I recalled meeting up with Edward in China last year on a business trip. Edward is a typical Singaporean, married to Jane with 3 kids and working hard for his money. He has always wanted to know what are his options in preparing for his retirement and he has always been very concerned about the rising living costs in Singapore.
He has a bit of more worries than his counterparts in view that he has 3 kids that are still in their primary school years. He currently has a BTO flat in Punggol and he has already fully paid for his home. He has rented his HDB out because he wanted to move to Bukit Timah so that his son can go to ACS. Currently, the HDB tenancy lease has ended and he has already placed the unit up for sale. He has always wanted to know how he can upgrade from an HDB to a private condominium but he has his concerns as all other HDB owners.
Edward told me that he has considered using real estate as a form of investment for his future and was very eager to understand his options. As usual, we will always get down to working on the numbers and his current situation before taking the usual field trips of visiting the showflats and visiting resale units. There is no point in visiting showflats when the numbers are not clear and insured and bonded. The numbers will give a very clear roadmap in terms where we should be looking out for. The numbers are as per below. We need to work on the whole process to understand the importance of the numbers. As mentioned in earlier posts, affordability is key and the process should be an enjoyable one.
| Current Situation | Edward | Jane |
|---|---|---|
| Nationality | Singaporean | Singaporean |
| Employment Status | Employed | Home Maker |
| Monthly Income | $12,000 | $0 |
| Assets – Cash on Hand | $160,000 | |
| CPF-OA | $78,000 | $0 |
| Total of Cash + CPF-OA | $238000 | $0 |
| Property Details | ||
|---|---|---|
| Type | HDB | |
| MOP | Yes | |
| Outstanding Loan | $0 | |
| CPF-OA + Accrued Interest | $281,000 | $80,000 |
Based on the above finances, upgrading to a private condo is not an issue. Edward and his family are able to upgrade comfortably to a private condo and yet still enjoy his current lifestyle.
| Estimated Sales Proceeds | |
|---|---|
| Estimated Selling Price | $480,000 |
| CPF + Accrued Interest | $361,000 |
| Fees and miscellaneous costs | $10,000 |
| Outstanding Loan | $0 |
| Cash Proceeds | $109,000 |
Estimated Sales Proceeds
From the sale of their existing HDB flat, they were able to collect a cash sales proceeds of approximately $109,000. The CPF and accrued interest amounted to be a total of $361,000. Based on the above, their finances are as follows:
Cash: $269,000
CPFOA: $439,000
After much consideration, the new property was decided on on a new condominium unit located in the Downtown Core of SIngapore in the Core Central Region. The purchase price was at $1,500,000. They decided on a 75% loan to leverage on their bank loan.
| 75% Loan | |
|---|---|
| Estimated Purchase Price | $1,500,000 |
| 5% Downpayment (Cash) | $75,000 |
|
20% Balance ( Cash/ CPF) |
$300,000 |
|
Available CPF |
$439,000 |
| Cash Portion for 15% | $0 |
|
Stamp Duty (Cash + CPF) |
$44,600 |
| ABSD | $0 |
| Legal Fees | $3,500 |
| Loan Amount | $1,125,000 |
| Interest Rate (estimated) | 2% |
| Years | 25 |
| Monthly Repayment Upon CSC | $5,082.98 |
| Finances after making the purchase with a 25 years loan of 75% loan | |
|---|---|
| Balance CPF-OA | $90,900 |
| Cash Balances | $194,000 |
| Estimated number of months of reserve based on housing loan repayments | 56 |
| Number of years | 4.6 |
As this is a building under construction project, the loan repayment is shown as the amount from the date the condo receives it Certificate of Statutory Completion. This is based on an assumption that the loan interest is at 2%. This would give them a reserve of approximately 4.6 years. This is assumed that in the event that both will not be earning an income. They still have cash for rainy days as shown in Table above. The CPF balances and cash in their accounts will be able to last them for the mortgage payment for approximately 4-5 years. This is based on the assumption that Edward will stop contributing to their CPF and cash reserves as of now. In reality, he is still working and contributing to their CPF.
When the property receives its TOP status, Edward has 2 options, either to rent the unit out or just take capital appreciation if there is a good profit. Even if he chooses to rent out the unit, he should still be getting a reasonable rent in view of the location. As Edward does not move into the unit, there is no hurry for him to sell the place upon TOP. Until then, we have lots of opportunities to decide.
Based on the above case study, it is possible for single income families to upgrade to private condominiums. As per what was mentioned earlier, not all are eligible. Proper calculations and planning must be done to ensure that clients do know what they are getting themselves into. You may want to also understand of another case study that was successfully done and they have since moved into a condo.
Please take note that the above are calculations based on the following assumptions accurate at the point when this article was written. Mortgage interest is estimated at 2% and this may differ with the actual mortgage interest rates. The names of the clients has been changed in view of metacondo’s privacy policy. Any similarities is purely coincidental. The numbers as shown are estimated based on what was provided at the point of calculation.
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