Why we chose to keep our HDB and pay the 12% ABSD

For those who have been following my blog, you would have known that we had purchased our condominium last year after staying in our HDB for 10 plus years. In this post, I will run through our thought process on why we chose to pay the ABSD (12% before the latest cooling measure) instead of selling our HDB.

Before going into that, let me share the reason on why we wanted to move in the first place. My wife had been thinking of moving since my elder son started Primary 1. She always wanted to move somewhere nearer to my son’s school for the convenience and preferably a condominium so that my kids are able to enjoy the facilities while they are still young. With that, we started looking around for suitable places few years ago. It was only until last year that we managed to find somewhere we liked and meet our budget. Hence we took the plunge and bought it.

With that out of the way, let’s go back to why we chose to keep our HDB. The options we had considered are as follows.

1) Sell our HDB and use the money to pay for the condo and lower our monthly interest payment

2) Sell our HDB and use the money to invest in the stock market

3) Keep our HDB for rental and pay ABSD

4) Sell our HDB and use the money for another condo for investment

Option 1 in my opinion will put us back financially. To me its like trading my HDB for a condo with cash top up. We would be left with a property to stay in, a mortgage to finance and less money working for us. This makes me feels like when we bought our HDB 20 years ago except that we will be staying in a private property. Hence option 1 is out for us.

Option 2 makes more sense to us especially when the housing loan interest rate last year was pretty low. With the low interest rate, we figured that it will be good to loan money at low interest rate for the condo and use the money from the sales of our HDB to invest in the stock market. However, my wife is pretty risk adverse and is not comfortable in putting such a huge amount of money into the stock market. I also feel that it would be emotionally challenging to invest such a huge sum of money into the market especially after a bull run in 2021. So after some discussion, we decided that option 2 is not for us as well.

Option 3 will cost us 12% ABSD (before the new hike) on the new property. Looking at a rental yield of around 4% for our HDB, it will take approximately 6 years to break even. This high ABSD really put us off into keeping our HDB. However, the alternative, Option 4 - selling our HDB to get another private investment property, will require us to take on more loan and hence more risk that what we are comfortable with.

We looked around the market for a private property and with the money from the sales of our HDB and ABSD savings, we cannot find one that can provide the same rental as our HDB. We will need to take another loan for a larger unit in order to get the same amount of rental. This is expected as the rental yield for HDB is generally higher than that for private property.

Furthermore, having 2 private properties and not paying ABSD means that me and my wife will have to own and finance one property each. This just limits our options if there is any foreseen circumstances, such as loosing our job, along the way.

Considering all the above, we eventually decided to go with option 3, keeping our HDB and paying the ABSD! That might be the path of least resistance as well as the least risky for us in our opinion. Only time will tell if we made the right call. For now, we are just glad that we made the purchase before the ABSD hike this year. So far, rental seems to be doing ok. Let’s hope it stays this way.

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