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IS ABSD WORTH PAYING?



With Covid-19 happening, space suddenly becomes one of the most important things in our lives today. The limited space robs us of our connection to the world and traps us in the bubble of our residence. For some of us who are extrovert are so used to going out and meeting people all the time, yet our space is the only thing preventing us from getting cabin fever and keeping our sanity alive.



Why Some Singaporeans Will Never Sell Their HDB Flats

One of the main reasons why some Singaporeans keep their HDB flats and never sell them is due to the rising cost and price of property. Many of us has the sell high and buy high mind-set.

But have you heard of buy at high and sell at even higher price?



By holding on to existing HDB, they enjoy lower PSF. Besides, amenities are all around and with many young couple having children after getting their own flat, they are prepping them for primary schools. Besides, you will by then be very familiar by all the nearby super-mart and amenities and are reluctant for changes. Then for some people there is the sentiment of the HDB being your first home. Not to mention all the friendships you have accumulated over the years in the neighbourhood.


Can You Still Make Money After Paying The ABSD of 12%?

Although HDB flats, in general, may not appreciate as much as private condos within a period of time and there is an intangible value attached to it. However, holding on to the HDB has its disadvantages when it comes to purchasing a property for investment.

Firstly, you cannot “decouple” an HDB flat because a family nucleus is a criterion for ownership.

Which means that if you are looking at a 2nd property for investment, you will need to come up with the additional capital to pay for the ABSD of 12% assuming both are Singaporean.



Secondly, is it still worth it after paying this 12% additional tax? With the buyer’s stamp duty added in, you are looking at a sale price of 116% to break-even as most of the private property are value above SGD$1million (100% of purchase price + 4% of buyer stamp duty + 12% of additional buyer stamp duty). And that is not even counting the interest charges.

Returns and Costs of Paying For the ABSD

If you are looking to purchase a 2nd property with ABSD, these costs will take away a significant portion of your profit. However, ABSD can still help some people reach their objectives.

Let’s assume you are going for a resale condo of value $1.5 million generally obtain a 3-bedder condo in Singapore with rental estimate around $3.75K, (estimate 3% of property price).





As you can see from the calculations, to purchase the $1.5 million property, they will need to come up with $600k down-payment. On a yearly basis, about $2,000 will need to top up to the rental income.

In summary, the investment from the rental income will covers about 79% of the total property value, whereas the balance 21% of the value are mainly the initial portion of the investment down-payment.



The Positivity Impact of ABSD

Developers hold back on bidding too aggressively for land plots. In an article from Edgeprop, it was noted that the private residential units decrease by 5.2%.



https://www.edgeprop.sg/property-news/government-releases-13-sites-under-1h2022-government-land-sales-programme


With more reasonable land price, developers will be pricing their new launches unit at a more reasonable price.

Enbloc sellers lose interest as their asking price to developers will be lowered. This will cause HDB prices start to catch up as people turn to HDB and HDB Sellers will be selling their HDB at a higher value above valuation.

During this period of declining land – this is the best time to find hidden gems and undervalued properties.

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