Does a HDB flat or a private property make a better investment

Let me begin by wishing all readers Gong Xi Fa Cai and good luck in the year of the Golden Tiger.

During the Chinese New Year weekend, I visited a friend’s home to do some catching up.  Given Singaporeans’ keen interest in properties, the subject on the Singapore property market eventually came up.  One of my friends (a single past the age of 35) was thinking of buying a property for investment and he was wondering if he should buy a HDB flat or a private property.  Incidentally, this is one of the frequently asked questions I get from clients who engage my firm’s consultancy services and this was what I shared with him.

One of the things to help us decide which makes a better investment is the upside potential (amount that the property price can rise).  The most expensive HDB resale flat ever transacted was $890,000 in January 2008 for a Queenstown executive flat.  The seller bought the unit in 1992 for just over $300,000, which means that he made a profit of about $590,000 after holding the flat for 16 years.  As this is the priciest HDB ever transacted, we will not be too wrong to assume that this is probably one of the biggest profits ever made from a HDB resale flat.   

What about private properties? From our research, we found that during the property boom of 2007, the cheapest resale condominium unit that made a net profit of more than $1million was bought in June 2005 for $350,000 and sold in November 2007 for $1.375million.  This means that the seller made a profit of about $1.025million in less than 3 years.  Interestingly, the purchase price for the private property was only $50,000 more than the HDB flat; however, it was able to make significantly more profit in a shorter period of time.  Hence, this comparison clearly shows the difference in upside potential between the two types of property.  

Before you rush out right now to snap up whatever “Mickey Mouse” flats you come across, I must caution that these are extreme cases and not all private properties (or HDB flats) will automatically make huge returns.  Upside potential is just one of the many factors that investors should look at before they buy and they must ultimately be discerning in their investments.  

In conclusion, there was a point in time when the hallmark of a HDB flat was the affordability.  With the price gap between HDB flats and private properties closing, it may be more worthwhile for savvy investors to look at the private property market for worthy investments, leaving the HDB market for the genuine home buyers.