There are a lot of online debates on how to build wealth with property. In my humble view, there is no absolute right or wrong answer for this topic because whether property is a wealth enhancer or value trap really depends on how you play the game. If you play your cards right, there is no doubt that property investment is one of your best tickets to financial freedom. However, if you don’t have a clear strategy on playing the property game, it can be your greatest financial nightmare.
One thing that readers must be clear is that property investment may not be suitable for everyone because every wealth builder’s financial needs, goals and profiles are different. As such, when it comes to building wealth from property, it is not possible for Singaporeans to adopt a blanket approach. The conventional wisdom is to wait for a financial crisis and expect housing prices to drop and then you go in for the kill as a bargain hunter. However, in today’s context, things are not so straightforward anymore.
To illustrate my point, I shall use my family’s real estate strategy and compare it with a working couple. Let’s assume that both my family and the working couple are presently living in a 3-room HDB flat and planning to purchase the next property. Let’s also assume that both families each have outstanding loan of approximately $100,000 housing loan. For my case, my family will be upgrading to an Executive Condominium (EC) while the working couple is planning to buy an additional property and has obtained approval from HDB to decouple the HDB flat. Which family is better off and why?
Many Singaporeans would have taken the approach of the working couple and purchase a private property while keeping their HDB flat. This is because many of us are led into thinking that rental income is the best form of passive income. I certainly do not dispute this argument but when it comes to HDB flats, such approach may not be feasible as the government policies have been geared to discourage Singaporeans from using HDB flat as a form of investment tool.
Current median selling price for a 3 bedroom condominium with good location requires at least $1.2 million, which loosely translates to about $3,600 monthly mortgage instalments for a 30 year loan. With the housing loan of $1,000 for the existing HDB flat, the working couple needs to pay about $4,600 housing loans in total every month. Given the current rental market, it is unlikely that the couple can rent out their HDB flat for more than $2,000. Assuming they max out their monthly CPF contributions to partially pay for the housing loans, they still need to pay $200 in cash every month. Under this scenario, the working couple’s finances are very tight. If there is any economic recession, their jobs might not be secured and they could be staring at the prospect of retrenchments.
If either of them suffered from job redundancy, the working couple’ finances will topple like domino tiles. Their savings would have been previously wiped out to pay for the down-payments and stamp duty. So with much lesser monthly incomes, they will struggle to pay for the monthly mortgages and will eventually be forced into making a hard decision to sell either the HDB flat or the private property. Under such circumstances, they are unlikely to sell at good prices because in bad market, it is always a buyer’s market. They may even incur huge losses if they are not careful.
For my family case, our strategy is to sell our HDB flat and upgrade to an Executive Condominium (EC). Our mortgage loan will be $2,400 and after selling our HDB flat, we do not intend to use the CPF proceeds to pay the loan for the EC. Instead, we made the decision to leave the CPF proceeds inside our CPF Ordinary Account (OA). In this way, we don’t have to worry about the monthly mortgage instalments and also receive interests for the CPF OA. We also don’t have to worry about being retrenched because our CPF OA funds are sufficient enough to pay for the mortgage payments for at least 10 years.
EC owners are allowed to sell their units to Singaporean or Permanent Residents after Minimum Occupation Period of 5 years. So within the next five years, my family will build up our wealth and plan for our next property purchase. If there is an economic recession, we may enter the market and do bargain hunting. The difference between my family and the working couple is that we have more flexibility and will not be stranded like the working couple during poor market conditions.
Indeed EC is a very valuable proposition for wealth builders because they are priced at a level substantially below private condominiums. In this way, EC owners enjoy a safety margin at the point of buying. For example, an EC owner on average pays about $750 to $850 per square feet while condominium owners on average pay about $1,100 upwards. Given that EC can be privatised after 10 years, effectively that gives EC owners an explosive profit margin of at least $300,000! The profits can be bigger if you are talking about those projects that are exempted from resale levy.
One of the last few remaining EC projects that are exempted from resale levy is The Terrace EC at Punggol. My family has recently bought a unit there and decided that it will be our matrimonial home for the next 30 years.
Good Location and amazing amenities
In terms of location, The Terrace is situated right next to the Kadaloor LRT Station. In fact, upon visiting the actual site, our unit is literally a stone throw away from the LRT Station. As a car owner, we also like the fact that Tampines Expressway (TPE) is just around the corner and that by 2019, there will be a new link to Kallang Expressway.
In terms of surrounding amenities, there are a few exciting amenities that potential buyers must take note. SAFRA Punggol is just a 10-minutes distance from The Terrace EC and the club features a suite of leisure choices, including the first indoor water playground in Singapore, bowling centre, KTV outlet, spa and wellness centre.
A new Regional Sports Centre will be integrated with the Punggol’s waterways and co-located with the SAFRA clubhouse to cater to a wider range of competitive sports and events. Expected to be completed in 2019, the Regional Sports Centre will make this area a very vibrant and lively area. My family had taken a walk along at the Punggol’s waterway last month and I must say it is indeed a very scenic and beautiful place to build our home. When Deputy Prime Minister Teo Chee Hean announced his vision for Punggol, we had no idea it will be of such mind-blowing project.
Oasis Terraces & Waterway Point Mall
Perhaps the best-selling point of The Terrace EC is that it is located very near to the Oasis Terrace, a next generation neighbourhood centre that features childcare centres, the upcoming Punggol Polyclinic, a community plaza as well as retail and dining facilities, all under one roof. Of course, further down the road is the Waterway Point Mall, the main shopping mall of Punggol area.
Buyer Referral Scheme
I always believe good things must be shared. After much research, I am convinced that The Terrace is strategically located at the Punggol area which has tremendous potential for buyers, in terms of infrastructure and community developments. In this regard, this project has much potential for huge investment gains when all the projects are completed.
Now, the developer of The Terrace EC is now offering $10,000 to interested buyers through a buyer referral scheme. This means that if you purchase a unit through me, you will receive a rebate of $10,000. In turn, I will also get a referral fee of $10,000. Win-win-win outcome for buyer, developer and referrer right?
Take note it is a buyer-refers-buyer scheme, so you need an existing buyer for referral in order to enjoy this special promotion. The deadline for the end of this offer is 19 June 2016. So if you are interested, please email me at firstname.lastname@example.org. It is now or never. Don’t let slip this golden opportunity to build a better home for your family.
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SG Wealth Builder