Singaporeans are Ditching Their Flats Earlier, with Good Reason - by 99.co

Remember when our HDB flats were our retirement fund? Those were the days when every plan involving HDB flats ended with “…and then my children, grandchildren, etc. will live on abalone in private yachts.” That seem to be changing though, with more Singaporeans quickly ditching their flats to go private ASAP:

“And if we live without furniture or appliances for the next five years, we can buy a CCR condo.”

Sales of newer HDB flats hit a nine-year high last year

In 2019, there were 22,477 resale flat transactions. About 20 per cent of these transactions (4,578 units) involved newer flats (that is, flats 10 years old or younger). That’s the highest volume of newer flat transactions in nine years.

For comparison, go back about five years (to around 2014 to 2015); at the time, newer flats made up less than eight per cent of resale transactions.

Many (but not all) of these sales typically come from owners who have reached their Minimum Occupancy Period (MOP) of five years; they tend sell upon MOP – or slightly beyond – to upgrade to a private condo. While it’s not an unusual approach, what’s significant is the number of flat owners who are quick to do it these days.

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Why is it happening?

A number of reasons such as:

• Private housing, not flats, are increasingly seen as a “retirement plan”
• Inherited wealth from previous decades of property appreciation
• Higher income and aspirations
• Cash-out-refinancing

1. Private housing, not flats, are increasingly seen as a “retirement plan”

Take a look at the appreciation of condos versus HDB flats, over the past 15 years:

Over the past 15 years, flat prices have appreciated from an average of $233,520 to $431,118 (up around 84.6 per cent, annualised returns of about 4.17 per cent).

In contrast, private condos (excluding Executive Condos) have appreciated from around $938,740 to $1,792,974 (up 91 per cent, annualised returns of about 4.41 per cent).

Apart from condos appreciating better (a fact that probably surprises zero per cent of anyone), notice how flat prices have mainly trended downward or remained flat since 2013. On the other hand, condo prices are still generally climbing.

A lot of this is due to the perspective shift on HDB flats; the emphasis is now on flats as a form of “pure” home ownership, rather than investment. That’s not to say a flat can’t make you money – it just means that, with some exceptions, a flat probably won’t make you as much money as a condo.

The general perspective is that someone who quickly trades up to a condo will have a much a better appreciating asset than a flat; and when you take into account resale gains, condo owners will come out on top. As such, more flat owners want to upgrade as soon as they can (besides, it’s easier to sell a flat for a good price when the remaining lease is still nice and fresh, and the walls haven’t yellowed to the shade of grandma’s teeth).

2. Inherited wealth from previous decades of property appreciation

You know what the biggest hurdle in buying a condo is?

If you say “income”, you’re wrong. A dual-income family, with both spouses earning around $4,000 a month (average for Singaporeans), can usually borrow close to $1 million for housing*. If we just go by income, a surprising number of “typical” Singaporeans can qualify for condo loan, even without help.

The true hurdle to buying a condo is the down payment.  This is currently at a minimum of 25 per cent, so a mass market, million-dollar condo means a whopping $250,000 down payment.

But this hurdle is easier to cross with the help of parents, many of whom have benefited from decades of high property appreciation. If you had bought a four-room flat in the 1970’s (around $20,000 at the time), you would have seen annualised returns of up to 6.3 per cent today, well outpacing inflation; and your property would have appreciated by around 2,050 per cent, to $430,000 today.

Here, we see a young Singaporean putting in her home loan application.

Add in other things such as savings, endowment plans, other investments, etc., and most parents are in a position to cover the down payment for their children. It’s also not uncommon for some parents to sell their flat, and share ownership of a big condo unit with the children (they expect to move in together).

That last one isn’t a good idea; but what can we do? MAS can impose all the loan curbs it wants on DBS; it can’t impose measures on the Bank of Mum and Dad.

*Based on a 30 year loan tenure, and assuming they get the maximum Loan to Value ratio.

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3. Higher income and aspirations

Fortunately, Singapore is the meritocracy at the end of history where everyone is upwardly mobile, can upgrade their skill sets and suddenly become relevant with just $500, and only work after retirement (e.g. collecting cardboard) for the exercise.

As such, Singaporeans of the current and subsequent generations are likely to have higher income, and higher aspirations to go with it.

On a more specific note, Singaporeans have also become more better informed on how the property market works; prices for each neighbourhood, gains, yields, etc. and other data are more transparent than before. More of them are aware of the eventual outcomes of sticking with a flat, versus being able to upgrade; as such, more are rushing toward private housing as soon as they can.

4. Cash-out refinancing

Don’t want your money to be locked up in your house? That’s where private property beats HDB flats.

There are ways to unlock value from an HDB flat, such as lease buy-back schemes. But these aren’t popular and fade in comparison to an option that private property offers: cash-out refinancing.

This is when a property owner uses a private property as collateral for a loan. They can borrow up to 80 per cent of the appreciated value of a property, at extremely low interest rate of around 1.6 per cent per annum. For comparison, the HDB loan interest rate is 2.6 per cent.

Even if a current owner cannot get such a loan (due to age or retirement), the children inheriting a private property may be able to do so.

This option isn’t available for public housing, and provides a massive advantage to some private home owners.

Expect this trend to continue

24,000 flats are expected to reach their MOP this year; and 2022 is expected to see some 31,000 flats reaching MOP. With fewer Singaporeans willing to rely on their flats for long term gains and retirement funds, there’s likely to be a continued trend in upgrading ASAP.

Would you upgrade right after your MOP? Voice your thoughts in our comments section or on our Facebook community page.

Looking for a property? Find the home of your dreams today on Singapore’s largest property portal 99.co! You can also access a wide range of tools to calculate your down payments and loan repayments, to make an informed purchase.

1 week ago · 6 min read · by Ryan Ong

Source: 99.co (12 Feb 2020)

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Property Investment Versus CPF: Which is Better? - by 99.co

Congratulations! After years of hoarding money like a dragon in a high level D&D dungeon, you’re now sitting on a pile of wealth and wondering: is it time to put it to work buying a property, or just leave it in the safe hands of CPF? Here’s what to know before you decide:

Necessary caveat:

A property investment can indeed go like clockwork. If by clockwork you mean it has more springs, gears, and sensitive moving parts than most of your internal organs. What you read here is generalised and simplified; it can never, and will never, hold true for every property investment.

Consult a qualified professional on the appropriateness of property assets in your portfolio. As to who’s a qualified professional, it depends on which side wins the flame war when you ask that question.

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First, let’s look at a typical condo over the past 15 years

As our example, let’s look at at the price of a three-room unit at The Raintree. This is a leasehold, medium sized (315 unit) development in Bukit Timah. It received its TOP in 2008, and is pretty typical of the units people bought for investment back in ’05.

If you have bought this in 2005, the price would have been around $634,400. Yeah, a condo in Bukit Timah used  to be cheaper than some resale flats today; you sure missed out (that’s what you get for not being born earlier).

But let’s look at what you really would have paid overall:

Note that there was no Additional Buyers Stamp Duty (ABSD) at the time, if it had been your second property.

• Buyers Stamp Duty (BSD) at the time was lower than today, at around $13,600.
• As for the property tax, we will say you rent out the condo and pay a higher rate than for owner-occupied properties. We’ll also assume you manage to get rental income of about $3,400 a month (it has stayed at roughly around this amount for the past decade), and that your Annual Valuation (AV) is close to this at $40,800. Over 12 years of rental, you would have paid a property tax of about $56,350. For the first three years (while it’s under construction and you have no tenant) you would have paid about $3,936.
• Next, we’ll assume maintenance fees are about $1,400 per quarter. Between the TOP in 2008 till today, you would have paid around $67,200.
• For renovation and furnishing, around $45,000 would be sufficient for a three-room unit.
• Let’s say you use a 30 year loan, and the interest rate averages out at two per cent per annum. Roughly speaking, the interest paid out over 15 years is about $83,900.

Miscellaneous costs will include legal fees, home insurance policies, agent commissions for finding new tenants (one months’ rent for one year of lease, so assume you pay this 12 times from 2008 to present), home repairs, occasional vacancies, and others. A reasonable estimate is about $55,000 over 15 years, assuming no serious disasters.

Roughly speaking, the amount you would have sunk into this property, over 15 years, is about$959,566.

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But if you were to sell that property at an average price today, you’d net around $1,523,000.

Any property investment plan that’s meant to end like this…probably won’t

On top of that, let’s assume you got 11 years worth of rental income, between 2008 and today (there may have been a few vacancies in between). That’s an added $448,800.

So you sunk approximately $959,566 into the property, and got a total of about $1,941,340 out of it over 15 years.* That’s an annualised return of about 4.8 per cent, coming out ahead of your CPF’s 2.5 per cent.

*Deduct $30,460 to cover the sales commission of the agent, which is usually two per cent of the sale price.

If you did leave $926,450 in your CPF to grow at 2.5 per cent, you would end up with roughly $1.4 million.

However, there are three important factors to note

The first thing to note is that you won’t see such rosy results if you had bought after ABSD was implemented. Today, ABSD on the second property is 12 per cent for Singapore citizens. BSD is also higher, although there’s only a difference on properties valued at $1 million or more.

Combined with slightly higher property taxes, and a lower rate or price appreciation, it’s entirely possible that you’ll see lower returns than your CPF for some properties.

Second, the above example assumes you are fully renting out the property. If you’re just staying in the property and not generating rental income, the returns will be much lower. We’re also making an assumption of steady rental income – long periods of vacancy, or a plunge in the rental market, can sent your returns plummeting.

The third and final factor is the timing of the sale. You can see from the graph above that, had you held for 10 years and sold, the average price you would have got was only around $1.26 million – a whopping $263,000 difference.

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As such, we can conclude that a private property investment can beat your CPF only under certain conditions:

Rental income won’t “pay your mortgage” anymore, but it offsets a chunk of the costs

• Your property appreciates sufficiently over the period you hold it
• You are generating consistent rental income, at or above the AV of your unit
• You’re able to keep the interest repayments low
• You’re able to service the loan, and don’t have to fire sale the home or get it foreclosed on

Ultimately, you have to decide if chasing a potential extra percentage point (compared to the risk-free CPF) is worth it. The list above isn’t an easy one – few of those things can be guaranteed. But some of you can’t sleep thinking of your money “rotting away” in CPF, or simply don’t trust it. In which case, it might be time to consider playing landlord.

Would you buy a property or just rely on your CPF to grow your funds? Voice your thoughts in our comments section or on our Facebook community page.

Looking for a property? Find the home of your dreams today on Singapore’s largest property portal 99.co! You can also access a wide range of tools to calculate your down payments and loan repayments, to make an informed purchase.

5 days ago · 6 min read · by Ryan Ong

Source: 99.co (11 feb 2020)

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I Owned Two Condos Before I Was 30; It’s Not What I Expected - by 99.co

After much constant nagging from 99.co, Elisa (not her real name) finally agreed to tell her story about buying two condos before she turned 30. Most people think this involves champagne and Scrooge McDuck-levels of money; but as it turns out, it’s actually about scrimping and a measure of regret:

Getting into the property market

Elisa is currently 40, runs her own business, and takes great care to conceal her her property ownership (for reasons discussed below). But she first set foot in the property market in March 2007, when she was just 27 years old.

By then, she had co-founded a company with a friend, which they had been running since they were students in 2001. When the company was acquired, she found herself with more money than she’d ever seen before.

“Not so much that I could retire that early; but it was a very substantial sum. I remember thinking: I am too inexperienced to handle so much; but I might never have such windfall again if I waste the money.

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n the end I was persuaded by a client and later business partner,” she says, “who introduced me to the concept of property assets, rental yield, and so forth.”

“After purchasing a smaller condo on the east side, I was making more than enough rental income to cover the loan,” Elisa says, “and then I was hooked and I thought, wow, why isn’t everyone doing this?”

At the time, Elisa stayed with her parents while renting out the condo she bought.

But by June 2011, she had made the down payment on another condo – a larger, 1,400 square foot unit – with the intent for her whole family to move in together with her.

“At that time we didn’t have things like the TDSR, and I was very lucky because a few months after I bought, the government implemented ABSD. I think under today’s circumstances it would have been impossible.

But in hindsight, I sort of wish those restrictions had been there. I feel I really over-stretched.”

(ABSD kicked in on December 2011. The TDSR was in fact created because of buyers like Elisa – it was implemented around 2013, in response to over-borrowing by Singaporean property buyers. Previously, banks were less consistent in their lending policies).

Owning two condos means tight budgeting, and lifestyle sacrifices

While some people may ooh and aah at Elisa’s property assets, it’s much less comfortable for her than you’d suspect.

On the times when her rental unit has a vacancy, Elisa’s monthly bills can reach up to $8,000. And with quarterly maintenance bills of $1,200 to $1,400 for each condo, she has to be extremely careful with her spending; most of the money she got from selling her previous business has already been used.

She’s now extra cautious – she uses public transport, there’s very little budget for vacations or expensive gadgets, and no let-up in extra jobs / active side-income. That means losing most of her weekends. She says:

“In my 20’s I gave up most of my social life to build my business – now in 40’s, I’m still making more or less the same sacrifices to pay off the properties. Sometimes I feel there are a few chapters missing in my life: like somewhere between 20 and 40 there’s supposed to be a period where I had fun and was carefree, but I missed it completely.”

Elisa admits that she was overly-ambitious, and should not have gotten a second property. But “the decision had been made, we had moved in, and I couldn’t stomach the potential losses from a U-turn.”

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As such, Elisa ended up in an uncomfortable position – she can manage to pay for the properties, but it means a lot of stress and compromise:

“Because I run my own business, it’s incredibly stressful to think of the bills every month. Now I overwork myself to an unhealthy extent; but when there’s no work I also get anxiety attacks, because I worry about being able to pay bills. People notice that I’m not happy when there’s work, and I’m not happy when there’s no work.”

This has resulted in occasional panic attacks for Elisa, and at one point psychiatry and medication.

So being able to you own two condos is impressive – but make sure you don’t go in like a swan (i.e. looking impressive on the surface, but kicking like mad underneath just to stay afloat). Affordability doesn’t just mean being able to pay the loans; it means being emotionally ready to deal with the size of the debt.

By the way, wait till the relatives / friends find out…

The typical response to hearing she has two condos is why Elisa won’t disclose her name.

“Jealousy is a pretty common reaction,” she says, “But the worst part is that relatives and friends start to ask you for money. I guess it’s the same as winning the lottery.”

One of the worst mistakes Elisa made was to allow a relative to move in rent-free, just for “a little while”.

“He was supposed to stay for two months, in the end he stayed for almost the whole year. He knew how to pressure my parents, who in turn pressured me into letting him stay. He paid no rent the whole time, and I lost around $40,800 in rental income.

On top of that, he caused so much damage I had to pay $15,000 more to replace kitchen counters and redo part of the living room floor; and he let his cat tear up the bottom of my window curtains, which were over $2,000.”

Also, there’s the added annoyance of friends responding to her every money issue (more on this below) by saying “sell your condo lah, haha.”

Since then, Elisa’s learned to keep things quiet (and urge her family to do the same).

Unexpectedly, being a landlord has helped her to mature faster

“You truly meet all types of people when you’re a landlord,” Elisa says, “I’ve had one instance where one of the security guards wanted to sue my tenant, because they got into a physical altercation. I had to come and mediate between them.”

(The tenant thought the guard had made a rude remark as he walked past).

Elisa has also had to deal with a tenant passing away on the property, and having to contact his estranged (and divided) family.

“It was one of the most uncomfortable situations I’ve ever been in. Two sides of the family didn’t see eye to eye, and they kept trying to ask me which of his belongings the other side took; they kept demanding to know if the other side had taken a piece of jewellery, or a watch, or money,” Elisa says.

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Elisa’s also had to deal with people paying late, people with unreasonable demands, and some sad situations; like considering evicting a tenant who had to pay for his sister’s medical costs, and would have missed the month’s rent (the tenant’s sister was hit by a van back in Indonesia).

In that last instance, the tenant did reliably pay the rent from that month forward; he made up for the lost month of rent by surrendering his rental deposit when the lease ended.

Ultimately, it’s not just about meeting the down payment and income requirements

At 99.co, we always suggest that – whatever your age when buying – you avoid buying a property that’s more than five to seven times your annual income. Also, your monthly costs, including the home loan, should not exceed40 per cent of your monthly income (regardless of the TDSR being set at 60 per cent).

Don’t take on too much debt, even if you somehow find a way to do so. Your property is supposed to give you a sense of security; not be the altar on which you sacrifice your youth.

6 days ago · 7 min read · by Ryan Ong

Source: 99.co (11 Feb 2020)

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