Since the end of the Circuit Breaker in 2020, HDB resale flat prices have been soaring, steadily growing for the past seven quarters; in Q2 2022, the latest HDB Resale Price Index is 163.9 points (+2.8% quarter-on-quarter, QoQ). Not to mention, the numerous million-dollar HDB resale flats that keep making headlines. In August 2022 alone, 33 HDB resale flats changed hands for $1 million or more.
As the owner of a soon-to-MOP HDB flat myself, these are exciting times.
About five years ago, I bought my 5-room flat for close to $460,000. Throw in renovations and furnishing costs, let’s put its cost at $500,000. The flat is about to fulfil its Minimum Occupation Period (MOP) soon, and flats around my area are already currently fetching upwards of $700,000.
With prices this lucrative, I can’t help but wonder: should I sell my flat at the first opportunity?
As any sensible homeowner (albeit with slightly better connections) would do, I took my dilemma to the experts of PropertyGuru. Given that there are over 31,000 flats expected to MOP this year, I’m sure many of you are also wondering the same thing, so read on.
Selling Your MOP Flat Now Could Mean High Sales Profits
The most obvious reason to sell your newly MOP-ed flat is to cash out on the high HDB resale flat prices now.
“This may be a very good time to sell your flat because prices are at an all-time high. You would have greater sales margin, and with these sales proceeds, greater flexibility in your next property choice,” Dr. Tan Tee Khoon, Country Manager, PropertyGuru Singapore, explained.
Take me as an example: if I sold my flat for say, $750,000, I would have earned a tidy $250,000. With that kind of cash, I could possibly even buy a condo.
Which begs the next question…
Should You Sell Your MOP Flat to Upgrade to Private Property?
With a couple of hundred thousands more cash in hand, upgrading to a private property suddenly seems a lot more within reach. You may even be able to pay for the downpayment for a million-dollar condo without tapping into your savings. Sounds like a dream, right?
Not exactly. There are many other factors to consider.
Firstly, while HDB resale flat prices are at a high, they have yet to catch up with private properties. Not only are private properties more expensive, but interest rates are currently at a high.
Dr. Tan said, “If you upgrade now, you must reckon with the higher prices of a private property and a higher interest-rate loan. If you don’t sell your HDB flat, then the Additional Buyer’s Stamp Duty (ABSD) for your second property will also prevail.”
That said, if you can stomach the high interest rates in the short-term, analysts do expect them to fall in due course.
Paul Wee, Vice President, PropertyGuru Finance, PropertyGuru Group, said, “I believe that interest rates will start trending down the later part of 2023. All things being equal, the higher rates are likely to be temporary.” This is considering events like the next U.S. election, and the looming recession.
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So, What Should You Do?
Depending on your personal priorities and aspirations, you can consider these options:
1. Upgrade Your Home Anyway
The first option is to sell your flat and upgrade anyway, as outlined above.
As Paul puts it, “Everything rests in the opportunity. For example, if you’ve found a property that you love, wouldn’t that influence your decision? What about a property that is attractively priced? Or near a school you want your child to go to?”
Yes, private property prices are high and with the same budget, you can probably only afford a smaller unit. However, if upgrading is your goal and you’ve already found an ideal property to buy, now is not necessarily a bad time.
Estimate what you can comfortably spend on your new home
2. Don’t Upgrade, Downgrade Instead
If your priority is to stretch the dollars from the sale of your MOP flat, you may want to consider doing the reverse – i.e., downsizing your home instead.
Dr. Tan said, “If you are willing to downsize, you may be able to borrow less or even pay for the property in full. Then, you can use the rest of your profits for other purposes, including growing your savings.”
For example, if I had $250,000 in sales proceeds, I might buy a 3-room flat that’s under 10 years old for around $400,000. If I use all the cash to pay what I can, my loan would only be for $150,000, which brings me closer to being debt-free.
Alternatively, I could borrow as much as possible (assume a loan-to-value ratio of 75% for a bank loan) and use the excess cash to invest for possibly higher returns.
3. Sell Your Flat and Rent for Now
The third option is to sell your MOP flat while prices are high and rent a home while waiting for a better time to buy another property. Not only are interest rates expected to eventually fall, but property prices too (when the supply for private residential properties come back into swing).
A point to note, however, is that rental prices are trending upwards as well. This is the case especially since the implementation of a 15-month wait-out period for private property owners and ex-private property owners buying HDB flats.
These ‘downgraders’ are likely to rent during the 15 months. Borders have also reopened, which means foreigners – who make up a large part of renters in Singapore– are streaming back into the market.
The Right Decision Is Different for Everyone
It may be very tempting to sell your flat now, but the “best” move is subjective and highly dependent on your personal situation.
In fact, the best way forward could even be to hold on to your flat.
This is especially if you’re currently enjoying a good interest rate on your home loan. An example is if you had taken up a mortgage in the past two years when rates were slashed to record-lows.
I personally refinanced with PropertyGuru Finance a few years ago and am paying only 1.5% p.a. for the next few years. If you’re in a similar situation, you are in a good position to wait things out.
“With your current mortgage, you actually have acquired a relatively cheaper flat as compared to others who buy theirs now. You may have more palatable upside into the future,” said Dr. Tan.
At the end of the day, it is important not to make any rash decisions. “Don’t upgrade for the sake of upgrading. Instead, you’d need to be critical about the new property you’re going to buy,” advised Paul.
As you can see, there are many factors to consider, and the decision of whether or not to sell your MOP flat is much more complex than it may seem. For more home financing advice, you may speak to PropertyGuru Finance mortgage experts (its’ free).Chat with us on Whatsapp Fill up an online form
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This article was written by Eugenia Liew. She lives in a cosy HDB flat and continues navigating the property market, hoping to one day own a landed property with a yard for her dogs to play in.