Depending on where you stand on the matter, spending over a million dollars on a resale HDB flat might either be a ludicrous notion or make total sense.
Based on recent headlines, buyer sentiments might point to the latter.
In April 2021, a record total of 21 million-dollar flats were sold in the span of one month, adding to a total of 74 million-dollar flats sold this year alone. This is especially high considering that transaction prices showed an upward trend for ten consecutive months.
Why do buyers pay top dollar on a HDB flat over a similarly priced condo?
Reasons why million-dollar flats are in demand
Property cooling measures (both present and future)
Those keeping their ears to the ground might have caught wind that cooling measures may hit the private housing market sometime in the near future. While nothing's concrete at the point of writing, it's substantial enough to steer folks towards the resale HDB market.
It's worth noting that when the last wave of cooling measures came into effect back in July 2018, bank loan to value (LTV) was lowered from 80 per cent to 75 per cent (assuming the buyer has no outstanding home loan). Consequently, this increased the initial down payment to 25 per cent.
BTO construction delays
Yes, the wait to get the keys to your BTO may have gotten a little longer. Due to the shortage of labour, BTOs are seeing widespread construction delays that could stretch up to a year or more.
To avoid being one of the many disappointed couples left in the lurch, the resale market might just be the ticket you need to get out of your in-law's place.
Hefty condo downpayment
As HDB prices rise, condo prices are also trending upwards. Younger couples (especially first-time home buyers) may not have the cash on hand to comfortably afford the 25 per cent down payment required.
For example, a low-range $1.2 million condo unit will typically entail a $300,000 down payment, of which five per cent or $60,000 must be paid in cash.
In comparison, buying a HDB flat with a 10 per cent down payment that can be paid via CPF is a lot more forgiving.
What are the makings of a million-dollar flat?
Million-dollar flats are more than just buzzwords – they also happen to have a combination of winning features that bring all the buyers to the yard with seven-figure offers. Here are some of them in case you're on the lookout (or secretly hoping that your flat belongs in this category).
Most of the time, the higher the floor, the higher the selling price — that is, if the flat boasts panoramic views and practically sells itself. Views from certain sky-high (think: over 40 storeys) HDB flats can now rival that of private properties.
Flats that are perched high enough and display expansive views of the CBD skyline or the sea are also known to fetch over $1 million.
Rare flat types
Scarcity is also another major reason buyers willingly shell out the big bucks. Spacious maisonettes and jumbo flats are a godsend for multi-generational families.
However, they are not as widely available and are considered ancient compared to newly MOP flats. This is probably why the aforementioned flat types come at a significant premium if you manage to snag one.
HDB flats that fetch million-dollar prices are usually situated in central locations that are in close proximity to the CBD. Ditto if they're also a short stroll from the nearest MRT station.
They also tend to be found in more mature estates such as Bishan, Ang Mo Kio and Clementi.
One example would be the poster child of 'premium' HDB projects, AKA The Pinnacle @ Duxton located in Tanjong Pagar.
This development is certainly no stranger to million-dollar transactions, with over 40 units (and counting) sold.
Units that are fresh off their five-year MOP are also a huge pull for buyers as they have a long way to go in fulfilling their 99-year lease. This is especially attractive if you plan to put it on the market again one day.
However, lease decay does not always deter buyers. In June 2020, a jumbo flat made headlines when it was sold for $1.03 million despite its 59-year balance lease.
Buying a million-dollar HDB flat vs $800k condo: Which one makes more money sense?
To compare between the two housing options, let's break down the costs of buying a five-room resale HDB flat versus a condo.
|$1m HDB flat|| More square footage
Smaller 10% down payment
Lower conservancy charges (< $100)
Lower mortgage repayments
Lower legal fees
Lower stamp duties
High floor, mature estate
| Minimal (or even zero) facilities
|$800k condominium unit|| Wide range of premium facilities
| Less square footage
Hefty 25% down payment
Higher conservancy charges (> $200)
Higher mortgage repayments
Higher legal fees
Higher stamp duties
Wide range of premium facilities
Mid floor, far flung district
Let's assume that:
- The HDB flat was bought at $1,000,000 using a HDB concessionary loan while the condo was bought at $800,000 with a bank loan
- HDB concessionary loan is pegged at 90 per cent LTV and bank loan is pegged at 75 per cent LTV
- HDB is acting for you in your flat purchase and your down payment is paid fully via your CPF savings
- Legal fees add up to about $2,000 to buy the condo
- For HDB = $1,000,000 x 90 per cent = $900,000
- For condo = $800,000 x 75 per cent = $600,000
Cost of downpayment:
- For HDB = $1,000,000 x 10 per cent = $100,000 (can be paid via CPF or cash or both)
- For condo = $800,000 x 25 per cent = $200,000 (of which five per cent or $40,000 must be paid in cash)
Total Buyer Stamp Duty (BSD) payable:
- For condo = $1,800 + $3,600 + $13,200 = $18,600
|Purchase price or market value of the residential property||BSD rates (on or after Feb 20, 2018)||Amount|
|First $180,000||One per cent||$180,000 x one per cent = $1,800|
|Next $180,000||Two per cent||$180,000 x two per cent = $3,600|
|Next $640,000||Three per cent||$440,000 x two per cent = $13,200|
Total cash outlay needed to buy a HDB flat = Resale application administrative fee + processing fee for request for value + fire insurance + caveat fee + title search fee = $80 + $120 + $7.13 + $64.45 + $32 = $303.58
Total cash outlay needed to buy a condo = five per cent down payment + BSD + legal fees = $40,000 + $18,600 + $2,000 = $60,600
Buying a property is no small matter. Whether it's a HDB flat or a condo, the route you take should ultimately depend on why you're buying the property in the first place.
If you're buying it purely as a home to plant your roots and grow a family, the more affordable option will give you more room in your budget and significantly less financial strain down the road.
However if you see your property as a nest egg that you'll eventually sell off and downsize to a smaller home in your sunset years, perhaps the better option would be to buy private property as they tend to appreciate faster than their HDB counterparts.
This article was first published in SingSaver.com.sg .
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