This topic has always been an ongoing debate amongst homeowners. Some will say yes and some will say no. It will probably depend on your age. If you are actually at your retirement age, around 50-60, then this is probably a good idea as the fully paid HDB will provide an income to fund your lifestyle. If you are younger, in your 30s and 40s, this is probably a bad idea. Why? This is the exact topic in which we will be discussing with you today.
I will be diving deeper into the key issues that you may be missing out. Having a fully paid HDB has always been a prudent decision from the financial planning perspective but if you are using CPF, it may not be but that is a different topic altogether. For discussion purpose, we will ignore that for now. Supposedly, your HDB is a 5 room flat, you have lived in it for about 5 to 10 years and you would like to experience life in a condo. You are unsure whether you will like the condo lifestyle, you decided to rent a condo for 3 years to see if it makes sense to you. At the same time, you rent out your HDB for 3 years as well. The rent you collected from your HDB is enough to offset your condo rent as well. Sounds like a plan right? Your tenant pays to you and you pay to your landlord. Everything seems to be ok. But you need to know that the ultimate winner in this scenario is your landlord and not you. Why? Because you collected the rent from your HDB to pay your landlord ultimately. You probably did not make any profit in this process.
Some of you may actually be saying that it is ok because you are not taking any money out from your own pocket but it is from the rent. You may be right in saying this but I will need you to look a little bit further and wider.
Take note that you may be losing out on the opportunities that are available to you in the property market. Why? Because you may be wasting 3-4 years and this is opportunity cost. Another risk that you face will probably be the possibility of the price of your property staying stagnant.
If you could have sold your HDB and bought a brand new launch condo at the initial launch period and hold it for 3 years when it reaches TOP. Then where do you stay right? You will need to rent a place, which will be about $2500/month and in a year, $30,000 and in 3 years, about $90,000. That is quite a lot of money! (Please bear in mind that it will depend on your personal financial situation. You need to work out your finances before you embark on this journey. Your cash flow worksheet is key in this exercise if you intend to start this journey.)
Hey but the amount that you will probably profit from the new launch purchase may actually be higher than just the rent that you are paying for the next 3 years. By looking at the overall comparison of re-deploying your funds out to another property and leverage on the low-interest environment in Singapore, you may be in for quite a pleasant surprise. 
Now let’s consider the fact that the profit that you may make from the new launch, do not take my word for it. I will be showing you some charts of actual transactions at some of the projects that just turned TOP or just 5 years old.
We can see that even as for the EC, Twin Waterfalls in Punggol has also seen a reasonable good capital upside from the launch day in 2012. It just reached its MOP of 5 years recently. We can see the profits rising above the “rental losses” of $90,000 as mentioned earlier. With this type of profit, after less off the rental, the profit is still reasonable. Just think about it, having a savings of six-figure without having to work for it, sounds not too bad.
From the above chart, we can see that the transactions in High Park have shown profitable transactions. Notice the purchase date and the sale date, it shows only a short period of approximately only about 3 to 4 years. The annualised return is also shown to be easily above 5%! Now if you were to rent for 4 years at $30,000 per year, it works out to be $120,000. Nett off the rental cost you have incurred from the gross profit, you still have a nice number. It is still above $100,000! This is based on 3 bedroom transactions. Of there are transactions whereby the profits are lesser. It is perfectly ok to see a lower profit for smaller units. The amount of cash outlay is also smaller as well.
The chart above is showing transactions in Bartley Ridge. We can also see the trend is showing profitable transactions as compared to the initial launch transactions. As was mentioned earlier, if you could have redeployed your funds into a new launch condo, your rental cost or so-called rental losses will be recovered easily from the re-sale of the new launch condo. We must bear in mind that not all projects will give the same and equal gains. Different projects will have different gains. So the trick is to make the choice wisely. Make an informed decision and not based on emotions. What you do not see now does not mean that there is no potential. If you can easily spot the potential just by seeing what is in the surroundings, a premium is already factored in the pricing. You will want to buy a project without a premium in the pricing. Always take note of the future development plans and what exactly are the major infrastructures being built around now.
Another point to take note is that when you are holding on to your HDB to collect the rent to fund your rental condominium costs, you may actually be overlooking a key point of eroding away the value of your HDB over the years. HDB flats on an average seem to be at its highest value when it just reaches the MOP of 5 years. Statistics have been showing that HDB prices have been taking a downturn since 2013. This is a known fact that HDB prices will start to de-value itself over the long term. You may actually be sitting on a reasonable profit but because of the delay in selling it, the value may have changed. Other than having the lifestyle of what you seek for in a condo, you have not made any reasonable profit from your this action of renting to rent. This is also provided that the condo that you are renting is of the same amount that you are collecting from your HDB.
By leveraging on the next property that can give you the potential capital upside, it definitely helps in progressing onwards to the next property.
I will be covering the next topic of working out your cash flow worksheet for your asset progression journey real soon.
The writer is a practising real estate professional with more than 20 years of financial planning and wealth management experience.
