600k HDB vs 1.1m Condo – 30m/30f
I would like to hear your constructive criticism and suggestions because frankly speaking I’ve spoken to 4 property agents (referrals, friends) and they all seem to be hard-selling me the 1.1m condo idea and say that HDB resale is hot garbage.
It is worrying that most agents do not have any concept of discounted cash flow, IRR or opportunity cost. Their main argument is “Govt will never allow HDB to be expensive and will always keep their prices down”.
I did some math and some things did not feel right with their suggestion.
Background – I’m 30F with my hubby 31m. We don’t plan to live in Singapore forever (maybe migrating after 15-20 years?) – so this house will not be a forever home. But we WILL be moving into this home so rental yield isn’t an option for now.
We don’t mind flipping / buy 2nd house after MOP as long as it makes financial sense. Our priority is maximum ROI, so we don’t really care about convenience or size of the house. It’s just ‘nice to haves’. BTO and EC is not an option – we want to move in asap and are looking at Q1 2024. NO car, NO kids.
600k 4-room HDB – using HDB loan at 2.6% rate.
1.1m 2bedder condo – in heartland areas like Bedok/CCK? – 29% downpay with BSD, and max loan 75% at bank rate 3.2%
We don’t feel comfortable with going over 1.2m for condo because really hard to cough up the downpayment and we will start struggling beyond that price.
My biggest issue is Opportunity cost. HDB downpayment 15% (90k). monthly mortgage 2k.
Condo downpayment (330k) With such a large downpayment and average 4k mortgage/mth + $400 maintenance fee needed for the condo, I always argue with the agents that I could have used the excess $2400 and DCA into S&P500 for average 7% per annum. Using my compound interest and loan calculators, over a 10 year period, the HDB option wins the Condo option by a whopping 300k difference (assuming the S&P stabilises at 7%/year until 2034, average)
My assumptions are also that the Condo and HDB appreciates at 2.5% annually (that is the average annualised RoR over the past 10 years). In order for the Condo option to win the HDB, it has to appreciate at the same rate as the S&P500 – 7% per year.
TL;DR the numbers are all suggesting that HDB is the better option, solely because I can use excess savings to put into the market. UNLESS if the Condo somehow appreciates like mad over the HDB.
PLEASE poke holes in my numbers and let me know if I have miscalculated, missed out something, or maybe you have a suggestion that’s out-of-the-box and brilliant!
Bonus question: Is a <70 year old resale HDB flat better than a 90 year recently MOP flat based on our scenarios? I read somewhere in this subreddit about IRR and that a cheaper, 400k, 60yr HDB flat can breakeven faster than a more expensive 90yr HDB flat, especially if we rent out after MOP
Netizens’ comments
- Property agents are there to help you look for property that you want to buy.
As soon as they start mathing and planning your financial journey, property progression plan etc, just walk.
Never rely on their math for financial advice, because 1% of 1.1m is more than 1% of 600k. And getting you to buy in to their progression plan means selling commission on your current and future properties as well as buying comm for the ‘next step in your journey’. - Your numbers are not wrong, but the premise of the numbers are geared in a way where equities will always win.
Let’s look at your assumed rate of gain of 2.5% annually for real estate, with a risk free yield of 4% and a mortgage is 3.2%, you are losing money every day. There is no scenario where your math would work out for this vs equities when looking at purely a rate of return.
what you gain from putting your money into real estate is lower volatility. If you’re only looking at the average absolute return and basing your decision on that, the logical decision would be to short real estate and go leverage long on equities in that case.
Instead I’d suggest looking at it this way. Would you rather have 350k or so be in real estate equity, and increasing year after year, or 90k in real estate. The answer might be different if you have 1million now, 400k now, or 200k now.
Remember that diversification is always the shield to volatility, and to not base decisions on just being drawn to absolute returns. There will always be people who make fortunes by going 100% on TSLA and AMD, or buying 10 properties all at once at the right time. But assume you’re not them and you’ll need to be protected against either a real estate down turn, a global equities down turn, or both. - A 1.1m 2 bedder condo is going to be tiny. Unless you’re going for a very old leasehold unit you’re probably going to be able to get 600-800 sqft including aircon ledges and balcony, probably without a proper kitchen.
I know it’s not intended to be your forever home, but my husband and I lived in one of these small units for the first 3 years of our marriage and I didn’t like it at all. Couldn’t cook properly in our tiny kitchen, couldn’t get a proper sofa or dining table because of the lack of space.
The amount of money and the salary bump needed to upgrade to a decent sized condo is a lot and you’ll be locked out of buying a resale HDB for some time after selling, so do consider the fact that you might be stuck for some time.