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Should I sell my HDB flat to fund my condo purchase?
Aspire, Personal Finance | 27 July 2015
Articles (41) Profile

All of us aspire to a better life, to give our families a better life. This is only normal.

In Singapore, part of this aspiration to a better life for many is characterised by a desire to live in a condominium with full facilities and security.

For HDB upgraders, they might wonder if they should sell their HDB flats or hold on to them as income properties. The case to keep their HDB flats for rental income has been quite strong in recent years due to the buoyant rental market and the very low interest rate environment. It would be prudent to ask if such a scenario is going to last?

I replied to a reader who has the same question:

Hi H,

You have rightly identified the two main considerations which will help you in making a decision.

1. Interest rates have been very low for many years. They could stay low for a while more but they cannot stay so low forever. The very low interest rates of the last few years are abnormal. When interest rates normalise in future, the logical direction they will go is up.

2. How much we get in rental income, if any, like many things is a function of supply and demand. The oversupply situation in residential properties is not getting any better in Singapore and it will take years to correct (and we are assuming that they would). The slower growth in the foreign working population is not going to drive rental demand for residential properties like it did in recent times.

Would you be able to rent out your 4rm flat in Sengkang for $2.2K a month (if you could find a renter at all) in 2017? I do know it has been getting harder to find renters in recent months. I don’t think anyone knows for sure what it is going to be like in 2017.

In life, I like to go for low hanging fruits. I try not to climb trees and if I do, I try not to climb too high up into the trees. I go for the benefits which I know I will be able to secure with greater certainty.

Leverage is able to deliver benefits to investors if used correctly and if the conditions are favourable. The last few years saw households in Singapore leveraging more liberally because of the very low interest rates. Things still look OK now but a recent study showed that if interest rates were to normalise and rise by only 2%, 15% to 20% of households in Singapore could become overleveraged.

An overleveraged individual uses more than 60% of his income to service his debt burden. So, someone could be using just under 60% of his income now to service his debt burden but when interest rates rise, which they will sooner than later, all else remaining equal, he could end up using more than 60% of his income to service his debt burden.

Reading your email, I get the feeling that your preference is to sell your HDB flat when your condo is ready in 2017 so as to avoid paying a 7% ABSD (and also end up servicing a bigger home loan). Well, I would say to keep your ear to the ground and see how things develop in the next two years.

If the residential real estate market worsens and if interest rates go up much more, the case for keeping your HDB flat as an income property will weaken. We cannot project current day rates into 2017 and think that things will not change.

Leveraging to fund prudent investments is a good idea. Leveraging to fund consumption is generally a bad idea. Interest rates have been too low for too long and many people have grown a bit too adventurous.

Best wishes,


AK is a Singaporean stock market investor and a popular blogger. His blog was created with the intention of educating investors and sharing his investing journey with the target of having a more secure financial future in an uncertain world by creating a stream of reliable passive income with high yields.

Please click here for more information about this author.

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