.

Selling of HDB

Determining your selling price is tough as your unit is truly unique in that it's a relatively new Jumbo flat in a mature, central area - Bukit Merah.

If we looked at the four-room flats in the area, units going for $800,000 - $900,000+ is fairly common. One four-room flat even transacted for $1.1 million in August 2023 alone and these are only 95 square metres in size - much smaller than your current home!

Considering the size, age and thus, the rarity of your home, $1.35 million is probably a reasonable estimate and will use this as part of our calculations.

Your affordability depends on the buying options

Since there are several options you're considering, we will do up the affordability accordingly.

Buying a second property without selling the HDB

When taking a second mortgage loan, the Loan To Value (LTV) ratio drops to 45 per cent. Of the 55 per cent downpayment, 25 per cent is payable in cash.

You mentioned that the flat was purchased as a resale property, so we'll assume that you've held it for five years so far since the property is really only about 10 years old. Considering your income, we presume you took up a bank loan with a maximum loan tenure of 25 years since it's unlikely you were eligible for an HDB loan then. As a result, the outstanding loan amount of $700K will now have a remaining tenure of 20 years. We'll also assume you're comfortable using the max of the $500 - $700k cash for the property you specified earlier.

Description	Amount
Maximum loan based on ages of 33 and 34 with an annual income of $500K, an existing loan of $700,000 and at an interest rate of 4.6 per cent	$3,739,883
CPF	$19,509
Cash	$700,000
Maximum affordability based on total CPF and cash of $719,509 (55 per cent downpayment)	$1,308,198

Despite being eligible for a high maximum loan, the substantial downpayment needed significantly reduces your actual affordability. Taking into account the Buyer's Stamp Duty (BSD) and Additional Buyer's Stamp Duty (ABSD), your estimated affordability would be $929,370 (BSD: $22,481, ABSD: $185,874).

Buying property after selling the HDB

This method definitely increases your affordability as you no longer have to pay for the ABSD and you'll get to raise cash from the sale. You'll also be able to take a 75 per cent loan on the property.

Description	Amount
Maximum loan based on ages of 33 and 34 with an annual income of $500K and an interest rate of 4.6 per cent	$4,470,214
CPF ($196,741 + $19,509)	$216,250
Cash ($453,259 + $700,000)	$1,153,259
Maximum affordability based on total CPF and cash of $1,369,509 (25 per cent downpayment)	$5,478,036

That being said, while you are eligible for a higher loan, the limited funds you have for the 25per cent downpayment reduces your actual affordability. Taking into account BSD, if we calculate backwards, your estimated affordability would be $4,612,609 (BSD: $216,356).

Buying two separate properties after selling the HDB

As we do not have your exact income of the split of the current CPF available, we will assume an even split.

Husband's affordability

Description	Amount
Maximum loan based on the age of 34 with an annual income of $250K and an interest rate of 4.6 per cent	$2,235,107
CPF ($196,741 + $9,755)	$206,496
Cash (Assuming an even split of the cash proceeds and cash on hand)	$576,630
Maximum affordability based on total CPF and cash of $783,126 (25 per cent downpayment)	$3,132,504

Working backwards and taking BSD into account, your estimated affordability will be $2,711,753 (BSD: $105,187).

Wife's affordability

Description	Amount
Maximum loan based on the age of 33 with an annual income of $250K and an interest rate of 4.6 per cent	$2,235,107
CPF	$9,755
Cash (Assuming an even split of the cash proceeds and cash on hand)	$576,630
Maximum affordability based on total CPF and cash of $586,385 (25 per cent downpayment)	$2,345,540

Working backwards and taking BSD into account, your wife's estimated affordability will be $2,055,950 (BSD: $72,397).

Now that we have a clearer picture of your affordability, let's run through the options you're considering.

Options

Option 1: Continue to stay in the HDB and buy a one or two bedroom condo for your parents

Given that your HDB is only 10 years old and it's a rarity in the area (plus its size), it is likely that the demand and in turn price will hold up for the long haul.

However, it's still a 99-year leasehold property and the issue of lease decay will eventually arise if you hold on to it for a long time.

When exactly the lease would decay rapidly is a mystery, but if anything, your property should hold up longer than others given how rare it is. As such, we wouldn't be too concerned about the leasehold nature of your HDB flat.

Next, let's consider what you can do with your budget.

You've mentioned the preference to stay nearby and suggested Skyline Residences. Looking at the recent transactions for one and two-bedders there, it seems that you're priced out of the project with a budget of $929,370. The most recent one bedroom transaction was in September last year at $1,080,000.

So let's broaden our view. At this current moment, there are only two units available on the market in District 4 (Harbourfront/Telok Blangah) that fall within your affordability.

Project	Tenure	Completion year	Unit type	Size (sq ft)	Asking price
Harbour Suites @ Kampong Bahru	Freehold	2014	1b	419	$880,000
The Foresta @ Mount Faber	Freehold	2015	1b	431	$900,000

These two developments are boutique projects primarily offering one and two-bedroom units. Generally speaking, such developments may not have the best appreciation because of their niche nature, but that can still depend on the individual project and location (you should do more analysis on these projects). Also at these sizes for a one bedroom, it may be considered too compact for your parents to live in as well - it all depends on your priorities.

However, if you want your parents to live nearby, your options are somewhat limited. As there was no mention of an intended holding period, we will assume a timeframe of at least 10 years since we're guessing your parents wouldn't want to move frequently.

As such, let's assume you're to purchase a unit at The Foresta @ Mount Faber and we'll explore the associated costs.

There was only one unit of a similar size that transacted in March this year at $870,000, we will use this as the purchase price.

Description	Amount
Purchase price	$870,000
CPF funds	$19,509
Cash	$700,000
BSD	$20,700
ABSD	$174,000
Loan required	$345,191

The cost incurred over 10 years if you were to buy a one bedder at The Foresta @ Mount Faber:

Description	Amount
BSD + ABSD	$194,700
Interest expense (Assuming a loan of $345,191 at 4.6 per cent interest with a 30 year tenure)	$144,502
Maintenance fees (Assuming $180/month)	$21,600
Property tax	$7,600
Total cost	$368,402

The cost incurred over 10 years if you were to continue holding the HDB:

Description	Amount
Interest expense (Assuming a loan of $700,000 at 4.6 per cent interest with a 20 year tenure)	$264,934
Maintenance fees (Assuming $107/month)	$12,840
Property tax	$10,240
Total cost	$288,014

Total costs incurred over 10 years if you were to continue staying in the HDB and buy a one-bedroom condo for your parents: $368,402 + $288,014 = $656,417

You also mentioned that your plan is to buy an investment property every five years following this purchase. However, considering the reduced LTV ratio of 35 per cent for a third mortgage and the ABSD of 30 per cent for the third and subsequent property purchase, this strategy might not be feasible.

Option 2: Sell HDB, purchase two separate condos

This is the classic sell one buy two scenario.

Given that you have a substantial amount of cash available, it will be easier to allocate the funds accordingly and adjust both your individual affordability.

Seeing as you have the higher affordability, we will presume that you will be purchasing the own stay property. Since you are looking at a four-bedroom unit, we will need to utilise more cash for the purchase of your own residence. If we were to put $200K more towards the purchase, your budget will be raised to $3,093,050 while your wife's budget will reduce to $1,385,465.

After looking at the available options though (even with a healthy budget of $3,093,050), you are unfortunately priced out of the four-bedroom units in District 4 at the moment. If you are willing to be flexible on the unit type, these are some available three-bedroom + study units in District 4 that fall within your affordability:

Project	Tenure	Completion year	Size (sq ft)	Asking price
Caribbean at Keppel Bay	99 years	2004	1,335	$2,850,000
The Pearl @ Mount Faber	99 years	2005	1,603	$2,688,888

Similarly, with a budget of $1,385,465, you are priced out of the two bedders in District 4. These are some available one-bedroom units in District 4 that fall within your budget:

Project	Tenure	Completion year	Size (sq ft)	Asking price
Harbour Suites @ Kampong Bahru	Freehold	2014	419	$880,000
The Foresta @ Mount Faber	Freehold	2015	431	$900,000
Skyline Residences	Freehold	2015	484	$1,100,000

Let's say you were to buy a three + study at Caribbean at Keppel Bay and a one bedder at Skyline Residences.

From January till date, there were three transactions for units of the same size with an average price of $2,581,000. We will assume this as the purchase price.

Description	Amount
Purchase price	$2,581,000
CPF funds	$206,496
Cash	$776,630
BSD	$98,650
Loan required	$1,696,524

The cost incurred over 10 years if you were to buy a three + study at Caribbean at Keppel Bay:

Description	Amount
BSD	$98,650
Interest expense (Assuming a loan of $1,696,524 at 4.6 per cent interest with a 30 year tenure)	$710,191
Maintenance fees (Assuming $500/month)	$60,000
Property tax	$65,660
Total cost	$934,501

As for Skyline Residences, the last one-bedroom transaction was in September last year which was at $1,080,000. We will use this as the purchase price.

Description	Amount
Purchase price	$1,080,000
CPF funds	$9,755
Cash	$376,630
BSD	$27,800
Loan required	$721,415

We are assuming here that the one bedder will be for your parents to live in and not for renting it out. The cost incurred over 10 years if you were to buy a one bedder at Skyline Residences:

Description	Amount
BSD	$27,800
Interest expense (Assuming a loan of $721,415 at 4.6 per cent interest with a 30 year tenure)	$301,995
Maintenance fees (Assuming $200/month)	$24,000
Property tax	$10,240
Total cost	$364,035

Total costs incurred over 10 years if you were to sell the HDB and purchase two separate condos for own stay purposes: $934,501 + $364,035 = $1,298,536

Option 3: Buy a penthouse unit

When considering the purchase of a penthouse unit (especially the older ones), it's important to bear in mind that it generally appeals to a more limited pool of potential buyers. Due to their larger size, which can occasionally include expansive roof terraces or the presence of extra void spaces created by their high ceilings, penthouses usually come with a heftier price tag in comparison to standard units. For certain buyers, it represents a lifestyle choice. While undoubtedly appealing as a personal residence, reselling a penthouse could pose challenges in the future.

Given your intention to acquire this property for your own stay, we assume that you have a preference for its location within District 4.

With a budget amounting to $4,612,609, there are presently two penthouses comprising four bedrooms that fall within this price range:

Project	Tenure	Completion year	Unit type	Size (sq ft)	Asking price
Caribbean at Keppel Bay	99 years	2004	4b	3,208	$4,388,888
The Berth by The Cove	99 years	2006	4b	3,100	$4,550,000

Let's assume you were to purchase the penthouse at the Caribbean at Keppel Bay. The last unit of a similar size was sold in April last year at $3,950,000. We will use this as the purchase price.

Description	Amount
Purchase price	$3,950,000
CPF funds	$216,250
Cash	$1,153,259
BSD	$176,600
Loan required	$2,757,091

The cost incurred over 10 years if you were to buy a penthouse at the Caribbean at Keppel Bay:

Description	Amount
BSD	$176,600
Interest expense (Assuming a loan of $2,757,091 at 4.6 per cent interest with a 30 year tenure)	$1,154,161
Maintenance fees (Assuming $600/month)	$72,000
Property tax	$179,000
Total cost	$1,581,761

Option 4: Rent a four-bedder and purchase a two-bedder for your parents

This might not be the most favourable choice due to the considerable expenses associated with renting a property at this current point.

At the moment, the most reasonably priced four-bedroom rental option in District 4 is available at Teresa Ville, which is asking $7,000/month. Looking back over the past three months, there have been five similar-sized units rented out, averaging $6,160/month. We can assume this to be the rental price.

Regarding the two-bedroom for your parents, let's suppose you purchase a unit at Skyline Residences, as you previously expressed a preference for this project. From January till date, three two-bedroom units were sold, with an average transaction price of $1,845,629. Let's adopt this as the purchase price.

Description	Amount
Purchase price	$1,845,629
CPF funds	$216,250
Cash	$1,153,259
BSD	$61,881
Loan required	$538,001

The cost incurred over 10 years if you were to rent a four-bedder and buy a two-bedder at Skyline Residences:

Description	Amount
BSD	$61,881
Interest expense (Assuming a loan of $538,001 at 4.6 per cent interest with a 30 year tenure)	$225,216
Maintenance fees (Assuming $300/month)	$36,000
Property tax	$30,320
Rental costs (Assuming $6,160/month)	$739,200
Total cost	$1,092,617

Now that we have a better idea of the costs involved, let's also consider the potential returns.

Potential profits 

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	1.1	148.6	7.29 per cent
2014	147.0	-4	143.5	-3.43 per cent
2015	141.6	-3.7	135.6	-5.51 per cent
2016	137.2	-3.1	134.7	-0.66 per cent
2017	138.7	1.1	133.9	-0.59 per cent
2018	149.6	7.9	131.6	-1.72 per cent
2019	153.6	2.7	131	-0.46 per cent
2020	157.0	2.2	131.5	0.38 per cent
2021	173.6	10.6	142.2	8.14 per cent
2022	188.6	8.6	159.5	12.17 per cent
Annualised	–	2.21 per cent	–	1.42 per cent

We'll apply the above-annualised growth rates to do up a simple 10-year projection for the four options. We've employed a consistent growth rate for each property type to ensure an equal comparison among all strategies. However, it's important to acknowledge that the actual growth rates of specific projects may differ and this projection is intended solely as a reference point. We must also point out that our assumed interest rates of 4.6 per cent would dwarf the gains in the property market of 2.21 per cent. Interest rates and property appreciation rates fluctuate from year to year, so our forecast is really just for use as a reference.

Option 1: Continue to stay in the HDB and buy a one or two-bedroom condo for your parents

Description	Potential capital gains	Costs incurred	Potential losses
Purchase a one-bedder at The Foresta @ Mount Faber at $870,000	$212,563	$368,402	$(155,839)
Hold on to HDB currently valued at $1,350,000	$204,425	$258,431	$(54,006)
Total	$376,103	$626,833	$(250,730)

Option 2: Sell HDB, purchase two separate condos

Description	Potential capital gains	Costs incurred	Potential losses
Purchase a three + study at Caribbean at Keppel Bay at $2,581,000	$ 630,603	$934,501	$(303,898)
Purchase a one-bedder at Skyline Residences at $1,080,000	$263,871	$364,035	$(100,164)
Total	$894,474	$1,298,536	$(404,062)

Option 3: Buy a penthouse unit

Description	Potential capital gains	Costs incurred	Potential losses
Purchase a penthouse at Caribbean at Keppel Bay for $3,950,000	$965,084	$1,581,761	$(616,677)

Option 4: Rent a four-bedder and purchase a two-bedder for your parents

Description	Potential capital gains	Costs incurred	Potential gains/losses
Rent a four-bedder at Teresa Ville	–	$739,200	$(739,200)
Purchase a two-bedder at Skyline Residences at $1,845,629	$450,934	$353,417	$97,517
Total	$450,934	$1,092,617	$(641,683)

What should you do?

In the preceding projections, all four choices experienced losses over a 10-year period, primarily due to the substantial interest expense. The potential gains or losses will be influenced by fluctuations in interest rates.

Upon analysing the options, it becomes evident that renting a four-bedroom unit and acquiring a two-bedroom property for your parents would result in the highest losses. Comparing this to the scenario of purchasing two properties, the difference in potential losses is quite significant. As mentioned earlier, property ownership allows for potential capital gains that can offset certain costs, whereas renting only involves outgoing expenditures. So this option may not make the most sense financially.

Buying a penthouse unit ranks as the second highest in terms of losses incurred and there is also the concern about potential resale in the future. While the property is undoubtedly comfortable and spacious, it caters to a narrower buyer demographic.

Opting to reside in the HDB unit while purchasing a second property for your parents results in the least losses. However, the choices for the second property become restricted due to the reduced loan quantum for your second loan, and a substantial portion of available funds is allocated towards the payment of ABSD, thereby reducing affordability.

Given that the HDB unit you possess is unique within the locality and relatively young, its value may likely remain stable in the medium to long term. Staying in the HDB also provides greater comfort due to the spaciousness compared to buying a three or four-bedroom condominium which will likely be smaller in size. This scenario also lets your parents have their own space which is great for privacy reasons, while allowing you to benefit from private property market inflation (and still use the condo facilities).

In a scenario where a buyer owns two properties, one is typically for investment and is rented out, thereby generating higher profits. However, because you are purchasing two properties for personal occupancy, you won't be seeing this benefit. To facilitate a more accurate comparison between Options 1 and 2, let's examine how fluctuations in interest rates would impact their potential gains.

Option 1: Continue to stay in the HDB and buy a one or two-bedroom condo for your parents

Cost incurred at	Purchase a one-bedder at The Foresta @ Mount Faber at $870,000	Hold on to HDB currently valued at $1,350,000	Potential profits/losses
2.5 per cent interest	$299,771	$161,677	$(85,345)
3.5 per cent interest	$331,987	$220,792	$(176,676)
four per cent interest	$348,423	$251,073	$(223,393)
five per cent interest	$381,862	$312,993	$(318,752)

Option 2: Sell HDB, purchase two separate condos

Cost incurred at	Purchase a three + study at Caribbean at Keppel Bay at $2,581,000	Purchase a one-bedder at Skyline Residences at $1,080,000	Potential profits/losses
2.5 per cent interest	$597,194	$220,602	$76,678
3.5 per cent interest	$755,530	$287,931	$(148,987)
four per cent interest	$836,311	$322,282	$(264,119)
five per cent interest	$1,000,651	$392,164	$(498,341)

As you can see, our assumed 4.6 per cent interest rate was extremely conservative, thus any strategy that involves taking a large loan would be more detrimental. Conversely, if interest rates are very low, then a highly-leveraged strategy would be the most profitable.

We can see that when the interest rate is at 2.5 per cent, Option 2 incurs lesser losses and even makes a small profit. This is because the interest expense on a 75per cent loan is lower than the 2.21 per cent gain on the property price. However, as the interest rates go up, the potential losses increase considerably due to the significant loan quantum as compared to Option 1.

Overall, from a numbers perspective, Options 1 and 2 come out on top here.

Option 1 is great if you prioritise privacy in having your parents stay nearby while waiting for interest rates to fall. While you do incur ABSD, it could be worth paying this than committing to another private property with a higher loan amount while interest rates are high as we don't know how long this would last.

The interest rates on the loan would remain low given the remaining amount is just $700,000 while you get to enjoy the spaciousness of your unit. The value of your HDB should hold or even increase given the rarity of it, so holding on to the HDB isn't an issue here at this point in time. Also, there's no need to deal with the hassle of moving out.

Option 2 is great if you prioritise the lifestyle option of a condo and have identified two developments that have good appreciation potential, but this would come at a higher interest expense (and hence costs). You would save on the ABSD, but so long as interest rates remain high, you'll make a greater loss as our calculations have shown.

Finally, there's also the option of just not doing anything. Property remains a profitable venture due to leverage - and this is true when the property market appreciates greater than the interest expense. Having a high income allows you to leverage even more.

However, leverage goes both ways. When interest cost is high and the property market is at an all-time high, perhaps stepping aside and observing the market further is prudent. If you have no urgent need to do anything, then one option is to just sit tight and wait.

ALSO READ: We make $300k per year and are nearly in our 50s. Should we sell our 22-year-old HDB flat or investment property to upgrade?

This article was first published in Stackedhomes.