“Increasingly, those who can afford it will also turn to private homes as a better store of value.” – TODAY, 19 Sept 2018
According to this Credit Suisse report – private property can be seen as a better store of value for you as compared to a HDB flat.
But what does “better store of value” exactly means?
To explore this issue deeper, let’s look back into the past.
Not too long ago, the older HDB resale flats were considered a better choice compared to BTO HDB flats.
It was highly sought after due to its:
- larger size
- good location
- established amenities
- mature estates
- READY to move in condition!
For BTO HDB flats, you had to wait 2-3 years in order for it to be completed. You also were not sure how it would look like when completed.
On the other hand, HDB resale flats were in ready to move-in conditions. Buyers could view the flat and decide if they liked it or not.
In fact, resale HDB flats were so popular that buyers didn’t mind even paying large premiums.
Now in 2018, we can see how sharp the tide has turned.
In just 3 years – a length that is shorter than the 5-year Minimum Occupation Period imposed on all HDB owners – a 180-degree change has happened.
“Madam Chai, who declined to give her full name, said she lowered her asking price to $320,000, but there were no takers. She finally sold her flat in February this year for $288,000 – $52,000 less than her initial asking price.” – The Straits Times, 15 April 2018
Buyers are now shunning these older resale HDB flats and they have become very sensitive to the age of the flat and its remaining lease.
It becomes obvious – no one wants to put in a lot of money for a property that will depreciate.
What Are the Main Factors That Affect a Property’s “Store of Value” ?
Factor #1: Public Housing’s Various Regulations
There is a limit to how much a HDB flat being a good store of value. Being public housing, it is subjected to various government regulations which affects its ability to remain a long-term store of value.
There is no doubt that HDB flats are relatively cheaper and if viewed ONLY as a home providing a roof over our heads – there are no issues.
But seeing that part of our retirement monies are parked inside our property, it is absolutely necessary to be aware of all implications that it brings.
Here are some regulations all HDB owners must take note of:
– Ethnic Quota
– 5-Year Minimum Occupation Period
This regulation was designed to ensure people didn’t flip their properties.
But as I shown earlier, any trends can change quickly and easily – thanks to new rules or updates.
In comparison with private property, one can sell their property with no additional stamp duties after the 3-year Seller Stamp Duty (SSD) period has passed.
If a seller is willing to pay SSD, he or she can still sell their property if they wish to.
– Cash Out Refinancing is not allowed for HDB flats
If a private property owner wishes to extract the gains or appreciation his property has made, he can approach a bank to do a cash out refinancing of his mortgage loan.
On the other hand, the only way for HDB owners is to extract cash out is for him to sell his flat. But the depreciating value of such flats with expiring leases will mean a potential contraction in wealth for home owners.
This means HDB owners who may also face greater difficulty in the extraction of housing equity if money is needed urgently.
Factor #2: Certainty In The En-Bloc Sales Process
For private properties, there is an established and known process if owners wishes to band together to collectively sell their units. They can open a tender and invite developers to bid to buy over their old private condo development.
For HDB owners, there is the new Voluntary Enbloc Redevelopment Scheme (VERS) that was announced during the 2018 National Day Rally. However details are thin as it will only be implemented in 20 years’ time.
This uncertainty in the VERS process versus certainty in an established collective sale – could affect the potential store of value of HDB flats.
Factor #3: It is not the length of remaining lease but what you can do before it becomes too old
A brand new property with a fresh 99-year lease has a better chance of appreciating compared to an older property. This is true regardless of whether it is HDB or private property.
But for private property, owners can come together and do a collective sale whenever they want. It can be as early as 20 years, 30 years , 40 years.
For HDB flats, the option available is VERS and it will only be done when the flat reaches 70 years old.
Hence as a long-term store of value, private properties will remain to be perceived as the better store of value.
I came across the comment below on one of the news articles regarding the 99-year HDB lease. It was interesting how the commentator has upgraded to private property and now has downgraded back to HDB.
It was done over a period of 20 years – meaning there was a degree of calculation and planning done to ensure that it was a successful transaction at every turn.
This is how people are taking control of their finances and their wealth – by taking control of their housing and becoming highly aware of what’s going on.
There are pockets of opportunities still available.
The July 2018 cooling measures have forced developers to offer discounts to buyers. You have a better chance of making a bigger profit.
But you need to be able to choose the right property, so there is a chance of better capital gains. A good choice means you could probably stay there for free as your capital gains can cover your monthly mortgage!
At the same time, it also needs to be a property that can allow you to exit easily. It needs to be easy for you to sell and downgrade to a cheaper home once you reach your retirement age. This means your retirement can be secured through property.
If you are ready to get started to explore your options, I invite you to contact me to discuss in further detail based on your existing financial standing.