Summary
Owning a HDB flat makes more financial sense than renting a HDB flat.
The government intervenes and regulates the HDB property market to ensure that prices do not skyrocket.
It is unrealistic to invest in HDB flats with the expectation of high capital gains.
Article
From 2005 to 2013, there have been huge increases in HDB prices every year. From 2013 onwards, however, prices started to stabilise with a small percentage decrease in prices.
Ultimately, the government’s purpose for public housing is to ensure that every citizen stands a chance to own a home instead of having to rent their house. Renting a house is not ideal since it incurs periodic expenses without ownership. When you pay installments to own your property, you will still receive proceedings roughly equal to the value of your property when you sell it, after deducting for interest. Hence, the mind-set that rental is better than ownership doesn’t make sense.
It is not entirely realistic to invest in HDB for capital gains. Firstly, there are many factors to consider when investing in property including age, supply and demand factors, masterplans and location. Secondly, it is important to understand the broad direction and purpose of the government.
Since the government wants to ensure that every citizen stands a chance to own a home, it does not make much sense for HDB flats to experience price increases of up to S$10,000 - 20,000 every year. This will not benefit the next generation of homeowners since they will not be able to afford the astronomical prices.
Furthermore, from 1995 to 2013, our economy grew at breakneck speed, with rapid growth in minimum and median income as well as infrastructure. Property prices increased correspondingly. But we cannot expect this same speed of growth to continue forever. As such, HDB prices are unlikely to increase at the previous pace in the future. However, we also need to bear in mind that there are significant differences between the HDB market and the private property market especially since there are less regulations in the private property market. For example, one regulation that the government has imposed for HDB is to increase the tax for foreigners. This is because the government wants the majority of public housing to be owned by Singaporeans, not foreigners.
There is also a Minimum Occupancy Period (MOP) that comes with the purchase of HDB flats. The purpose of this rule is for you to stay in the HDB for at least 5 years. However, a lot of my viewers who own both private property and HDB have mentioned that they consider just renting out their HDB flat due to the high rental yield. However, many have not considered the total capital price depreciation that happens every year.
The older generation earnt money from capital appreciation since average prices have increased 105% from 1995 to 2013. More recently, however, homeowners who bought their HDB flats at the peak in 2013 have “lost” money since the prices have gone down slightly since then.
The purpose of HDB flats is to stay instead of making income through good rental yields. In one sense, owning a HDB is definitely more worth it than going to the open market to pay the rental price. From an investment perspective, buying a HDB may not be worth it since the capital gain is not guaranteed. If you want to invest in property, you should look into the private poverty market since it is a less restrictive environment.