This is the most comprehensive guide to property asset progression in Singapore’s context.
You are going to learn about what property asset progression is all about and what you may have been missing out on all this while.
In a nutshell: if you want to grow your wealth and enjoy yourself in your retirement years through Singapore real estate, this guide is for you.
Ready? Let’s rock!
This is what will be covered:
In Singapore, Property Asset Progression essentially refers to the growing of one’s wealth through carefully planned investments in Singapore properties.
The word “progression” means the process of developing or moving gradually towards a more advanced state.
The end objective of Property Asset Progression is to allow the person to build up a good retirement fund in his or her golden years through sound investment in properties.
There are different ways and methods to approach property asset progression depending on the life stage you are in and your unique circumstances.
Property investment should never be treated as a form of gambling.
Singapore has a very high home ownership rate at 91% (based on data from Department of Statistics Singapore) as of December 2018.
It is in almost every Singaporean’s blood to want to own a piece of real estate here in Singapore. And in many cases, multiple properties for very good reasons that will be touched on just further below.
And do you know that almost one in five buyers of Singapore properties is a Singapore permanent resident or foreigner?
Why do they have so much faith in Singapore properties?
Many foreign buyers are attracted to invest in Singapore properties or purchase one to stay in for the following reasons,
These trends have placed Singapore properties on a long term price growth despite the ups and downs in property prices across different time periods.
Home buyers and investors of Singapore properties have been able to leverage on these trends to lock in good profits from price appreciation, en-bloc sales and earn good passive rental income from their properties.
Often times, earnings from real estate investments form a part of Singaporeans’ retirement planning. And for some, a major component.
We do not even have to go that far to see what real estate investments when done right, can do for you.
This transaction chart below shows how much the buyers who bought into Coco Palms (new launch) in 2014 and sold in 2018/2019 made when they sold.
The transaction data shows that the lowest realised profit is $38,237 while the highest realised profit is $397,151. The average profit works out to $161,284.
Assuming the buyers took the maximum allowed mortgage loan, the highest achieved percentage return on investment based on the down payment and stamp duty paid is 144.78%.
All these in a 4 year time frame. Are you able to realistically save so much money from just your monthly income alone?
Real estate is one of the best and safest way to achieve financial freedom. This is why a lot of Singaporeans (and foreigners) are always interested in Singapore properties.
But unfortunately, not everyone understands the real estate market well and how to leverage on it as this is not taught in school.
Those with the benefit of guidance, get an early advantage in planning and executing the right real estate moves.
Those in the other camp will need to take the effort to find out if they are in the position to do it and how to do it.
Do you know the five foreign nationalities (excluding Singaporeans) that do not have to pay additional buyer stamp duty when they purchase their first property here in Singapore?
This is typically how most Singaporeans (not all) start their real estate journey.
Traditionally, Singaporeans start with buying a HDB flat as their first property when they get married. This can be a brand new flat from the HDB or a resale HDB flat from the open market.
For some, they will stop right here.
For the rest, as they advance in their career, they will sell the HDB flat and move into a private property (either resale or new launch) at some point in time.
For those with greater income, they may choose to hold on to both the HDB flat and the private property. They will stay in one and rent out the other.
Most will choose to leave things status quo after they have secured their second property.
Those at this stage will proactively upgrade the quality of the properties that they are holding at any one time. This is usually done with someone’s guidance.
Please note that upgrading the quality of the property you are holding does not necessarily equate to buying a property that is more expensive.
It means unlocking dead money in a property that is no longer growing in value (or something worse – declining in value) and putting it into another property with a much better potential to appreciate in value.
What they hope to do when they hit their retirement years is to sell off their existing property and downsize to a small HDB flat. The balance sales proceeds will be added to their retirement funds.
Unfortunately, for some, they only realise at the point when they are about to put the property up for sale that they cannot execute their plan. That there is not enough left after the CPF accrued interest is paid or that their property (especially in the case of a HDB flat which will be covered below) has declined in value.
What stage are you currently in? Is anyone guiding you to do the correct things for the stage you are in?
The correct mindset and attitude towards properties should be one of enforced savings that can yield a good retirement fund if managed properly.
A lot of people still hold on to the notion that the HDB flat that they own is an investment property that will always go up in value.
Unfortunately, this is wrong because the market dynamics has totally changed since 2013.
After HDB flats saw a big jump in prices from 2008 to 2013 (because of huge demand from new citizens and permanent residents), the government has put in place a lot of measures to prevent the prices of HDB flats from going up.
These measures have had a big impact on demand which drove prices down.
In addition to these measures, there have also been massive debate and concern expressed in the media about the depreciating HDB flat prices as they age and how they are becoming increasingly difficult to sell. Many are worried about what will happen when the lease of their HDB properties start to run down.
This worry has been accelerated ever since the government came out in 2017 to dispel the long held “belief” that all HDB flats will go for SERS (en bloc) at some point in time. See this news article on SERS.
The chart below shows the price trend for HDB resale flats from 2013 to 2019 across all towns and room types.
Does it mean that everyone who sells a HDB resale flat will lose money? No.
In today’s market, only a select group of HDB flat owners may get to realise a profit when they sell their HDB flat. These are typically the ones who bought a new flat directly from HDB and sell the moment they crossed the minimum occupation period.
Owners who bought much earlier with minimal use of CPF may get to realise a profit as well.
For the majority of the HDB flat owners, the HDB flat could become a liability if they plan to sell later on.
Why would it become a liability? It is about the CPF accrued interest that will be covered in the next point.
On the flip side, it does not mean your position is sound just because you own private properties. You have to assess if the private property is gaining or have a good opportunity to gain value.
Depending on what your situation and market conditions (usually with reference to interest rate for mortgage loans) are, this is not always true.
When you leave your CPF alone in the ordinary account, it is NOT doing nothing. It actually earns you 2.5% interest.
When you use it to buy a property, you will no longer enjoy the 2.5% interest.
In fact, you will start incurring a 2.5% interest on the CPF that you use. This is known as the CPF accrued interest and it is payable (by you) when you sell the property.
When you add up the 2.5% interest that you stopped earning and the 2.5% that you are incurring, it effectively cost you 5% interest.
This accrued interest could eat up a significant chunk of the sales proceeds.
Owners of older HDB flats have a good chance of being hit by a double whammy of falling HDB flat prices and high accrued interest when they sell.
Let’s take a look at the table below.
This table shows the amount of accrued interest payable at the end of 15 years based on a CPF usage of $350,000 at the CPF interest rate of 2.5%.
When you sell the property at the end of 15 years, the total CPF interest payable is $156,904.36.
$506,904.36 of your sales proceeds will have to be returned back into your CPF.
If you understand the movement of the HDB resale prices in Singapore, you will have to be among the very few lucky ones to be able to see a price appreciation of greater than $156,904.36 (to cover your CPF interest) over the next 15 years.
What do you think will happen to the rest of the owners (in the majority) when they want to sell their HDB flats in the next 10, 20 or 30 years time?
So does this mean that CPF should not be used for the buying of properties? No.
If the CPF can be invested in a newer property that has a much higher chance of price appreciation, then do you think its usage is justifiable?
The “Sell One Buy Two” approach is for couples who currently own only one property in their joint names.
It refers to the selling of this joint name property and the purchase of two other properties in their sole names.
Typically, one will be for their own occupation while the other will be treated as an investment property.
This approach means the couple will have the chance to own two properties and avoids having to incur additional buyer stamp duty.
However, as attractive as this may seem, this approach is NOT FOR EVERYONE.
The financial calculation have to be right and with safety buffer built in to withstand unexpected events.
Do remember, property asset progression is not about gambling. It is about guided and careful financial planning.
There is another method that allows you to keep the existing property and not have to incur additional buyer stamp duty when your spouse gets another property.
This method is known as decoupling. But again, this method may not be applicable for everyone. It can only be used if your situation allows.
If you do not own a property right now, then yes, you will need some money to get started. You will require cash of minimally 8% to 9% of the purchase price for a start.
This cash forms part of the compulsory cash component of the down payment and the stamp fees. The rest of the down payment can be a combination of cash or CPF.
However, it may be a totally different story if you are an existing property owner.
Many times, buyers overestimate the amount of cash or CPF that they actually need.
They are unaware that they may be able to unlock latent funds that are locked in their existing properties.
They are unaware of the different funding methods that are available to them.
They are unaware how much sales proceeds that they will actually get back when they cash out of their existing property.
Once again, this come down to having the right knowledge, proper financial calculation and planning.
The truth of the matter is not every single freehold property is good for all seasons of life.
There are many cases of freehold properties that remained stagnant in price while other leasehold properties in the same period outperformed.
Let’s take a look at the example below.
The two charts above show the price movement of Scotts Square (freehold) and Centris (99 years leasehold) over a 20 years period.
On average, prices of Scotts Square dropped by 25% from $4,000psf to $3,000psf from 2008 to 2019.
Prices of Centris tripled during this corresponding period.
Do you own a freehold property right now? Are you happy with how its value is doing?
Yes, it is true that if you buy anymore property in your name, you will incur additional buyer stamp duty.
However, are you aware of something called buying under trust?
This is an avenue that many buyers are not aware of and is perfect for buyers whose financial position allows them to.
Traditionally, investors buy resale properties and rent them out for rental income. This is certainly one possible way to earn from real estate.
In fact, I manage a number of such properties for my local and foreign clients.
But this is not the only type of property (resale) that one should consider investing in. Investing in new launches when done right can yield very handsome investment returns versus getting a resale property for rental income.
Let’s take a look at the price trend charts for Compass Heights (resale) and High Park Residences (99 years new launch) below.
Compass Heights is a 99-years leasehold condo in the Seng Kang area. It is popular because it is beside Compass One Shopping Mall, Seng Kang MRT & LRT. Evergreen attributes for the traditional real estate investor who is after a resale property for rental income.
Let’s see what would have happened if an investor had bought a unit here four years ago with the typical buy resale to rent out approach.
In August 2015, Compass Heights had an average transacted price of $982psf.
About 4 years later in June 2019, Compass Heights had an average transacted price of $823psf.
Over a period of 4 years, the average transacted PSF in Compass Heights has actually gone down by 16.19%.
Now, let’s take a look at High Park Residences.
High Park Residences is a 99-years leasehold new launch condo that was launched for sale in 2015. It is also in the Seng Kang estate but not near the MRT. It is only near the Thanggam LRT station.
Let’s see what would have happened if an investor had bought a new launch unit here four years ago instead of going for the buy resale and rent out approach.
In August 2015, units in High Park Residences were transacting at an average price of $947psf. This price would have put off most traditional investors who would have argued that they would have been better off buying Compass Heights because of the “traditional strengths” that Compass Heights has.
About 4 years later in March 2019, transactions in High Park Residences were transacting at an average price of $1,232psf. This average price is actually higher if transactions after March 2019 are taken into consideration. I will update this on a later date as I am waiting for the complete set of data.
Over a similar period of 4 years, the average transacted PSF in High Park Residences has gone up by 30.09%.
One may contend that there is rental income from Compass Heights during the 4 years. That is certainly true. However, even with the rental income factored in, from both a return of investment and absolute profits (sale price minus purchase price) point of view, the new launch outperformed the resale property.
Investing in new launches have always been a very attractive avenue for investors who are well suited for this approach and understand the multiple merits of investing in new launches.
My blog post, “Will Singapore leasehold properties make money?“, illustrates a good case study of how investors make their money from 99-year leasehold new launches.
If you were looking for an investment property 4 years ago, would you have bought a resale to rent out or would you have bought a new launch?
Contrary to popular belief, a more expensive property does not equate to higher profits. There is no co-relation between price and size of profit.
In general, it can be more challenging to make money from expensive properties in comparison to more affordable properties because the pool of qualified buyers for properties that are less expensive is significantly bigger.
See the Scotts Square example in point 4.5 above.
Many buyers make the mistake of using their own personal likes or dislikes to when investing in properties.
It is perfectly fine to use your personal likes or dislikes to guide you to choose a unit when you are buying the property for your OWN OCCUPATION. In fact, this should be the way to do it.
But if you are investing, what you personally like or dislike is really not that important. This is because the property market does not respond or move based on what you like or dislike.
Being able to separate what you like and what is right is a key component to investing correctly and wisely.
There you have it. The 9 biggest misconceptions about property asset progression.
What you need is a guide who is competent to calculate, analyse the numbers and your situation to determine what are the options available to you.
Before we move on to the next section, check out the infographic below that illustrates what I have just highlighted above.
Truth be told, property asset progression may not be suitable for everyone.
This may be because the client’s situation right now does not permit him or her to do so.
In some cases, the client’s current property portfolio is already at the optimal level and nothing more needs to be done until the next review. Or it could be a case of waiting for exit markers to show up.
However, before even going so far, we need to ask ourselves whether we are equipped with the right knowledge and advice to make an informed decision.
Many times in life, we do not know the things… that we do not know.
In many instances, we do not even know that… we do not know 🙂
On the path of property asset progression, having the right guidance is key.
You have already taken the first step to read up on this subject matter up to this point.
The next step you are going to take is the crucial one that will determine what your options are.
The knowledge you are going to gain will empower you regardless of whether the analysis shows a go or no-go for you to embark on property asset progression.
The knowledge stays with you and will not cost you a single cent.
And if you agree with the property asset progression plan that I have tailored for you, then I will execute the plan and journey alongside you in the years ahead.
My name is Jack and I have helped many of my clients to achieve their real estate goals and target.
Let’s sit down to have a chat and explore the opportunites that you may not be aware exists. Allow me to share the following with you:
Give me your time to help me understand your unique needs and situation and I will give you the most appropriate suggestion planned according to your situation.
Clear any misunderstanding you may have and understand the options that are available to you.
Your options and opportunities may surprise you.
And then you can make an informed decision.
Take your first step in your property asset progression journey today.
I can be contacted via the WhatsApp button that you see on the screen.
Interested to know about the common questions that people have about property asset progression and what they ask me?
Read on as I share some case studies below.
P.S. The names of my clients have been changed in the case studies below.
Sally is a single Singaporean in her mid 30s.
She is a salaried employee earning $6,000 per month.
She stays with her parents and currently owns a private property that is tenanted out at $1,600 per month.
She has cash savings of $200,000 that can be used for property investments.
Q1. How to assess if staying put with her rental property is the right move?
Q2. What would be my property asset progression plan for her?
I showed her the figures involved in staying put with what she currently has versus the other possibilities that Singapore’s property market offers right now. Without having to touch a single cent of her $200,000 savings.
Also used the chance to show her how she can save on her mortgage interest repayments.
Han & Rose are a pair of married Singaporeans in their late 20s.
They have a combined fixed income of $9,000 per month. Rose brings home extra commission income on top of her fixed income every month.
Right now they are staying in a BTO HDB flat that is about to hit the 5 years minimum occupation period very soon.
They would like to sell off their BTO HDB flat and use the sales proceeds to upgrade to a private property with zero to minimal top up. They have a particular dream private condo that they would ideally like to move to.
Q1. How much can their HDB flat realistically fetch?
Q2. What are the numbers involved for them to be able to upgrade to a private property? Is their dream condo within their reach? What are the options available to them?
Q3. Can I give them my take on how they should execute the move and the pitfalls to look out for?
Their BTO HDB flat has appreciated in price over the last couple of years and they can unlock this equity and put it to good use for their next move.
Presented them with 3 possible options that they could consider and take. Each option came with detailed financial numbers involved.
In addition to that, I also shared the key differences between the options and how things could possibly pan out in the next 4 to 8 years for each option and what it means for them.
Victor (Singaporean) and Ning (PR) are in their 40s. They have a child.
They have just sold their HDB. Victor owns a fully paid condo that is currently tenanted out at $2,000 per month.
They have cash savings in excess of $1m (excluding CPF) for property investment purposes while Victor qualifies for a $3m property loan.
Ning is self-employed and has no property in her name right now.
Q1. How do I see Singapore’s property market in the next few years?
Q2. How to best optimize and structure their property portfolio moving forward?
Ning is a lady who loved her HDB flat because it has been her matrimonial home for many years but she has a clear understanding of what the HDB flat can and cannot do for her even before I met her.
Not everyone can arrive at such a clarity of mind on their own because it takes effort and it usually involves getting out of one’s comfort zone.
While talking over coffee, I managed to clear up some misconceptions that she had. In particular, what makes a good and not so good purchase from an investment angle.
Gave her my inputs on how their family can proceed from here and how they can employ the use of trust given they have the financial means to take this route.
Leong and Mary are both Singaporeans and in their mid 40s.
Husband and wife have a combined monthly income of $30,000.
They own a private property in their joint name that they have called home for many years.
Q1. Why has their property hardly appreciated in price? Lacklustre pricing aside, they would like to sell mainly because they would like a change of envrionment.
Q2. For their next property purchase (possibly joint names or one property each), they would like to do it with a stronger investment focus. Is it possible to structure the purchases such that they do not have to tap into their savings?
Q3. How do they go about choosing what to invest in? In terms of which private property to go for and the unit type to go for.
I shared with Leong (over tea that lasted almost 3 hours) that any decisions made have to be based on a good understanding of what has happened, is happening and will likely happen next in Singapore’s property market.
I did an in-depth market update and presented him with a detailed financial analysis of 4 different options that they could realistically consider. The plan is based on utilizing just the proceeds from the sale of their current property and existing CPF alone.
The key differences between these options and how it could impact their cash flow moving forward was also discussed.
I also touched on my assessment of their current property and explained the factors that must be present to trigger a price increase (demand).
Peter and Wendy are both Singaporeans and in their mid 30s.
Husband and wife have a combined monthly income of $25,000.
They are currently staying in a HDB flat that is in Peter’s name only. They did a decoupling exercise many years back in preparation for their first private property investment one day. Please note that it is now no longer possible to do decoupling of HDB flats.
They have a healthy amount of cash and CPF savings that they can tap on for their next purchase. As of now, they have no intention to sell their HDB.
Q1. A significant number of buyers are attracted to new launches even though the surrounding resale properties are a lot cheaper. Resale properties also get to enjoy rental income. So why is there such a phenomenon?
Q2. What is the most appropriate investment option for them (someone in their mid 30s) in today’s market?
Q3. How to determine what to invest in and the unit type to go for?
I visited them at their place and shared my assessment of what is happening in Singapore’s property market right now.
I also used the opportunity to answer the specific questions that they had for me and showed them the financial figures (and projection) to execute what I had planned for them.
In their case, I had planned for significant buffer to take care of any risk that their situation may present.
Although they are planning to stay in their HDB, I felt the need to share the challenges that the HDB resale market faces and the trend moving forward.
They should know and understand the implications. This will allow them to make the right decision for themselves in time to come.
I am extremely thankful for the trust that my clients have placed in me. From sharing their dreams and concerns (fear) with me to furnishing me with their details and to allowing me to plan and execute for them.
I applaud their willingness to take that crucial first step to get in touch to understand more.
One client asked if I would be around to guide her and execute what I have planned for her (happening only in a few years time). Assured her that I would be more than pleased to journey alongside her in the years ahead if she allows me to.
Sometimes, the smallest step in the right direction ends up being the biggest step of your life.
Tip-toe if you must, but take the step.
Are you ready to take the first step?
I would like to end by sharing with you the regrets that keep repeated to me by people that I encounter over the years.
We should have bought and invested much earlier.
I wish someone had spoken to me about this earlier.
We kept holding back as we waited for prices to drop. Look at where prices are now.
I should have planned for retirement earlier.
We would have comfortably retired by now if we had taken action.
I did not know that the CPF accrued interest would add up to so much.
I should have sold earlier!
I kept delaying and I am out of time now. I cannot get a loan anymore.
It is my sincere hope that you can be well informed and make the right decisions henceforth.
If you only know how, it’s so simple.
Talk to you soon.
P.S. If you enjoyed reading this, do drop by my blog where I pen down my experiences and encounters in the course of my work.