One of the most common goals I observe amongst Singaporeans is the desire to upgrade to private property while retaining their HDB flat.
How do I know this? This is because I also had the same EXACT goal!
Before 2016, a couple could apply to have their HDB ownership be decoupled so one spouse’s name could be freed up to buy private property. This was done to avoid the Additional Buyer Stamp Duty.
However HDB closed this loophole since April 2016 and transferring ownership is no longer allowed.
My husband and I were blessed by the fact that we did the decoupling of our HDB flat much earlier. This allowed us to purchase another private property – which is currently tenanted.
So with 2 properties – we are able to achieve our dream of owning both private and HDB.
12% ABSD and 45% Loan
The July 2018 property cooling measures also curbed any appetite to own 2 properties.
Imagine if you are already holding on to a HDB flat with you and your spouse.
And then you plan to buy a $1-million private property.
There is a 12% ABSD – that is basically $120,000 worth of taxes paid to the government.
Assuming you rent out your flat for about $2000 per month, that means you have to rent out for 5 years to recover back just the ABSD.
Do you think a 5-year breakeven point is worth it?
At the same time, you are only allowed to take up a 45% loan. This means you have to fork out the remaining 55% by cash.
For a 1 million dollar property – it means having $550K on hand ready to deploy.
How feasible is this? Even if you have the cash – you have to ask yourself – is it the best way to deploy your liquid assets?
It is potentially risky as you are parking your liquid cash into a property.
What if the property becomes hard to sell or illiquid?
How would you feel if your funds are fully tied to properties?
It is a risky position to be in.
This is why the idea of buying private condo and holding on to your HDB is something you must carefully calculate.
HDBs Vs Private Condos
No. I am not asking you to buy 2 condos.
Instead I want you to imagine the amount of money you have parked into your property.
It can be a HDB. It can be a private property.
Every month, a portion of money is deducted from your CPF account and shifted to your property.
There are a 2 viewpoints for this:
Viewpoint A:
- You are paying down your housing loan
- You consider living in your property as a cost
- You are giving up the guaranteed 2.5% returns in your CPF OA to pay for your property
Alternatively you can also view your property like this:
Viewpoint B:
- You are also contributing to another bank account – your property
- Your property is not a cost but an investment
- You are giving up 2.5% returns to get better returns outside
Now if you view your property as simply a place to stay – viewpoint A is fantastic for you.
But if you view your property as an investment – you need to consider Viewpoint B.
Do take note both these viewpoints are valid – there is no right or wrong answer here.
But you need to consider the implications of being ignorant or unaware of its impact.
You want to get rich slowly by putting in many years of consistent effort.
But what if you actually losing money every month by putting it in the wrong property?
(By the way – a wrong property need not always be a HDB. A private property can also be the wrong place to put your monies inside.)
Here are some of the returns of a few developments in the past 5 years:
Exploring Why We Want To Retain Our HDB
Retaining our HDB is a very common idea and is not new. The idea of collecting monthly rental income and using it to pay for our installments for the private property – it sounds like a very lucrative and smart strategy.
But ABSD has dampened this idea and decoupling is no longer possible.
So why do we even consider this strategy?
It is because we are unsure on whether the private property that we are buying is truly worth the price.
But we can be sure of a few things:
- Death
- Taxes
- Inflation
The fact is we do have a literal deadline (hopefully not so soon!) and that means we only have so much time.
And taxes – they are virtually guaranteed.
How can we use whatever time we have to have a life… while also planning for a better one in our future?
With Inflation, Time Is Your Best Friend
To do well in any investment, it is actually all about maximizing both your money and your time.
Real estate values and rents tend to appreciate at, or slightly greater than, the rate of inflation. This provides the passive growth of your investment.
Inflation erodes your liquid money in the bank and reduces your purchasing power.
But the upside of inflation is that as it increases – it also pulls up your property prices as well.
Since property is mostly a leveraged asset – you only need to put up 25% for your first property loan and you can borrow the rest – you are actually making much higher returns.
With real estate, your investment grows as the property increases in value, and since you don’t have to put up all of the money up front, you can make your money grow much quicker.
Yes, you have to pay the bank back, but the point is, you don’t need more money to make the same return.
Conclusion
There are a few pockets of opportunities still available in the Singapore property market. But whether is it suitable for you is another question.
This is because everyone comes from different financial backgrounds and situations – so we really have to sit down to find out more about your own needs and requirements.
Don’t be afraid to recalibrate and review your property portfolio. Life is about learning, balancing, adapting, spending and saving, risk and reward.
Being on the ground daily – talking to owners and investors, looking at transaction data – that was what gave me the confidence to purchase our own investment property back then. The more experience you get, the easier it is to make decisions based on predictable outcomes.
Seeing opportunities becomes easier. Investing becomes easier. Being comfortable with risk gets easier. Knowing when to take risks get easier. Knowing when to say yes or no becomes easier.
No matter how many articles you read or classes you attend – there is absolutely no substitute for actually getting out and doing it.
Ready to explore what property opportunities are available? Feel free to contact me for a no-obligation discussion to discuss your situation.
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