Updated: Jan 13
Should I Hold A Bit Longer And See How?
Few days ago, I was at a gathering meeting my friends of my similar age. There was one particular friend wanting to upgrade to bigger resale HDB / condominium from his newly MOP HDB but he is clueless in what to do next. Thus he dragged me one side and wanted to ask me about it. Others also got interested because most of my friends are now holding flats that have either fulfilled MOP requirement this year or going to hit 5th year MOP mark soon.
Most of my friends are in early thirties and had either purchased BTO or EC directly from HDB as their matrimonial homes few years ago. Similar to most of the couples in Singapore, after eagerly waiting for 3 years of construction period, they collected their keys and moved in after renovation. In order to fulfill the MOP period of 5 years, they have actually waited a total 8 years of their life before they are finally being able to upgrade to private property from BTO / EC.
Time is money. After 8 years of waiting and finally able to sell in the open market, some owners are holding on to their fulfilled MOP property for slightly longer period of time. They have the wishful thought that the property should be able to fetch higher price. Some MOP estates in fact were still able to appreciate further within the first 10 years. Some estates were only enjoying good selling price from the 5th to 7th year with fluctuating prices for the subsequent years onwards.
For those who waited for the peak price in their neighbourhood, essentially they have wasted 12 to 15 good years and have missed the chance to obtain good profit and to gain control over their investment position. The golden opportunity to upgrade to private property has slipped through the years with lower profit and higher bank loan's installment due to shortened loan tenure (don't forget age will catch up as well!).
HDB / EC (99 Years) Being Depreciating Assets
Throughout my real estate career, I handled quite a number of transactions. I have been walking on the ground everyday and negotiating with both buyers and sellers on houses at different stages. I usually advise my clients that the golden period for peak performance in price is the first 10 years of property lifetime. If owners holding on to the property for too long, it will bring 4 inevitable ripple-effects.
“Today I am letting you know the 4 consequences which you, the owners, need to face by holding HDB for very long”
Impact 1: Decreasing Valuation With Decreasing Balance Lease
These past few years, there has been very strong interest for the newly MOP HDB flats (within 10 years) as compared to old HDB resale flats (more than 10 years). It is very common for buyers to enquire about the remaining lease of the flat before they decide to view. Buyers today are even comparing how "new" those newly MOP units (ranges from 5 years old to 10 years old). What will happen to those units are already in the range of 11 to 20 years old? Not to even mention those HDB flats already crossing their 30 years and beyond. The line graph below shows the fate of a 5-room flat in terms of its price or valuation starting from balance lease 56 years till lease runs out.
For HDB with remaining lease of less than 60 years, there are some restrictions on CPF usage and max loan amount. This means that the demand for these flats may start declining. Those who are aware of the decaying HDB lease are actually taking action by selling their flat and upgrading to private property at the right time. It is usually between the 1st to 5th year after MOP when you can sell at a ‘premium’ price and obtain a higher profit. Other than the fact that the flat has very long lease, another possible reason is the assumed well maintained and renovated condition of the unit.
For instance, older HDB flats in Toa Payoh with 50-55 years of balance lease were transacted at an average price of S$3xx,xxx. Meanwhile, newer HDB flats with around 80-85 years of balance lease were transacted at an average price of S$6xx,xxx.
Newer HDB flats in Ang Mo Kio with 80 to 90 years of balance lease were transacted at an average price of S$6xx,xxx. On the other hand, older HDB flats with 59 balance years or less were transacted at an average price of S$3xx,xxx. The above instances clearly show that there is strong correlation between the price and the balance lease.
Impact 2: Climbing Accrued Interest Resulting In Negative Sales Proceeds
When you sell your MOP fulfilled HDB flat, here’s how your sales proceeds will be calculated. Your sales proceeds will firstly be used to pay off the outstanding loan. If you finance your home with your CPF savings, you will need to refund part of the proceeds to your CPF ordinary account. This amount consists of the principle amount withdrawn from your ordinary account to pay for your home and the accrued interest which you would have earned if these savings had not been withdrawn. Any remaining sales proceeds will be paid out to you in cash. The good intention of CPF Board is to help you to restore the same amount of retirement savings to meet your needs during your golden years.
If you have been using your CPF to repay your housing loan, the funds used will cost you a substantial sum of accrued interest that needs to be returned. It actually consumes away the cash profit when you sell your flat leaving you with little or zero cash proceeds. Worse still, some run into negative sales proceeds. CPF accrued interest is a silent killer. The longer you holding on to your HDB, the more accrued interest accumulate, the lesser the cash receivable to pay for any downpayment in purchasing any private property during the upgrade process.
Impact 3: Government Stance in HDB Policies
Will older flats continue to grow in price? All HDB owners are just tenants purchasing 99 years lease from HDB directly. Eventually when the lease runs out, the houses will have the same fate as the terraced houses in Geylang Lorong 3 - to be returned to the State. Only 5% of all HDBs across the island is eligible for Selective Enbloc Redevelopment Scheme (SERS). The government is also giving warning to those buyers who bought old flats at high price predicting SERS will happen eventually to save them out of the declining lease and depreciating price.
In 2019, there is newly announced Voluntary Early Redevelopment Scheme (VERS) which allows HDB owners to come together and to vote for o against enbloc. It is a fact that compensation for VERS will be "less generous" than SERS, as there is lesser financial upside for the Government to take back these "low development value" flats early. VERS is still in its infant planning stage and it can only be carried out for estates 70 years old and older. If VERS won't be paying handsomely to owners for their enbloc house, what can we expect the market price of property at different stages in their lifetime?
Impact 4: Tough Competition with Increasing Supply of Newly MOP Units
The projection chart shows that more than 20,000 HDB units per annum will come off their minimum occupation period from 2020 onwards. This means it is going to be even harder to sell your property and even more difficult to get good offer on the table. With a significant supply of flats hitting the MOP period, there is a massive increase of eligible sellers entering the resale market. This may lead to a shift in housing demand. There will be stiff competition for the pool of buyers who will be spoilt for choice. HDB transactions could actually pick up with increasing volume but at moderate pricing.
If your unit has just fulfilled MOP, you might need to be aware and feel concerned that there will always be other flats nearby going to hit MOP sooner and after. Your unit will no longer be the "newest" in the vicinity. There will always be other HDB units that are newer or much more renovated etc.
One good example is that HDB flats in Punggol with 85 to 89 years of balance lease were transacted at an average price of S$3xx,xxx. Whereas, newer HDB flats within 10 years were transacted at an average price of S$4xx,xxx. The not-so-new ones will lose its competitiveness and attractiveness where as the much-newer ones will outperform and outshine the rest.
Last year, the amount of HDB flats aged under 10 years were sold upon reaching their MOP mark increased significantly at 33.4%. 4,578 such flats were sold in 2019 and 3,432 were sold in 2018. More HDB flats will be reaching their MOP mark in the coming few years.
Instead of just seeing your HDB as an asset that will continue to appreciate after 10 years, you should be looking at stopping loss and taking action in selling it within 10 years after hitting MOP mark. The above 4 repercussions sadly have to be accepted. The implications are real and happening. By the time you wish to sell your MOP unit in the resale market, the price likely has moderated downwards and your profit will be eroded bit by bit.
Unsure If You Should Hold Your HDB / EC Any Longer?
If you have a plan in mind but not sure if it works well – do share with me or let me know.
I will do my best to assist you to make sure you look at your plan from multiple angles and ensure you have a very clear picture on what’s going on.
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JJ Wong is the founder of MOPUpgraders.sg and has been a Property Wealth Planner in the real estate market for the past 6 years. He has helped many clients achieve their aspirations with the right financial planning and sound timeline planning. He is the man behind upgrading case studies of those who are holding on property under 10 years.