Should You Sell Your HDB Or Should You Continue To Hold It Till God Knows When?
Now, this is a question that many HDB owners ask themselves many times, and I’m pretty sure we have always heard from the older generation that we should all buy a HDB and keep it, as it will be an asset. Or is it not?
To All HDB Owners Who Have A Combined Income Of $7,000 Per Month Onward, The Potential That You Can Extract From Your HDB Is Beyond Your Belief…
Warning to the faint-hearted, what you are going to read below may be very long, or even DEMORALISING, but just like any property purchase, investment or restructuring, it is never just an easy and short journey, that’s why I am are here to guide you through. I will let you know whether or not you should start planning for your retirement using your property and why the “Prized” asset(HDB Flat) that 80% of the Singaporeans are holding may be their worst enemy in the future, and hence, I took great length to write this out… But of course, if you are too busy or lazy to read and is interested to find out more, do give me a call or fill up the form here.
What Are The Reasons For You Being On This Website?
1) To upgrade to condo?
2) To upgrade HDB Flat to a bigger one?
3) To change a new environment?
4) To find a home near good school for your children?
5) To move near to parents?
There may be more reasons than stated above, but not many of my clients told me that they are looking at property for retirement income in the future, thus missing out on the single most important investment vehicle in their life.
Regardless, there are a few choices we can take to fulfill the above requirement:
Actually, most people will feel that buying another HDB will be the best option for them, because it is not as expensive and is lower in financial commitment. Another reason is because we have always been told by the older generation, and sometimes general public that its good to have HDB, and you won’t go wrong with HDB.
Upgrade from HDB to condo may seem to most people as higher risk, as it requires a higher financial commitment, and the monthly bank loan installment may not be able to be fully covered by CPF OA repayment. Alot will ask “so what will happen if I get retrenched?”
I’m pretty sure many people have heard “Sell one buy two” concept before, which is selling HDB and buying two private condo, and this is even harder for many HDB upgraders to accept the idea if they do not know what this concept is all about.
What I can tell you is that these are the common worries that most of my clients have before they have a decent consultation with me on how they can work out their finances and build their asset progressively, as once you are clear with the concept, it will remove alot of uncertainties, and hence, fear.
Asset Progression – Why Is It Important To Start Planning For?
What is Asset Progression? What are all these hype about with this term?
As the name suggest, its the action of progressively upgrading your asset, and in our case, property holding.
Asset Progression is not just about progressing from property to property… True, that is the intention, but the underlying reason why I am promoting asset progression is much more than you owning a better property or properties as you progress, it is more on how, and the manner that you RETIRE with grace or rather, with money for your expenses when you stop working that matters.
How many people actually think about RETIREMENT? When you are in your 20s, you’d probably be more concerned on which night club to go, where to meet your friends, where to travel to for the next holiday. When you begin to settle down probably in your 30s, you have to think for your newly formed family, your kids, their education. Have you ever sit down one day and think how much money do you need to sustain your life when you stop working on your retirement day?
Let’s be real, how many of you think you can depend on your children for retirement? They will eventually have their own family, their own mortgages and heavy expenses to pay every month, not to mention that all parents are so afraid that their kids can’t afford to buy their own home in the future, so what are the chances of you depending on them?
This is a very real issue that are facing Singaporeans…. Have you not seen on social media all the time when those elderly have no money to retire, no proper roof over their head, need to collect card-boxes, sell tissues etc to sustain their life? Can I ask, do you envision your life to be like them?
In Singapore, our social welfare net is not very strong, and retirement plannings are usually taken care by individual citizen. The CPF is considered our “retirement fund”, but everyone knows that CPF Ordinary Account(OA), which forms the largest amount of money for our retirement is being used to finance our property purchase, so what is left for retirement?
In Singapore, we are lucky, as home ownership is one of the highest in the world, and our property holding usually forms a huge part of our total asset, and hence, most citizens in Singapore will need to plan properly on how to leverage on their property to facilitate their retirement in the future.
I’m sure you have seen a lot of advertisement on how agents did wonders for their clients, selling their HDB and bought a condominium or sometimes even 2 condominiums…. Just how true is that? I can tell you that, yes, it is true, but not all people have the good fortune to earn huge profit by selling their HDB and progress smoothly into buying private property. Some struggled with Negative Sale, and some, even with huge profit from sale of HDB, can’t buy private property due to financial constraint in the family, but do we give up on them? Does that mean that they have no way out to prepare for their retirement in the future? No, I don’t give up, and even if I can’t earn a single cent of commission, I did my best to advise my client, hoping that one day, they too can lead a better life.
INADEQUATE RETIREMENT FUND IS A VERY REAL ISSUE FACING OUR CITIZENS!!
How Much Do You Need Per Month When You Retire?
Have you start planning for your retirement? How much do you think you need per month in your golden years of retirement?
Please be mindful that the article was written in Jun 2019, and it did not take into consideration 2 important issues:
1) that the retirees in this context are talking mainly about those people who belongs to the older generation. These group of people went thru hardship in the early years of building Singapore and mostly do not live the kind of lifestyle that we, the younger generation are living, and hence, they are able to live with much lesser.
2) the monthly retirement amount they need are in the present term, year 2019, so can you imagine that you are to retire in 20, 30, or 35 years time? Do you think $1,379 will be of the same value 20 years down the road? I believe your $1 coffee will cost you $3 or more 20 years down the road.
So let me ask you again, how much do you think you will need per month in order to retire?
I assume $1,500 per month per person will be a fair estimation for the current era, and therefore, for a couple $3,000/month is needed for retirement. Now let’s remember this figure, $3,000/month.
How Long Do You Think You Can Live?
Singapore is good in almost everything, even our life expectancy is the longest in the world now, closing to 85 years of age! So if we are to assume that most Singaporeans retire at the age of 65, we would expect to live 20 more years. So how much do you think you will need for retirement?
20 years X 12 months X $3,000 = $720,000
$720,000 IS NEEDED FOR YOU TO SUSTAIN YOUR RETIREMENT FOR 20 YEARS
For regular salaried employees, have you ever fret how much you can save per year after paying off your holidays, wedding, creature comfort, car etc? How are you going to account for your retirement fund?
How do you feel when you can clearly count how much you can save this year? Next year? And the year after next? When you are clear of the amount of savings you can get per year, then you will realize that IT IS NOT EASY TO SAVE $720,000 FOR RETIREMENT AT ALL!!
Now let’s take a look at the inflation that Singaporeans are facing. Very simply, ask yourself, how much did a plate of chicken rice cost in the 1990s and how much does it cost now? If I remember correctly, a plate cost about $1 to $1.50, and now, it is about $3.50. What about the coffee you find in the coffee shop? Your MRT and bus fare? Your Bak Chor Mee? Movie ticket? I am pretty sure that most of it has increased more than 100% in price. Let’s have a look at the chart below:
Let me summarize for you the data from 1993 to 2018, over a period of 25 years:
- Chilled Lean Pork increased by 124%, from $6.13/kg to $13.73/kg
- Chilled Pork Rib Bones increased by 144%, from $7.09/kg to $17.31/kg
- Thai Rice 100% Fragrant increased by 123% from $5.79/5kg to $13.01/5kg
- Squid increased by 138%, from $6.83/kg to $16.24/kg
- White Bread increased by 112%, from $0.79/400g to $1.68/400g
Therefore you can see, INFLATION IS VERY REAL, and it will have to continue in order for Singapore to grow and progress. Can I ask, do you think that the $720,000 retirement fund calculated above, based on PRESENT VALUE will still be $720,000 in 20 to 25 years time when you retire?
Cashing Out On Your Property For Retirement
Now that we have a benchmark figure of $720,000 needed for your retirement, let us have a look at the earlier options of how your property can affect or aid in your retirement. Remember the options earlier?
Option 1 : Upgrade HDB Flat To A Bigger One
Option 2 : Upgrade From HDB To Condo
Option 3 : Upgrade From HDB To Executive Condo
Option 4 : Sell HDB Buy 2 Condo, Or “Sell 1 Buy 2”
As we all know that our property holding constitute a big portion of our total asset, it is only natural that people may down size or right sized their home in their retirement years to unlock fund. We shall look at Option 1 and 2, the 2 most generic situations that will happen.
Option 1 : Upgrade HDB Flat To A Bigger One
If you have chosen Option 1 of Upgrading HDB flat to a bigger one, then, by the age of 65 (retirement age), you would have fully paid the loan with a valuation of $650,000. You decided to right size to a smaller flat at $350,000. Let’s do a simple calculation:
Valuation Of Upgraded HDB Flat Upon Retirement = $650,000 (Assumed BTO Flat)
Cash Proceed = $650,000 – $350,000
After paying off commission and maybe some minor renovation of $50,000, you would have $250,000 left. Remember that a basic amount of $1,500/month per person is needed for retirement? How long can the $250,000 last for 2 person at $3,000/month? Let’s do a simple math again:
Number Of Months The Fund Can Last = $250,000/$3,000
= 83 months or 7 years
Let’s look at Option 2 now.
Option 2: Upgrade From HDB To Condo
If you have chosen Option 2 to upgrade from HDB to condo, then, by the age of 65 (retirement age), you would have fully paid the loan with a valuation of $1,550,000. You decided to right size to a smaller flat at $350,000. Let’s do a simple calculation:
Valuation Of Upgraded Condo Upon Retirement = $1,550,000
Cash Proceed = $1,550,000 – $350,000
After paying off commission and maybe some minor renovation of $70,000, you would have $1,130,000 left. So in this case, how long can the $1,130,000 last for 2 person at $3,000/month? Let’s do a simple math again:
Number Of Months The Fund Can Last = $1,130,000/$3,000
= 376 months or 31 years
Looking at above, wouldn’t you feel happy or lucky if you have chosen Option 2? You look back at the decision you had made 20 or 25 years ago, and think to yourself: “I’m glad I made the choice to upgrade to condo instead of moving to another HDB”.
But frankly, many people would not have chosen Option 2, as they think it is something that is not achievable. Option 2 will remain a myth to many if they choose not to debunk it, and knowledge is power, once you have knowledge on this Asset Progression program, you may even be able to achieve more, by keeping your condo and still have income to sustain your retirement. Want to learn more?
Is Your HDB An Asset Or Liability?
Have you ever ask yourself if the HDB flat you are living in is an asset or liability? I’m not too sure how I can answer you this question, but let’s find out more on this!
Let’s have a look at the graph detailing the HDB Resale Price Index. Honestly, most people who had bought their HDB before 2009, would have made a decent profit, but the question is, will it continue to be an asset? Let’s have a further examination.
Looking at the graph above, the HDB Resale Price Index has been on a decline since 2013, at a rate of 2.1% per year. I hate to say this, it seems like EVERY NIGHT THAT YOU SLEEP IN YOUR HDB, YOU ARE LOSING MONEY!
More news below. Now, take note of the date of publication for the below 3 articles from The Straits Time.
Notice that the date of the above 3 articles from Straits Time were in March, April and June 2017. Remembering the date of the articles above, let us have a look at the graph below.
For your benefit:
HDB RPI = HDB Resale Price Index
PPI = Private Residential Property Price Index
Notice that the HDB RPI and PPI used to go inline with each other? Notice that pattern stopped in 2017 Quarter 3 onward, and distinctively went on different direction, with PPI increasing and HDB RPI decreasing. Do you find that period on which the PPI and HDB RPI went on opposite direction familiar? Yes, you may have guessed it, the price index started going opposite direction after the 3 Straits Time articles were published, perhaps the market has woke up to realize that maybe HDB can’t be an asset after all. HDB IS DEPRECIATING WHILE THE PRIVATE CONDO IS APPRECIATING! WHAT WOULD HAPPEN IF YOU KEEP HOLDING ON TO YOUR HDB?
Let me cite one more example on the BTO supply from the early year 2001 onwards:
|Year||Approximate Number Of BTO Units Supplied|
|2001 to 2005||12,500|
From 2001 to before 2010, the supply of BTO was very limited, but look at the booming figures from 2010 onward, can you imagine when all these BTO units reach Minimum Occupation Period, how will it affect the resale market for HDB? Coming from the horse’s mouth, the government has “….provided quality and affordable public housing for generations of Singaporeans, and we are proud to continue doing so.”
The key for the government is to CONTINUE TO PROVIDE AFFORDABLE HOUSING, and therefore, they have to keep the price of HDB STABLE!
From the above articles and statistic, we can see how the government is trying to keep HDB affordable to the general public, and after all these, do you think your HDB will continue to be asset or liability?
Is It Really Good To Be Debt Free?
Every one loves to be debt free, be it from car or home loan because many reckon that having loan is bad, but have you ever wonder if there can be loan that is considered good?
“Sounds ridiculous, how can debt be good??”, one client asked while rolling his eyes. Well, this idea of “good” and “bad” did not come from me honestly, it came from CPF Board.
For today, we shall go thru this Debt Free concept in property context. True enough, most people would like to be debt free by paying off their housing loan as soon as possible, and more often than not, CPF is used to service loan repayment, and many even went to the extend of clearing their CPF OA balance to pay down the loan so as to achieve “Debt Free” status as soon as possible.
I DO NOT USUALLY ADVISE MY CLIENT TO DO THIS AS THIS WILL AFFECT THEIR RETIREMENT PLANNING
We need to differentiate a good debt and a bad debt so that we can leverage on the good debt to grow our retirement fund.
CPF Fund for most people may be their biggest fund when it comes to future retirement, and proper utilization of the fund is of utmost importance so as to secure your future. If utilized wrongly, it may jeopardize your golden years.
Evaluation Of The Usage Of CPF For Property
When using CPF to service and pay down loan, you need to take note of:
- You will lose out on the 2.5% interest that you can earn in CPF OA account if the money was not touched
- You will need to pay 2.5% interest on the CPF amount used to pay the loan in the form of Accrued Interest once you sell away your house.
THIS IS A TOTAL OF 5% PER ANNUM LOSS WHEN WE UTILIZE CPF FOR YOUR HOME
Even though you may have fully repaid your loan using CPF, the total amount of CPF being used is still being charged Accrued Interest UNTIL THE DAY YOU SELL IT and IT IS COMPOUNDING INTEREST!
Let’s look at a simple case study to illustrate my point on the usage of CPF:
Resale HDB with 90 years lease = $450,000
Downpayment of 10% = $45,000
HDB Loan Tenure = 25 years
Government Grant = $0
Monthly Installment = $1,837
We shall keep the formula simple to calculate the break-even price:
Break-even Price = CPF Principal + Accrued Interest + Outstanding Loan
The owner will have to sell at this break-even price to avoid a HDB Negative Sale, and note that there won’t be any cash proceed from the sale.
Can you imagine the break-even price of $846,559 after the lease has run for 25 years? And the worse is that THERE WON’T BE ANY CASH PROCEED EVEN IF YOU MANAGE TO SELL AT THAT PRICE!
But frankly, do you think this unit can be sold at $846,559 when it is left with only about 65 years of lease? There are probably many choices out there with similar attributes, with longer lease, selling at a much cheaper price.
For owners who had finished off paying their loan, it is not the time to rejoice yet, can you see that the Accrued Interest portion is exponential? After using so much of your CPF to pay for the HDB, what you get is an Accrued Interest, being paid by you, that spirals out of control!
Imagine you are only 55 year old when you have finished paying up the loan, stayed for 10 more years till age 65 and decided to down size to a smaller HDB so that you can cash out for retirement, the break-even price is $1,083,667!! With a lease of 55 years left for the HDB, do you think it can be sold at that price? Do you know the consequences of that?
I have dedicated a page on the Threat Of Using Too Much CPF & Its Consequences to illustrate why excessive use of CPF for housing may disrupt your retirement planning.
What Is The Prospect Of Private Property Prices Going To Be Like?
Now, let’s have a look at what some of the leading banks in the world and Singapore has to say about the property market in Singapore.
The articles above were written before the latest cooling measures were implemented in July 2018, and even with the cooling measures, Morgan Stanley maintained that home prices will double by 2030.
Mr Lawrence Wong (Minister For National Development) has also come out to clarify that the cooling measures were not out to plummet the property prices in Singapore, but to stabilized it.
“There was a very real risk that prices would outpace fundamentals, and I think if that had happened, then eventually it would lead to a destabilising correction, and I think everybody would be worse off.”
It has been a really long post, and I’m not too sure how many people can actually last that long to read until this part. There are actually more important points that I want to share regarding the price trend of private property, but I shall stop for now.
The question is, which side of the fence are you in now after reading so much? Or are you still sitting on the fence, not sure where you should be going?
Let me help you answer this, you don’t really have to decide which side of the fence you have to be in now, give me a call, get a free consultation and decide for yourself where you want to be.
By taking the action to understand more about your situation, you gain clarity. Some may be able to do asset progression, some may not, but at least you know. If you decided not to take action to even consult, you will never know. The longer you drag to take action,
- the higher the Accrued Interest accumulated, and that will reduce your Cash Proceed from the sale of your flat
- the older you get, the shorter the loan tenure for your next property
- the lower loan quantum will be due, to shorter loan tenure
- the higher monthly loan installment will be, due to shorter loan tenure
- possibility of new cooling measures may surface to make it more difficult to buy private property
Please note that not all home owners are suitable for Asset Progression path, and I strongly encourage financial prudence when it comes to this, that is why we do consultation to evaluate each and every home owner to advise their next step of action. The consultation is absolutely free, there is no obligation to do anything if you do not want to, as it is your life, you decide what is good for you, I am only here to advise and guide. However, if you do wish to engage my services, commission will be payable by the seller/developer of private condominium, not from you, and for the service of selling your HDB, my fee starts from market rate of 2% commission on an Exclusive basis.
I Will Share With You:
1) HDB Market Vs Private Residential Market Overview
2) How HDB flat owners structure their property portfolio to get income of between $3,000 to $6,000 per month when they retire
3) An achievable asset progression plan, allowing you to accumulate wealth and prepare for your retirement
4) Financial Literacy – How To Ensure That You Are NOT Overstretching Your Finances
5) A property investment “Roadmap” in planned phases for your “entry and Exit signals”
Book An Appointment For A No Obligation Free Consultation Today On Asset Progression Planning And Start The Journey To Build Your Wealth For Your Retirement. Knowledge Is Power, But Without Action, Its Useless. Every Journey Starts With You Taking The First Step.
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