Better To Buy Condo or HDB? Pros & Cons!

Today, it is not uncommon to hear the news about $1 million HDB resale flats in Singapore. In such a situation, many buyers might wonder if it is really worth spending $1 million on an HDB apartment or if it is the right time to commit to private property. There are pros and cons of buying an HDB resale flat against a private condominium, aka condo. But let’s start with HDB resale flats.

What is a HDB resale flat?

HDB (Housing Development Board) resale flats are pre-owned public housing flats up for sale in Singapore. These residential flats are currently owned by someone else and have recently completed their Minimum Occupation Period (MOP) of five years.

Unlike Build-to-Order (BTO) flats, resale flats don’t come with a fresh 99-year lease. Typically, the lesser the number of years left on the lease, the lesser the price of the resale flat. Homebuyers who don’t want to ballot or wait for a Build-to-Order (BTO) flat can find HDB resale flats an attractive option.

Million-dollar HDB flats in Singapore are typically either close to the city centre (RCR) or are large apartments (4-room, 5-room, jumbo flats, or maisonette). Sometimes they are very close to the MRT stations.

To compare with condominiums in a similar price point, we made a quick search on one of the leading property portals and found that you can find relatively smaller condo units (like a studio, one-bedroom unit or two-bedder unit) in the Core Central Region (CCR) and Rest of Central Region (RCR) costing up to a million dollars.

If you are looking for a 3-room or 4-room condo, you may only be able to afford it in the Outside Central Region (OCR).

Please note that only Singapore citizens and permanent residents can purchase an HDB resale flat as long as they meet the HDB eligibility requirements.

Why are HDB resale prices increasing?

In 2020, 82 million-dollar HDB flats were sold for a million dollars or above, which more than tripled to 261 for the whole of 2021. In 2022, from January to July, 199 million-dollar HDB flats have already been transacted.

And mind that this rise in the sale of million-dollar HDB flats is not confined to mature estates in the central region of Singapore. HDB resale flats in non-mature estates, like Woodlands, are also being sold for more than a million dollars.

Not just that, Singapore recorded the most expensive HDB flat sold in 2022. Breaking the previous record of $1.36 million (in October 2021), a 5-room HDB flat was recently sold at SkyTerrace@Dawson for a whopping $1.418 million in July 2022.

Despite the new HDB rules to cool the property market, the price of HDB resale flats has continued to rise in Singapore in 2023. This rise in prices can be attributed to buyers’ growing demand and limited supply, mostly due to long completion times and construction delays of BTOs caused by the pandemic. Those unwilling to or who couldn’t wait for a BTO turned to the resale market.

Furthermore, buyers looking to upgrade to larger flats are considering HDB resale flats an ideal option, making the supply restricted and prices high. Similarly, since work-from-home arrangements became more common, more people are spending more time at home. This has stressed the demand for one’s own space these days.

Another worrying factor to this situation is that the number of HDB BTO flats reaching MOP in 2023 (15,748) and 2024 (13,093) will be almost half as compared to the 31,325 HDB units hitting their 5-year MOP in 2022. This would skyrocket the demand further for HDB resale flats in the next few years.

Benefits of buying a HDB Resale flat

More spacious. If you have a big family, you can get a much bigger house if you go for an HDB flat instead of a condo for the same price, especially in prime locations. For example, 4-room or 5-room HDB flats worth million dollars could range between 969 to 1,184 sq. ft. while some jumbo flats can go up to 1,900 sq. ft. On the other hand, a million-dollar condo in the CCR or RCR could be about 450 to 770 sq. ft. and up to 1,900 sq. ft. in the OCR where prices are significantly lower.

Close to amenities. With million-dollar HDB flats, generally located in mature estates, you enjoy easy access to public transport and proximity to amenities like shopping malls and MRT stations. This usually translates into more convenience and a shorter commute.

No or short waiting time. Once the sale is completed, you can move into a resale flat almost immediately. Moreover, unlike BTOs, resale flats have no balloting process and can be easily bought with a seller’s agreement as long as you satisfy HDB’s eligibility requirements.

Good value for money. HDB resale flats are generally cheaper per square foot (PSF) and hence offer more value for money than condos. It means you can get a more affordable residence closer to the city or near the CBD.

Drawbacks of buying a HDB Resale flat

Restrictions on reselling. For HDB resale flats, you must meet the minimum occupancy period (MOP) of 5 years before you can resell. For BTO flats, the time can go up to 9 to 10 years, which includes 4 to 5 years of construction time and then a 5-year MOP.

May need to pay a COV. There is a high possibility of HDB owners having to pay cash over valuation (COV). This demands them to have a good cash flow before committing to a purchase.

Pet problems. An HDB flat may not be a viable choice for keeping pets. Note that HDB flats allow only a certain range of dog breeds and disapprove of having exotic pets like large spiders, iguanas, snakes, etc. Unfortunately, cats still are not on the approved list of pets in HDBs. If someone complains about your pet, you will have to let your pet go, considering you are still a few years short of fulfilling your 5-year MOP.

Higher cost of renovation. Typically, the cost of renovating a resale flat is higher than that of a BTO flat. When you renovate a resale flat, you will have to also deal with modifications carried out by the previous owner.

Are condos a good investment in 2023?

Whether a privately-owned condo is a good investment or not will differ depending on its intended use. For example, whether you use a condo as your primary residence, a rental property or a vacation home.

If you took a home loan to buy a condo and are using it as your primary residence, you are building equity into your condo with each mortgage payment. You are also saving the monthly rent you would have paid otherwise. Furthermore, buying a condo is more affordable than purchasing a single-family home, making it a popular choice amongst first-time home buyers.

Buying a condo as a rental property to generate passive income can also be a great decision. Private condos are easy to maintain for their smaller size and have the ability to provide handsome returns. Condos can be a great option for short-term rentals like Airbnb, as most travellers are more focused on the desired location than the condo size.

If you are investing in a condo to rent out, make sure you know what locations matter the most per your requirements. Make sure you pay close attention to any condo rules or rental policies that may impact your ability to find tenants for your property.

Some people buy a condo for use as a vacation or second home. It makes a worthy choice if you are already paying for a mortgage on your primary residence, as you can save money while getting a property close to your preferred vacation spot.

Remember that if you are going to physically occupy the vacation home for only a few weeks each year, it should be worth the rent you are paying for the property. After all, you will be paying monthly instalments for a property that is just sitting there. In such scenarios, it is recommended to rent the condo when you are not using it and use the money from renting to cover the mortgage costs and HOA fees.

Another perk of investing in a condo is that the property will likely appreciate in price over time – faster as compared to an HDB resale flat. Note that private property rates rose by a whopping 53.6% in Singapore, from 2010 to 2020.

However, condo owners should be prepared to hold onto it long-term and not expect to make quick money in 3, 5, or 10 years. Other factors that influence an increase in a condo price include the desired location, property maintenance, community amenities, ease of access to nearby attractions, and others.

This means that even if renting the private condo does not work out the way you expected, reselling is always an option.

Benefits of buying a private condo

More privacy & security. Privacy and 24/7 security are possibly the two biggest selling points of a private condo as they attract affluent individuals who want a peaceful and convenient life. You are saved from the annoyance of sales agents and even allow your little ones to go alone in the playground without worry because condos are gated and guarded round the clock.

Additional amenities. Apart from being a status symbol in Singapore, condos often come with an assortment of amenities like swimming pools, gyms, tennis or squash courts, barbecue areas, etc., which are also a plus if you use these facilities frequently. This way, you don’t have to travel anywhere or compete with the general public for using these facilities.

No restriction to fulfilling MOP. Condo owners don’t have to worry about fulfilling a MOP of 5 years before renting or selling out the unit.

Drawbacks of buying a private condo

Monthly condo fees. Condo owners are required to pay extra monthly fees to their condo association (HOA) for things like peripheral maintenance and other amenities, such as pools, sports clubs, gyms, dog parks, etc. depending on the housing complex. This monthly fee may go up at any time. Also, if you or your family doesn’t use these facilities, then you are not getting your money’s worth in maintenance fees.

Rules & regulations. Condo owners have to follow the community guidelines given by HOA. This can sometimes limit their plans for a rental property. For example, some condos may allow you to rent your property only for the long term but not the short term.

Should I upgrade from HDB to a condo?

In Singapore, many property buyers still consider owning a condo a status symbol (and a better investment!). It is common to see most Singaporean ‘upgrading’ to a private condo after selling their first home, which is usually an HDB flat.

The reasons why you can consider upgrading to a condo can vary. Some people look for a better location, while some may just want freedom from HDB’s ‘one-approved-dog’ per household rule. When you upgrade to a condo lifestyle, amenities like a swimming pool, gym, sports club, etc., are just a walk away from your home.

If you have kids and want to reside close to a specific primary school, you can choose a condo nearest to it.

Switching from an HDB to a condo is a much easier process. You can upgrade as soon as you complete your MOP of 5 years. During this period, you cannot buy another HDB flat or private property in Singapore or abroad. You are also not allowed to sell your current HDB flat during your MOP.

If you have paid off the loan on your HDB flat, you can decide whether you want to buy a condo first and then sell your HDB or vice-versa. In both conditions, you can borrow the maximum amount at 75% LTV, provided your monthly expenses support it.

Can I downgrade from a condo to a HDB flat?

The reverse of what we discussed above is also true. Some Singaporean households take the unconventional approach by ‘downgrading’ from a private condo to an HDB resale flat.

If your first property is a small one or two-bedder condo, you would probably want to sell it and get a larger HDB flat as your family grows. While you can certainly do that, you will have to wait for a minimum of 30 months after selling your private condo, if you want to:

• ballot for a BTO flat;
• buy a new EC (executive condo) flat;
• take up an HDB loan;
• apply for CPF grants.

This 30-month waiting period is a major stumbling block for homeowners looking to downgrade from condo to the HDB resale market.

There are other situations when condo owners consider switching from a condo to an HDB.

Let’s discuss this below.

For an older couple, downgrading to an HDB flat from a condo lifestyle would make financial sense if they have not fully paid off their home loan and looking to lower their monthly liabilities. Moreover, once the children have moved out, older couples may choose to live in a small HDB flat.

This will also allow them to take advantage of applicable housing schemes, for example, the Proximity Housing Grant (PHG) and Silver Housing Bonus (SHB).

People who want to get away with monthly maintenance fees associated with condos can also choose to move to an HDB flat, especially if they were not even using those amenities like a basketball court, gym, pool, etc. regularly.

By doing so, they will save a substantial amount of money over a year which they can use to support other life needs.

Can I buy a resale HDB if I own a condo?

You can’t purchase an HDB flat if you already own a condo in Singapore. If you meet the HDB’s eligibility requirements, you can consider getting a resale HDB flat if you want to move into the flat immediately. But, in such a situation, you must sell your condo within six months of moving in, starting from the date of key collection.

Therefore, it is suggested that if your first home is going to be a condo, make sure it is big enough that you don’t face a problem if you think of a new life after marriage, having children, etc. in the next few years.

Final Thoughts

Both HDB resale flats and condos have benefits that appeal to different individuals. A lot depends on your needs, lifestyle and preference.

For example, whether you travel every day to work in your own car or rely on public transport, or whether you have retired from work or not, might have an impact on your choice of property – HDB or condo – since usually HDBs are considered to provide good connectivity to public transportation.

In terms of price per square foot, HDBs surely seem a better deal as you get large-sized HDB flats compared to condos for the same price. Plus, first-time resale flat buyers can receive different housing grants. However, private condos are considered better as an appreciating asset.

If you can afford it, buy a good condo to invest in. But don’t feel pressured by people saying that a condo is a lifestyle upgrade. You don’t need to overstretch and compromise other important things in life. Look at your needs and priorities. Buy an affordable HDB flat. Save money, and invest it for better returns. You can always buy a condo later.

If you are interested in getting financial expert advice for your unique situation, our team of professional mortgage consultants at Dollarback Mortgage would be happy to provide you with a no-obligation, free consultation.