IT IS NOT EASY TO PROFIT FROM YOUR HOME ANYMORE.

From 10 March 2014, the Housing Development Board only accepts valuation requests from resale flat buyers or their property agents after granting the Option to Purchase by the sellers.

The Revised HDB Resale Procedure is believed to encourage buyers and sellers to focus their price discussions on the recent sales transactions, rather than the Cash Over Valuation (COV) that sellers expect buyers to pay on top of the flat’s value.

Since when have HDB flats become a goldmine?

Back in 1996, 2007 and 2010-2013, the media liked to pick up stories of HDB sales transactions that came with very high COVs, sometimes up to $100,000 to $150,000. There were also reports that mentioned extreme cases with the transaction prices of HDB flats crossing the one million dollar mark.

These might be exceptional incidents but were often considered by reporters as ‘newsworthy’ stories to cover in the paper. Nonetheless, the stories raise the hope of HDB owners to secure a high COV when it is their turn to sell their flat. Sometimes, the HDB flat becomes the dream a Singaporean to buy a first-hand flat from the government at a subsidized rate, resell it at a high price after staying there for years, and get a windfall of high COV from the buyer.

To an ordinary family, a few hundred thousands of profit and tens of thousands from COV is a considerable amount that can take years to save. Above all, to realize another dream of upgrading the family’s home to a condominium, the amount will come in handy for the downpayment.

The end of the Singapore dream to profit from HDB?

People who think that they can make some cash out of their HDB flat have probably forgotten one important thing: HDB is a government home ownership scheme to meet the housing need of Singaporeans. It is never meant to be sold as an asset for investment or for speculation. There is definitely no guarantee that owners can ‘make a profit’ when they sell it one day.

Over the last few decades, the housing market has benefited from the rapid growth of Singapore’s economy. Prices of private properties have increased by leaps and bounds. The costs of HDB flats have followed suit.

However, Singapore has long passed the stage of growing from a developing to a developed country. It is therefore unrealistic for anyone to expect the value of properties to jump tenfold like those flats bought by Singaporeans decades ago.

Looking at the selling prices of first-hand or resale HDB flats in recent years, it is doubtful anyone can make a windfall selling it after the minimum occupation period of five years.
In fact, the median COV for HDB flats is reaching zero in February this year – the lowest in the last eight years. Twelve HDB towns report zero or even negative median COV, especially in non-mature estates like Sengkang.

Above all, there is a perpetual supply of new flats from the government over the next few years. Just within these two years in 2014 and 2015, there are already a total of 55,000 new flats built by the Housing Development Board getting ready for occupation. And don’t forget that the government can jerk up the supply by adding new plans, building new flats, rebuilding old blocks any place any time.

In last year’s National Day speech, our Prime Minister has promised to keep the HDB flats ‘affordable’ for future flat buyers. Later that month, the government announced that there is now a 3-year waiting period for newly-converted Singapore PRs to buy HDB resale flats.
I just have one question on my mind: Do we have enough potential buyers for all the resale HDB flats in the market?

What about private properties?

Even if you are staying in private properties, it is also not that easy to profit from selling your home.

In a booming market, assuming that you manage to sell your home at a good price, you may still end up spending all the profit on your next home that is most likely bought at a high price in a seller’s market. Worse still, while waiting to buy your next home, prices are climbing so fast that the profit from your old home may prove to be insufficient to buy the next one.

If you don’t want to ‘sell high, buy high’, unless you are willing to downgrade, it is naïve to believe that you can profit from the value appreciation of your home.

Selling your home is different from selling an investment

Once you stay in a property, whether its value goes up or down has little to do with you now. Remember your total net worth is calculated by your assets minus your debts, but excluding your own residence. It is because you need a roof over your head under all circumstances.

If it is your home, it is inevitable that you will be emotional about it, especially if you have been staying there for many years. Because it is your residence and you need to find a new shelter after the sale. Because you are used to your home and whatever profit won’t make you part with it. Because few people can easily move out of their home without being sentimental.

Selling a home is never as straightforward as selling an investment. So always make it a point to separate your home from an investment.