2022 has seen private home prices, as well as resale flat prices, reach a new peak. Indeed, private home prices were up around 10.6 per cent across the board last year; and it’s predicted to rise by a further one to four per cent by the end of 2022. At the same time however, resale flat prices are at their highest since 2010 – so this gives rise to the big question of whether now is the right time to upgrade to a private property? However, do note that while you can sell high, you are also likely to buy high!

This is not an easy question to answer, so let us consider the following:

What do you need to consider when upgrading in 2022?

• New cooling measures make it much easier to buy a condo after selling your flat
• Interest rates from bank home loans are likely to rise
• Better prospects for those seeking rental income
• HDB resale prices may have peaked at this point
• Staying within affordability guidelines is important in these times

1. New cooling measures make it much easier to buy a condo after selling your flat

The recent round of cooling measures (in December 2021) makes a change that is significant for HDB upgraders in 2022.  The Additional Buyers Stamp Duty (ABSD) has been increased for Singapore citizens, to 17 per cent for the second property, and 25 per cent for the third or subsequent property.

For Permanent Residents, the rate is five per cent on the first property, 25 per cent on the second property, and 30 per cent on the third or subsequent property.

This is significant because, if you buy your new condo before selling your flat, you must pay the ABSD upfront (you can apply for ABSD remission later, if you are eligible). Note that the ABSD is payable within 14 days of completing the transaction, so there is often no time to wait for your sale proceeds to come in, even if you sell your flat very shortly after the purchase.

The ABSD can be deducted from your CPF if you’re buying a new launch condo. If you’re buying a resale condo, you need to pay the ABSD in cash first (which you can later claim the amount from your CPF).

In any case, the higher ABSD makes it much tougher and more stressful, to upgrade before selling your flat. Even if you can afford to pay the upfront ABSD, there can be considerable anxiety later – because to get your ABSD remission, you need to ensure your flat is sold no later than six months after the purchase of your condo.

I would say that for many buyers, it’s more feasible to sell your flat before buying a condo in 2022 – even if it sometimes results in added costs such as rental, and having to move twice. Do reach out to me if you’re deciding whether to buy or sell first though, as I can help you work out a timeline and the most cost-effective approach.

2. Interest rates from bank home loans are likely to rise

Remember that once you switch to a private property, you can no longer use an HDB loan. You will be using a bank loan instead, which has a fluctuating interest rate.

(Note: There are no permanent fixed rate home loans in Singapore – at best, you can get a loan that is fixed for a few years, before it reverts back to a floating rate. This is quite different from HDB loans, which are pegged to CPF interest rates and very rarely change.)

Buyers of Executive Condomniums (ECs) should also be aware that they must use bank loans. There are no HDB loans available for ECs, regardless of whether or not the EC has been privatised.

Bank home loans have been at record lows for a long time; all the way since around 2008/9. This was because the home loan rates fell during the last Global Financial Crisis, and then fell again during Covid-19, before they could stabilise. This means that few private home owners have paid rates above two per cent per annum, for over a decade.

For comparison, an HDB loan rate has stayed at 2.6 per cent throughout, so many private home owners have paid less interest (percentage-wise) than HDB borrowers.

However, this situation is set to change. The US Federal Reserve is aiming to raise interest rates, to combat increasing inflation. This will see home loan rates in Singapore rise in tandem, probably by small amounts like 0.25 per cent, year-after-year. This could eventually, after a long period, return us to home loan rates in the ’90s, which were about four per cent.

As such, those who are switching to private home loans (e.g., HDB upgraders) need to make sure they do their homework, and are well versed in issues like refinancing. Home loan rates have been at historical lows for so long, they likely have no way to go but up.

3. Better prospects for those seeking rental income

Perhaps balancing out the higher home loan rates, those who are pure investors (for example, you’re buying a condo for the sole purpose of renting it out) can look forward to better rental returns.

Rental rates are at their highest peak in six years, and we see few signs of that changing in the near future. 2022 is great for landlords for many reasons, chief among them being:

• Construction and renovation delays from Covid-19 resulted in more demand from local tenants
• Higher ABSD (35 per cent for foreigners) prompt more expats to keep renting, rather than to buy their own place
• High resale flat and private home costs have priced out some home buyers, forcing them to rent for the time being
• The indefinite continuation of Work From Home is driving demand for private residential spaces; and not all of the people who need WFH can afford to buy their own home right now

For those aspiring to be landlords, 2022 could offer significant rewards – but this must be measured against the cost of increased stamp duties.

A note on higher property taxes:

Some readers may point out that property taxes are being increased as well, and that this will surely impact rental strategies. There is some validity in this – but I need to point out that the most significant tax hikes are only on the priciest, top-end properties. If you own a District 9 rental condo, for example, you’re likely to feel the pinch – but if you’re renting out a small, fringe region condo, the increase may not be a deal-breaker.

The exact tax amount is dependent on your property’s Annual Value (AV), or the estimated amount of rental income it could generate (and yes, the same method is used for home owners, even if you don’t actually rent out the condo).

In general, the higher property taxes will only concern a small segment of upscale, luxury property owners; not so much the average person buying a mass-market condo in the Outside of Central Region (OCR).

4. HDB resale prices may have peaked at this point

On average, resale flat prices as of end-February are up about 15.7 per cent, compared to the same time in 2012. This is now higher than even the 2013 peak.

The problem is, these high prices for resale flats are unlikely to be sustainable. The prices are borne by a combination of factors, such a surge in the number of five-year old flats*, or a large number of desperate buyers (those who urgently need a home right away).

The higher flat prices could mean that 2022 is the best time to see strong gains. In fact, around one-third of buyers are now willing to fork out additional cash or concessions. This could mean that, for sellers, 2022 is an ideal time to realise returns from the sale of your flat.

The flip side to this is, of course, that while you sell high in 2022 – you also buy high. It’s possible that the increased private home prices will more than devour any higher returns you get. This is why it is important to shop around for a value buy, and make careful comparisons – don’t buy reckessly, just because high flat prices gave you a windfall.

*Five-year old flats almost always sell at a premium, as they are ready to move-into but have almost no lease decay. The large number of these “young” flats in 2020 and 2021 have pulled up HDB resale prices as a whole.

5. Staying within affordability guidelines is important in these times

Frustratingly, we have survived Covid only to run smack into new geopolitical tensions, no thanks to the conflict in Ukraine. We’re now seeing one major uncertainty after another, and it is anyone’s guess how commodities, equities, or the other usual investment markets will perform.

As things are unpredictable, it is best to stay within affordability guidelines. That means a home that is no more than five times your annual income, and a monthly loan repayment no more than 30 per cent of your monthly income (even if you are allowed to take on more than that).

As long as you stay within affordability guidelines, you should be safe even if the interest rate spikes, or you suffer a setback in income.

As to whether you will see good returns doing this, always remember that property shares one thing in common with most investment assets: time in the market is more important than timing the market.

As long as you’re not chasing high-risk, short term gains – such as aiming to “flip” the property right after the Sellers Stamp Duty period, or gambling on an en-bloc, 2022 can be as good a time as any to upgrade.

For more direct help on a specific property you’re considering, or with the buying and selling process, feel free to contact me directly. You can also follow me on RonChongProperty.sg, for more updates and tips on home purchasing in Singapore.