More expensive HDB flats leads to more Singapore Home loans repayment?

What is considered an “Asset”? In properties or otherwise, anything that carries a monetary value is an asset. Of course, there are assets that lose value and assets that appreciate in value. We’d call it Good assets and Bad Assets.

If you consider something as an asset, then naturally you would need to mentally align yourself into an investment frame of mind.

Of course you will still need to consider getting a Singapore home loan and make sure you properly calculate the cost.

Having the right property investment mindset.

True investor looks for growing the money above and beyond that of inflation. If someone says they are investing in a Spa pool for $35,000. This spa pool improves their blood circulation and therefore they are able to go to work feeling fresher. And therefore eventually be more productive and thence earn more money. Spa pool depreciate in value as it ages, there is also maintenance cost associated with it and this drains your cash flow. And if you cannot quantify your potential gains and eventually put it in monetary value, then this is a dubious investment decision that is clouded by personal emotions.

Many people say, I will invest in myself, to get a good car, to enjoy the ride to and from work. When I feel good, I am more productive at work, I can earn more, etc. We would rather call it a consumption. Anything that is non monetary in yield and gains is not considered an investment in the strict investment sense.

The same logic can be used when buying a HDB flat or Private Condominium

The question to ask yourself is, are you buying this HDB to stay in or to lease out?

If you are buying to stay in the HDB flat, then you are using it. And after you used it, it is consumed. Same as buying a car, after you use it, after several years, it is consumed. It becomes old and useless. You do not receive income from the property.

Can your rental cost be considered a form of income?

Several things to consider, if you are currently renting a place, it costs you money. By buying a HDB flat, you immediately save on rental. In this case, this saving from of rental cost can be considered an income.

However you are replacing rental with Housing loan repayment.

Therefore you must calculate whether this income (rental replacement) is sufficient to pay for your home loan repayment. You may need to fork out extra money.

In this case, you can marginally say that it’s an investment. But of course if you were renting something cheap and now you are purchasing something big and luxurious, then the Savings will not be much, or you could end up paying much more. . But this is not a pure investment decision, and most people do not bother to calculate yields for these type of purchase.

The decision can then be, should I reevaluate?

Do you consider your HDB as a Home or an investment?

If you consider your HDB flat as a home, then why are you worried about the price of the property? Are you going to sell it?

Especially for HDB flats, if the prices run up, the entire HDB flats as an asset class will all run up. Can you downgrade to make the difference? Unlikely.

If you own a Private condo, you may downgrade and capture some capital gains.

HDB flats are for mass market, don’t feel shy that it is mass market.

HDB flats are mass market housing where more than 80% of Singaporeans and residents stay in. Pricing rises reflect the overall buoyant market, it is most likely that the rise is in tandem with the rest of the market.

In a scenario of generally buoyant market conditions, the entire moves up. Pricier assets will move up in quantum much more than HDB flats.

For those who has earned a higher income and is upgrading to a condo, that is fine and affordable. In many cases, people are upgrading to Condo because of capitalizing on their HDB price rise and going into a higher consumption bracket in mass market condo. Not to forget, prices of Condos at the mass market do run up in tandem with the HDB prices.

I state an illustration here, if a HDB owner’s flat was $300,000 and it rose to $600,000 and a Condo with the same rate of increase, say from $500,000 to $1,000,000. In terms of quantum, HDB rose by $300,000 while Condo rose by $500,000. This means an additional consumption of $500,000 – $300,000 = $200,000.

In terms of financing cost, the Condo property buyer would end up paying $400,000 ($1m – $600k) rather than an extra $200,000 ($500k – $300k) in financing cost.

So in the case of an equal rise in property values (in terms of percentages), this would put the HDB seller into a precarious financial situation.

As such costs are interest bearing if you take a Singapore Home loan, therefore it further eats into the property buyer cash flow. Assuming income levels are similar before and after shifting into Condo, the home owner is said to have increased his consumption.

Can I consider HDB as an investment?

Yes, HDB flats can also be an investment. If someone intends to rent out some rooms. Previously private property owners can buy HDB flats, so some of them make this investment. If they are able to rent it out to someone, and provided that the prevailing regulations allow that, the yield can be very good.

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