Are you ready to upgrade to a private home?

The move from an HDB flat to a private home is a well-trodden path, one that saw many Singapore families turn their dream of owning and living in a condominium into reality. Today, many households continue to aspire to live in a private condo development that offers exclusive facilities and different lifestyles.

With the strong growth in HDB resale flat prices in the past year, many flat owners have decided to make that switch. HDB resale values started to recover in the second half of 2019 after booking six consecutive years of decline. In 2021, HDB resale prices surged by 12.7%, following a 5% increase in 2020. This has provided the impetus for many HDB upgraders to act, selling their flat and recycling the proceeds to buying a private home – either in the resale market or in a new launch project, particularly in the mass market.

Consider these first!
For HDB flat owners who have met the 5-year minimum occupation period (MOP) and are seriously thinking about moving to a private condo, there are several key considerations to mull over.

1. Motivation to switch to a private home
Have a clear idea of what is the objective of making the move from an HDB flat to a private home. Is it to enjoy the more privacy in a gated condo project and to have exclusive use of various condo facilities, from swimming pools, to yoga pavilion, to herb garden and club house? Perchance, a certain condo project is highly attractive, or perhaps it is to entertain the possibilities of potential capital gains in the future? Tracking the URA private property price index (PPI) and the HDB Resale Price Index (HRPI), it appears that the PPI has enjoyed a faster growth rate on a 5-year and 10-year basis as at Q1 2022, compared to the HRPI (see Chart 1).

Chart 1: URA Property Price Index vs HDB Resale Price Index

Source: PropNex Research, URA, HDB

2. Financial outlay and monthly repayment
Upgraders tend to look at mass market private homes in the Outside Central Region (OCR) or executive condominiums (ECs) – a type of public and private housing hybrid. In recent years, residential property prices have continued to climb and have reached a new peak.

Based on URA Realis caveat data, the average transacted prices for OCR new launches, OCR resale and new EC projects have surpassed that of 2021 at $1.74 million, $1.25 million and $1.37 million respectively (see Table 1).

At these prices, buyers will be looking at a monthly loan repayment of anything between $3,900 and $5,500 based on the assumption that the upgrader has sold the flat and does not have any other financial commitments. Table 2 illustrates the financial outlay should the buyer borrows at 75% LTV (loan to value), at a 2% interest rate and a 25-year loan tenure.

Preferably, would-be buyers should work with an experienced real estate salesperson or a financial consultant to review their finances before embarking on big-ticket purchase such as a new home.

Table 1: Average Transacted Prices ($) of Private OCR Non-landed New Sales, Resale Homes and New ECs

Source: PropNex Research, URA Realis

Table 2: Monthly loan repayments illustration based on Average Transacted Prices

*Assumption: Buyer has no other financial commitments, has sold the HDB flat, borrowing at 2% interest rate, with loan tenure of 25 years.

3. Maintenance/conservancy fees
Consider also the cost of living in a private condo as opposed to HDB flats in terms of the maintenance or service and conservancy charge payable each month. For HDB flats the reduced S&CC is typically about $64 for 4-room flats and about $80 for 5-room flats. On the other hand, maintenance fee at condos could easily run into a couple of hundred dollars and the amount varies depending on the size and share values of the unit. In addition, private condo owners may not enjoy certain incentives offered by the government, such as S&CC rebates for example.

4. Chance to purchase the property separately
By selling the flat (which was jointed bought) and buying a new property, the couple gets the chance to “decouple” – purchasing the new home under one person’s name. This will present an opportunity for the other person to buy a residential property further down the road without having to pay additional buyer’s stamp duty (ABSD) as it would be the individual’s first home purchase.

When is the right time to upgrade?
It is not possible to perfectly time the market but would-be upgraders could take some guidance from price movements in both the private and HDB resale segments. Ideally, owners would want to take advantage of a stronger HDB resale price growth, especially if private home prices are likely to plateau or see a much slower increase.

PropNex projects that HDB resale prices could climb by 6% to 8% in 2022 – at a faster clip than that of private residential properties. Since the implementation of new cooling measures in December 2021, private home prices are expected to rise at a slower pace of 3% to 5% this year, compared to the 10.6% jump in 2021.

While strong demand had driven prices up in 2021, inflationary pressures could be a factor to watch this year as rising construction cost and manpower cost may push up prices. In addition, with interest rates expected to inch up through 2022, some buyers may want to make their purchase sooner rather than later to lock-in more favourable mortgage rates.

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