Monday, August 25, 2014

The Price of Freedom: Abandoning my birthright to an HDB

One of the big benefits of being a Singaporean citizen is the right to purchase an HDB. HDBs are awesome mainly because they are just so cheap. People I know from the upper class shun HDBs and see it as poor people dwellings. Personally, I love it. I don't think it is too small. I really like the affordability factor though.

However, the only problem is the requirement to buy an HDB. As a Single, my requirements are pretty straightforward, especially if I am buying from the open resale market.

Single Resale Market requirements:
1) Singapore Citizen
2) Over 35 years old
3) Do not own private property

Now, what really affects me is the fact that I want to move out and stay on my own.

Of course, the ideal scenario is that I buy a resale HDB when I am 35, then live in it for 5 years and after that I can go buy a private property to live in until I die. Obviously I'll rent out my whole HDB flat at that point of time and cover most of my mortgage. Sounds good right?

Problem is that I will only be able to comfortably move in and live in my "retirement" home when I am 40. The next problem is what do I do now from the age of 25 to 35?

One solution that many will propose is that I either live with my parents until 35. I do not like that solution. Yes, I save a ton of money on rent, of course. But the main purpose of me even thinking about housing is that I want to move out!

The next solution is renting. I could rent out a HDB studio apartment. That costs about $2000 a month. A condo apartment would be $3500 a month.

Or, I could purchase a $1 million condo and pay $3600 a month based on the higher 3.5% interest rate. CIMB has a ridiculous rate of 1% floating, that comes out to $2600 a month. Even using a more realistic rate of 2%, which is slightly more than the floating average rate now, it would end up being $3000 a month.

If the condo I am looking at is only $800,000 then my monthly payments could drop to around $2000 a month. Compare that to renting a studio HDB for the same price.

Why would I pay $2000 a month to rent out a small studio or $3500 for a condo when I can pay less per month, and also eventually own it? Renters in Singapore fit only 1 profile: foreigners. They do not plan to live here long term or retire here, so they pay a rental premium to have short-term flexibility. And that premium is large. The only other people are house flippers. It makes no sense for someone with a long-term stake in Singapore and planning to retire in Singapore to rent out a place.

If I had to rent a place for 10 years while waiting to be eligible for my own HDB, I would be paying close to $240,000 in rent. And this is not even taking into account the gradual inflation of the rental revision.

If I have decided that I am going to buy and live in a private property, then it makes sense that I should just purchase it as soon as I can instead of putting it off. Do I really need an "investment" HDB flat?

The only potential issue that I see myself running into if that if I get married and decide to start a family. As a DINK (double income no kids) couple, it is still realistic to live together in my private property. And with no kids, there is really no need to rush into marriage. However, when children come into the picture, space will become an issue.

I suppose in that scenario I would have to sell my private property and get a right sized HDB flat. Or conversely I could put off marrying and having children until my finacee is 35 years old and she gets a HDB as a single first, and then we would live in the HDB and rent out my private property!


  1. Hey there GMGH! I chanced upon this post of yours and would really like to know what you have worked out for yourself? Coincidentally at this time of reading I am also 25 years old (same as when you posted this!) and thinking of buying my first private property.. (investment purpose) so have been doing a lot of research and readings.. and also face the thought of forgoing the birthright to a HDB.. still single and friends were saying why don't I just invest in others like sit etf which gives better returns than our current rental yield, instead of taking a big loan at this age. Do you have any advice on this? Thank you :)


    1. Hi E,

      Wow this was a post from almost 3 years ago!

      I think it's important to know the purpose of the first property. My intention is NOT for an investment. My intention is to settle down and begin pre-paying my housing expenses (through my loan).

      If the purpose is for investment, then the choice is very clear - private property. By the time you reach 35, I am fairly certain that you could have bought a property and flip it for a profit. Of course, now may not be the best time to enter, considering that I think we're on the edge of a bigger fall.

      If the purpose is for own-stay, then it's a matter of preference. How urgent is it to move out? What is the price that you are willing to pay for privacy and independence? As much as I value those, the prices in the market now is just silly. I am better off just holding off until an opportunity presents itself (as opposed to squinting very hard and trying to make nothing look like something). In the worst case scenario, at 33-ish I would just give up and start planning to BTO and cash in on that SG birthright benefit.

      The point that your friends have raised about better and less risky alternatives is a very valid one. The STI ETF gives better yields and doesn't require you to fork out such a huge amount and kill your cashflow and financial flexibility. If you are temporary out of a job or if the property/rental market sours, you would be in a very dangerous situation.

      Please let me know what you end up deciding to do!

      FYI, you can buy and sell a private property before 35 and still be able to buy a HDB then, as long as you don't own the private property anymore.

    2. Hi GMGH

      Thanks for replying! Some good food for thought for myself :) I am looking to make the decision for next year - so will take the time to think and see how the property market situation is..



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