Planning to Upgrade to a Bigger HDB? What You Should Know Before Proceeding

A very common upgrading path for some growing families is to upgrade to the bigger HDB flat.

What I often see is the 4-room HDB owner moving to a bigger space like an Executive Apartment (EA) or Executive Maisonette (EM).

“I want to upgrade to an EA or EM for the bigger space & size because my family is growing bigger.” – a 40-year, 4-room HDB owner living in Punggol

Does this sentence sound very familiar? Over the years, I have met so many HDB homeowners telling me this.

Planning to upgrade to a bigger HDB flat?

Who wouldn’t like having bigger space? I love it too. The biggest HDB flat available in the market. Spacious and comfortable.

But let’s take a step back.

Am I right to say this –

Today, you are able to plan for an upgrade because your current BTO flat that you purchased 5-10 years ago has appreciated and made a profit?

So now you want to give your family a better lifestyle by moving to a bigger, more spacious and comfortable place.

The truth is this – whatever property you buy WILL DETERMINE what you will do 5-10 years later.

Your Property Choice In The Past May Determine Your Property Choice In The Future

It doesn’t matter whether you are upgrading to a bigger HDB, a private condo or landed property. Past actions will determine your future choices.

Let’s have a look at what will happen if this 40 year old owner actually upgrades to an EM.

How Old are the Executive Maisonettes (EM) flats in Singapore?

You can check how old flats are on the HDB website.

Here are some screenshots of the age of some EMs in various parts of Singapore:

I have done some simple research. Most of the EMs near his parents’ place at Hougang are almost 30 years old, costing almost $700k.

Today… for a 30-year old EM to help you make a $200k profit will mean that it needs to be sold at about $900k about 5-10 years later.

This also means that potential buyers will have to pay $900k for a EM at Hougang and stay there for maybe 60 years. (since it is 99 years leasehold, have to deduct away 35-40 years)

Can you imagine that? How many people are willing to pay $900k for a 40-year old EM at Hougang?

I am really not sure. Maybe it is possible when inflation hits us hard. But what if it does not happen?

Let’s say inflation does come slightly later and the EM flat really become $900k in 15-20 years time.

At the age of 55-60 years old – will you be doing an upgrade again?

Very unlikely right?

So does this mean this family will stay there forever?

In my opinion, Yes.

When the kids are all grown up and  have moved out, they might do a downgrade.

But by then the EM is already at 45-50 years old at $900k.

How much will a 5-year old resale 3-room flat cost – when a 50 years old EM is $900k?

I doubt it will be very cheap.

The consequence is this – You might be stuck with that EM for the rest of your life – especially when the EM flat becomes older with a smaller pool of buyers.

This is a scary thought.

Recently, the Straits Times released this article on 12 April 2017, which included this graph below.

Source: International Property Advisor & Straits Times

You can read more about my thoughts regarding this at my other blog post – The Troubling Implications of Owning a 40-year old HDB flat.

So Did They Proceed To Upgrade to an EM?

Eventually, after a thorough detailed assessment and discussion on what the family needs….. they finally realized that buying a EM and getting into a potential state of property depreciation is not what they wanted.

Instead, they decided to move forward to buy a brand new condo with a good potential for appreciation.

How do they know?

The next door condo is sold at $100k higher then what they are buying.

Even though they know that the monthly installment is higher but through my detailed planning and a small financial “strategy”….

They are able to overcome this higher monthly installment without touching their monthly take home income at all.

Now, they are at a stage where they know that they are buying something that will more likely to appreciate faster than the old EM they were initially looking at.

The additional bonus is that they will be buying a BRAND NEW condo development that is also $100k CHEAPER.

At the same time, they have the funds WELL PREPARED to pay the higher monthly installments without any undue pressure or worries.

They are looking forward to move in a few years’ time – upgrading – just like what they have done previously with their their 1st BTO.

To be honest, all the above cannot be done without a detailed discussion and discovering their family needs as well as detailed financial planning.

A Brand New Smaller Condo Vs An Old Spacious EM

There are pros and cons to every property purchase decision.

It depends on what is truly important to you and your family.

In this case they bought the condo at the expense of staying at a larger spacious EM.

This Might Not Be Suitable For Everyone

If you are also in a similar situation on planning to upgrade and are unsure what to do next, you are welcome to contact me for a free assessment.

We can sit down to understand what is your current situation and what are the options available to you today.

Making just 1 uninformed move now will bring you a totally different result in 5-10 years’ time.

It is a domino effect that can have impact on the rest of your lifetime because a property is very likely to be the largest ever purchase you make in your life.

Don’t leave this to chance. Making uninformed choices coupled with wrong assumptions can be painful.

Instead, go through a detailed financial assessment so you can easily understand your situation.