Should you sell your HDB and buy 2 private properties right now?

With ABSD now at 12% for a second property, many property agents have advocated this concept of selling your HDB to buy 2 private properties!
That means, stay one and rent out another.
Yes, it is always great to have potential rental income.
But, this strategy to building wealth IS NOT SUITABLE to everybody.
Especially if you may become overstretched financially.
These are some key factors for you to understand the current market conditions

Widening gap in price index: HDB vs Private properties

Have you seen this graph before?

Private property index has gone up sharply in recent quarters but the HDB resale index has continued downwards.

It is no wonder that property agents have been perpetuating this "sell your HDB and buy 2 private properties" concept.

It sure looks logical!!

Sell the "loser" which is HDB and buy the "winner" which is a private property.

Is the HDB index decline actually a reflection of old HDB vs new HDB?

Mr Alan Cheong, senior director at property research and consultancy Savills cited

"The realisation among prospective buyers that not all old flats will be eligible for the Selective En bloc Redevelopment Scheme (Sers)"

That means a potential $0 value to a HDB when it's 99yr lease expires.

In my opinion, the resale prices of HDB flats with less than 65 years’ lease remaining have dragged down the HDB index. 

BUT 2 examples on price appreciation for a new HDB

EXAMPLE 1 EC: Let's use PRIVE. 

Before 10years, it is not a private property.

Information on this project is easily obtainable.

This EC was launched in Jan2011 and TOP Jan2013

At the 5 year mark, Jan2018, a flood of owners exited the project.

They profited from an average buying price of $770k to an average selling price of $1.01m

EXAMPLE 2: New HDBs in Tiong bahru area.

Check this out. 4/5room flats are around $1m and trending up.

All of the first owners there probably bought at less than $800,000.

So, is it all bad news for HDB owners?

LONG TERM relationship between HDB & private property price trends?

Take a look at this, over the long term, HDB and private property prices are highly correlated.

That's of course actually.

A HDB upgrader cashes out high and buys a condo on a high.

A condo enbloc recipient cashes out high and downgrades but still buys high from the HDB open market.


The key point to you is that Interest rates and the economic climate affect the overall property sentiment for both sectors.

So do you think the widening gap between HDB and private property will stop at some point?

Idea of "For your investment property, use the rental income to cover the loan and then wait for upside"

Assuming you took the "sell HDB and buy 2 private property route", one would be an investment property and one for homestay.

Say this investment property costs $1m and you loaned $750k at 2.5%p.a interest rate today.

Let's work out some hypothetical figures.

Say can find a tenant in 1month for $3,000/m rental income per month.

Then you factor in $300/m conservancy charges and some taxes (property & income) of $3,000.

Your possible income for the year would be

 $2,700 x 11 months less $1,500 (agent commission) less $3,000 (taxes) =  $25,200


What about interest cost

As shown below at 2.5% its about $18,556 per year. This rate decreases slowly over the years of course.


Your net income for the year will only be $25,200 less $18,556 = $6,644

Yulp! Only $6,644.


Your total investment through downpayment will be $250,000 plus $24,600 (in stamp duty) = $274,600

If we use $6,644/$274,600, that will be only 2.4% returns.

Now.. what if interest rate rise to 4%?

Your total interest cost will be $29,760 instead of $18,556.

This means a possible loss for the year even though you had rented out your unit at $3,000/m.

Where's the passive income from a property investment?

The property rental market is lacklustre currently

The total population here grew only by 0.5 per cent in the 12-month period ending in June 2018.

There are not that many NEW people who want to rent.

But based on statistics from JLL Singapore and the Urban Redevelopment Authority (URA), 50,526 units of unsold private homes are forecasted to enter the market in the coming years. 

In the hypothetical example above, your rental property was vacated for a month only.

It could be worse. Maybe a few months empty, who knows?

Conclusions for you

Buying property does not have a guaranteed appreciation. Especially in the short term.

Property prices in Sydney have turned south already.

More updates from End Feb2019: 50% projected drop in value?!?

Some other cities like Vancouver are in bear markets too.

It is probably that prices will appreciate in the very long term.

Perhaps, you should take this route of "Sell HDB to buy 2 private properties" 

ONLY if you have a really comfortable budget for mortgage and at least a 10-20year investment horizon.

In the near term, there could be losses.

In the near term, there could be negative cashflows.

Source: https://www.businesstimes.com.sg/real-estate/developers-re-issuing-options-amid-cooling-market-launch-bonanza

In this recent article, there could have been some fresh investors who were enticed onto property investments too hastily.

They have since, surrendered the "option to purchase" (OTP).

Be safe when you think of property investments.

Selling your home now to buy 2 private properties is a decision NOT to be taken hastily.

PS: Since you read till here, I've 4 insider tips to share with you on property rental income!

Josh Tan Jian Liang (CHFC) Principal Author

REVIEWS: https://www.josh-tan/wall-of-reviews. COMPANY: Promiseland Independent Pte Ltd. EXPERIENCE: 11years.

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