There are different ways to go about Property Asset Progression because every property owner is at a different stage of their journey. Instead of adopting a “one-size-fits-all” strategy, buyers must first identify which stage of the property journey they are on and proceed to the next upgrade progressively.
Stage 1 - Young Couple, First-time Property Buyer
Young couples who are buying their first property buyers are in the first stage. They will be focused on saving enough funds to purchase a property with high capital appreciation that will eventually bring them a healthy profit when the property is sold.
BTO flats are ideal property at this stage because they are the most affordable property types for young couples who may not have deep pockets. They can also off-set the property price with HDB grant, which can result in significant savings and reduction of the mortgage loan.
Case Study – Purchase a BTO Flat
Let’s assume that a couple with a household income of $6,500 has decided to purchase a 5-room BTO flat in a non-mature estate at $350,000. Based on their household income, they are eligible to apply for $30,000 of Enhanced CPF Housing Grant (EHG), hence reducing nearly 10% of the initial property price.
By the time the couple fulfil the five-year MOPs, the BTO value would have gone up and the couple may even fully pay off their mortgage loan. By selling the flat, the couple can easily reap a 6-figure profit that can help them upgrade to the next level of upgrade.
Important Criteria for Selecting the First Property in Property Asset Progression
Affordability – The first property should be purchased within the couple’s financial means and without overleveraging financial loans. A detailed financial plan will give clarity to how much combined cash and CPF they have and the monthly mortgage repayment they can afford.
High capital appreciation – The property should have qualities that will continue to boost capital appreciation and be able to generate good returns when it is sold after the 5-year MOP.
Suitability – The property should have qualities that are aligned to buyers goals and plans for (at least) the next 5 years. This consideration should factor in the possibility for family expansion or lifestyle changes.
Stage 2 - Young Couple Sells the BTO Flat and Upgrade to an EC or Condo
At this stage, couples are ready to sell their BTO flats after fulfilling the MOP and utilise the capital gain to upgrade to the next asset class. They will be focused on selling the BTO flat and upgrading to an EC or condo that is more spacious or enhances their lifestyle.
Like stage 1, property buyers should concentrate on finding properties with high capital appreciation. If the Property Asset Progression plan is executed effectively at this stage, buyers can look forward to making another round of capital gain from their EC or condo. This will set them in motion for the next level of upgrade where each couple can own two properties instead of one!
Case Study – Upgrade From a BTO Flat To an EC
The case study below will present a simple calculation of how buyers can upgrade from a BTO flat to an EC at this stage:
The couple mentioned in Stage 1 managed to sell their BTO flat after the MOP for $300,000 profit and they also saved $50,000 in combined CPF (Ordinary Account) while staying in the flat for 5 years. If the couple decides to upgrade to an EC priced at $900,000, the estimated calculation would look like this :
The remaining funds that are available after paying off the downpayment should be set aside as contingency funds in case the couple experience a job loss or other unforeseen events.
Property Price: $900,000
Total Cash and CPF available: $350,000
Less 25% Downpayment + Buyers Stamp Duty (BSD): $246,600
Remaining Funds: $103,400
Estimated Monthly Mortgage*: $2,500
*Estimated monthly mortgage using an online mortgage calculator.
When the couple sells this property, they will get to enjoy another round of capital gain that will finally prepare them for the next level of upgrade where they will get to own more than one property and generate recurring passive income.
Important Factors to Consider When Buying an EC or Condo at Stage 2
High capital appreciation – The property should have qualities that will continue to boost capital appreciation and be able to generate good returns when it is sold in 3 to 5 years.
Development in the estate – Select a property in an estate with foreseeable development plans and upgrades. This can come in the form of improvement in transportation, infrastructure or other forms of neighbourhood upgrades that will boost the value of the property.
Financially sustainable – Despite making a healthy profit from the first property, couples should continue to be price conscious when selecting the next property. The EC or condo should be affordable in the next 3 to 5 years and it should factor in some reserve funds in case of job loss or unforeseen circumstances.
Family planning – At this stage, many couples would already have children, be ready to have children or require to plan for their children’s education. Therefore, it is important to have a clear projection of the desired family life before committing to buying a unit. For example, if the location of the school is a pain point, buyers should factor in this concern when shortlisting the new property.
Stage 3 - Couple Sells the Condo and Proceed to Multiply Their Property Portfolio
At stage 3, couples who have adhered to the guidelines of stage 1 and 2 can finally multiple their property portfolio. The homeowners can sell the EC which they have purchased at stage 2 to make another round of capital gain and use it to fund two private properties.
Bear in mind that at this stage, the couple will own a property each instead of co-owning both of them. Such an arrangement eliminates the need to pay Additional Buyer’s Stamp Duties (ABSD)* levied on buying a second property and lessen the impact of LTV ratio.
The goal at this stage is to allocate one unit for rent and another for living in. Technically, the mortgage loan of the rented unit is paid off by the tenant, leaving the couple to only finance their live-in unit. When this stage is executed correctly, it can usually pave the way for expanding the property portfolio and multiplying more income-generating properties at later years.
*Singapore Citizens buying their second and subsequent properties are liable to pay 12% to 15% ABSD, while Singapore PRs, foreigners and entities have to pay 5% to 25%.
How to Multiply Property Portfolio?
Assuming that a couple successfully progressed from stage 2 to stage 3 and they are ready to sell their EC and begin the journey of multiplying their property portfolio to two units, these are steps that they can take:
Allocate enough funds to pay for 25% down payment and BSD of the first private condo for living in. Only one spouse should have ownership of the unit.
Allocate funds to pay for 25% down payment and BSD of the second private condo for rent. This unit will usually be smaller than the one allocated for living in but it should have qualities for generating generous rental income. Only one spouse should have ownership of the unit.
If this stage is executed correctly, the second property can generate enough rent to cover the mortgage loan and even supplement that of the first property.
From this point, the property owners can decide their next step depending on their risk appetite and financial ability. They can choose to remain status quo until the properties are fully paid, sell the unit/s when there is substantial capital gain.
Important Factors to Consider at Stage 3
Meticulous financial planning – This stage requires careful financial planning and research to derive a realistic action plan that is based on the couple’s income and goals. Because this stage requires meticulous calculation and transactions that can make or break the desired outcome, buyers should always seek the help of professional agents who are experienced in Property Asset Progression for assistance.
Increased financial commitment – Ownership of two properties naturally points to a higher financial commitment, this is why careful financial planning is essential at this stage. While this is not the time to throw in the towel out of fear, it is also not advisable to over-commit.
Stage 4 - Retired Couple with Wealth Generating Property Portfolio
When property owners enter this stage, they are most likely to own a portfolio of wealth-generating properties. Alternatively, they would have made choices earlier to put them in a financially favourable position.
Here are some possible scenarios for property owners who have reached this stage:
Owned one or two fully paid private properties that will continue to generate rental income or enjoy capital appreciation.
Sell off a lucrative property unit and use the sales proceeds to enjoy the lifestyle of their choice.
Sell off the property units and downgrade to a simpler unit while enjoying the financial freedom with the sales proceeds.
Rent out all the units for recurring income while travelling the world or have an option to live in another country of their choice.
These are surely top choices for anyone who has reached the age of retirement! If property buyers can keep an open mind about the Property Asset Progression and take time to plan and strategise their property moves, there is certainly a lot to be gained.
Are You Ready for Property Asset Progression?
Property Asset Progression is another way of building wealth but unlike trading stocks or playing a game of chance, it requires careful research, planning and years of strategising.
Is it worth the trouble? The beauty is in the eye of the beholder. If regaining financial freedom and having comfortable retirement funds excite you, the Progression strategy could be an option that not only offers the lifestyle of your choice but also rewards your loved ones in the years to come.
A word of caution: Property Asset Progression requires meticulous planning and financial commitment. If the different stages and strategies are too overwhelming for you, we are ready to offer professional guidance and share market experience to help clarify your doubts.
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