Singapore Property Update

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Why HDB flats cannot be considered an asset which can generate wealth

By Joe Wang


Most Singaporeans have the ingrained mindset of properties being a worthwhile investment asset whose value will appreciate over time. As such, many are willing to work long hours and scrimp and save to purchase a property.

For the eighty per cent of Singaporeans living in HDB flats, the flats are not only a roof over their heads, but their single largest investment in life. The prices of HDB flats have nearly doubled in the past decade, but does their rising prices really generate wealth for Singaporeans?

For real estate to generate real wealth which can be unlocked by the owners, three conditions must be present:

  1. The property should preferably be of a freehold or 999 year status whose value is almost guaranteed to appreciate over time. (Leasehold private properties and HDB flats in certain locations can also appreciate in price, but only up to a certain point which I will elaborate later in another article)
  2. The bank accepts the property as a collateral and owners can refinance a bank loan to get a home equity loan as its value rises and cash out the available equity.
  3. You own more than one property so that besides the one you reside in, you have other properties to generate a steady stream of rental income and capital gain.

Singapore was still a developing economy in the 1970s and 1980s. As our economy grew by double digits, the prices of HDB flats soared as well. That is why many Singaporeans who bought their flats thirty to forty years ago will definitely make a healthy profit if they sell them today. The problem is: after selling their flats, in today’s market, they probably have to spend most of the profits from the sale to buy another place to stay.

A study done by two NUS economists, Tilak Abeysinghe and Gu Jiaying, shows that “past episodes of house price escalations have led to a substantial erosion of housing affordability” especially in the private sector. (source: NUS SCAPE) Higher property prices does not necessarily translates into higher wealth for Singaporeans.

Abeysinghe and Choy in their book – “The Singapore Economy: An econometric perspective (2007)” have examined the wealth effect of property prices on consumption in Singapore and found that the wealth effect is very much absent.

In the absence of cheaper suburbs which offer quality living, the only way for Singaporeans to unlock property values is, apart from emigrating, to downgrade to smaller units. This does not seem to be occurring on a large scale which explains why the ‘housing wealth effect’ on consumption is insignificantly small.

Higher property prices, instead of creating a wealth effect, exert a significant and negative “price effect” on consumption expenditures leading to a fall in the average propensity to consume.


Photo by chuttersnap


As house prices go up, the increase in the value of housing assets is accompanied by a concurrent rise in the financial liabilities of households, in the form of higher downpayments for purchase of residential properties and burgeoning housing loans.

Due to the limited avenues for liquidating property assets, households have to build up sufficient financial assets to smooth the profiles of their lifetime consumption of non-housing goods and services leading to a diminishing in domestic purchasing power.

It is a common perception that Singaporeans living in HDB flats are leaving “enhanced assets” to their children. This does not appear to hold true as HDB flats are 99 year old leasehold properties – their value will decline with time.

Regression estimates for HDB 4-room flats transacted between May and July 2008 show that a 10-year gap between two flats lead to about 12% price difference with the older one selling cheaper.

If the 99-year lease effect also comes into play, the prices may drop substantially, perhaps to the discounted present value of the remaining stream of rental incomes, and such properties may not generate much bequest value to children.

For Singaporeans who bought HDB flats in the past ten years, they will find it even harder to generate any substantial amount of wealth by selling their flats as they bought the flats during a time when Singapore is already a developed economy and price appreciation is not very high.


Photo by Larry Teo


A common way to unlock the value in a property with constant capital growth over the years is to refinance and cash out the extra equity without the need to sell it.

For example, Mr Teo bought a two room condominium at $500,000 in 2000 and took up a 80% bank loan. His property is now worth $1.5 million dollars and he has since paid off his loan completely.  Assuming he fulfill all other conditions such as the TDSR, he can refinance his property at the current market value. By taking up a 70% bank loan assuming it is his only property, he can secure a home equity loan of $1.05 million dollars which he can reinvest to buy more properties. He does not need to sell his condominium in order to liquidate the asset and what’s more, he does not have to pay income tax on the loan!

Unfortunately, this is not possible with HDB flats and therefore even if prices have grown substantially, the owner will have to sell in order to unlock their value and they will have to spend a large chunk of their earnings on another place to stay in addition to paying income tax.

In the past, HDB flat owners are able to purchase and own private properties at the same time. I personally know of some Singaporeans who live in a modest HDB flat, but owned multiple private properties which they rent out. Even for these lucky Singaporeans, their main source of real estate wealth is generated from the capital growth and rental from their private properties, not their HDB flats.

For the present generation who has missed the boat, it is even more difficult to generate any real wealth from HDB flats as you are not allowed to own another HDB flat or private property in Singapore and overseas. Your only real estate asset is a 99 year leasehold HDB flat which will appreciate at a much lower rate compared to the golden years and will probably start to depreciate when its lease runs below 40 years. You are unable to unlock its value by taking a home equity loan and neither can you reap much profits by selling it.

Real estate can only generate wealth if it is able to enjoy a steady capital growth over the years. There will be minor ups and downs according to the economic cycle, but the overall trajectory should be upward. As HDB flats will only appreciate for the first thirty to forty years of their lease after which their values will inevitably take a nose-dive, they are not an ideal asset to generate and pass on your wealth to the next generation.



1. The Singapore Economy: An econometric perspective (2007) by Abeysinghe and Choy.

2. Limited income and housing affordability in Singapore (2008) by Abeysinghe and Jiaying Gu.

3. The Economic prospectus of Singapore (2007) by Winston Koh and Roberto Mariano


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About the Author

Joe is a property enthusiast who bought his first property in Singapore at the age of 26 in 2005. From 2005 to 2015, he built a portfolio of 6 private properties in Singapore and has since sold three of them realizing a net profit of between 60 to 100 percent. He made his first million dollars in property investing at the age of 30 and has now amassed a property portfolio in Singapore, Australia and Malaysia worth more than $10 million dollars.

Joe is a conservative long-term property investor who believes in life-long learning and education in property investing. He does not claim to be a property expert or guru, but rather an adventurer who is in the middle of an exciting journey to achieve financial freedom from his property investments.

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Updated: September 12, 2018 — 11:46 am

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