It is very hard to make money on your HDB flat. By this, I'm saying about the first HDB flat you buy. Many people treat the home they are staying in as an investment where they are willing to put in money and pay a lot for the mortgage every month.
Is it really worth it to buy the largest HDB flat and think we could make money from this in the future? Let me show you why your HDB flat is not really an investment.
Why Buying The Largest HDB Flat May Not Make Sense?
More expensive and lesser grants
Your first home is for you to stay. Spending more money to pay for housing loans means you will have lesser for retirement or for your expenses.
The recent BTO launch at Bidadari (Toa Payoh) attracted quite a lot of attention. The location is good and so is the price higher. Let's take a look at the prices of the different flat sizes at Bidadari for the recent launch:
As we can see, the prices are definitely higher than areas like Punggol. If we buy the largest HDB which is the 5 room flat, as compared to the 4 room, we need to fork out an additional $100K for it. Furthermore, there are lesser grants for 5 room flats as compared to 4 room flats. I'll write more about the grants in another article coming up next. In general, we could lose out up to $40,000 in grants if we buy the biggest HDB flat.
The monthly instalment for a $450,000, 4 room flat and a $550,000, 5 room flat will be as below:
4 Room Flat: $1838/Month
5 Room Flat: $2246/Month
The above scenario is assuming a 90% loan and 25 years loan tenure at 2.6% interest from HDB loan. As we can see, buying a 5 room flat will set us back with $408 lesser a month. This will add up to $122,400 in total for 25 years.
Higher resale levy
I think a lot of couples buy the largest HDB flat because they think they can make more money from it when they sell it and buy another BTO. This may be true in the past but its not true currently. For a 5 room HDB flat, if you sell it either to upgrade or downgrade, the resale levy imposed is higher than that of a 3 room or 4 room flat.
Here's the resale levy payable:
A resale levy is payable on these conditions as quoted from HDB website:
- You sell your subsidised flat after meeting the Minimum Occupation Period (MOP), and then buy a second subsidised flat from HDB or take over ownership of a subsidised HDB flat
- You sell your subsidised flat after meeting the MOP, and then buy an EC from a developer where the land sale was launched on or after 9 December 2013, including those where tenders were not closed, i.e. Westwood Avenue, Canberra Drive and Anchorvale Crescent
You need not pay a resale levy if you are buying any of these:
- Design, Build and Sell Scheme (DBSS) flat from a developer
- EC from a developer; where the land sale was launched before 9 December 2013
- HDB resale flat
- Private residential property