Should you keep HDB and buy condo when upgrading (i.e. Pay ABSD)?

This is a common dilemma (albeit a happy one) for many HDB upgraders whose family finances allow them to keep HDB and buy a condo. Should they pay ABSD for the condo and rent out their HDB flat for passive rental income? Below are 4 factors for your consideration before making the final decision.

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     Table of Content

• Factor 1: Special & Sentimental Reasons
• Factor 2: Financing & Loans     
• Factor 3: Sense of Security
• Factor 4: Rental Yield Vs Capital Appreciation

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 📌 Factor 1: Special & Sentimental Reasons

• The law allows Singaporeans to first buy a HDB flat and then a condo after fulfilling the MOP but not the other way round.
• This is one reason why many Singaporeans want to keep this “Special Privilege”
• Another factor to keep the flat is Sentimental reasons
• You may have many fond memories with your family there
• These memories are precious and cannot be easily quantified in monetary terms

📌 Factor 2: Financing & Loans

• Putting sentiments aside, to “keep HDB and buy condo” will need you to consider the financial aspect of your decision.
• Keeping the flat will require you to pay 17% ABSD based on the condo price.
• Your HDB flat will need to be fully paid with no outstanding loans.
• Otherwise, your maximum loan for your condo will be limited to 45% if you take a second home loan.

📌 Factor 3: Sense of Security

• HDB flats is public housing and belongs to the Government of Singapore.
• HDB owners get a sense of security because the government is unlikely to behave like a profit driven commercial entity
• These flats serve as a backup for the owners in any crisis
• Rental yield for HDB can be as high as 5-7% because a HDB flat costs much less than a condo.
• This rent can help to offset their condo’s monthly mortgage, which reinforces this sense of security

📌 Factor 4: Rental Yield Vs Capital Appreciation

• When buying a property for investment, one should look at both rental yield and capital appreciation.
• From my own investment experiences, capital appreciation should be the bigger consideration.
• Let us take the private condos in Geylang as an example.
• They tend to have higher rental yields but the capital appreciation is slower because of bank loan limitations for the area.
• Overall, condo will have higher capital appreciation than a HDB flat because of the following reasons
• HDB flats has low enbloc potential
• Only about 4% of HDB flats qualify for Selective En bloc Redevelopment Scheme (SERS)
• As such, to idea to “keep HDB and buy condo” is not favored by investors who want maximum investment returns
• In Singapore, not many condos survive beyond 40 years
• There are also more flexibilities for condo
• You can cash out by taking equity loans without selling your property
• You can buy alone or with your friends

When you pay ABSD in order to keep your HDB flat when buying a condo, it is most likely because the special sentiments and sense of security factors are larger than economic ones

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