We own a 3-room HDB flat and make $23k per month: Should we buy an executive HDB unit and an investment condo or just 2 condos?

Hi Stacked Homes team!

We absolutely LOVE your content and videos and we made it a weekly thing to catch up on home tours and articles from you guys. Really love the balanced approach that your team provides to Singaporean home buyers instead of just pushing sales.

I would like to seek your advice on property planning for my family and I. 

Both of us are currently live in a three room HDB flat BTO in Clementi with an MOP of 2027 Dec. We plan to upgrade our house in terms of size so that it can accommodate our future family (one to two more additions) to a total of four/five (including potential helper) all while making sure that property is also an investment for us in the long run.

Here are some requirements for our next ownstay purchase:

• Three to four bedroom at least 1100 sqft in size
• Five to 10 mins walking distance to nearest MRT
• Mature estate with food, clinics and supermarkets
• Mid floor
• TOP not older than 1992 (due to the youngest buyer being born in 1997 and adhering to the 95 year old cap of CPF usage)
• At most 10 to 15 mins drive to Serangoon (near where my parents’ live)

Additional details on our background:

• I am currently 30 years old while my wife is 26 years old
• We bought our HDB for $337,500 with a 5 year HDB loan of $120k. Estimated selling price of HDB would be conservative at about $650k.
• CPF used and accrued (both) $50k
• My gross monthly income is $15.5k inclusive of commissions while my wife’s monthly income is $7.8k inclusive of commissions
• Current cash savings about $140k with an annual growth rate of $120k/year
• Wife may not want to work after five to eight years to be a homemaker.

We have a few options but would like to hear from you on your opinion as we are not sure on what is the best approach.

1. Wife buys five room or Executive Apartment HDB worth $1 million under Owner-Occupier. Husband able to buy a two or three bedroom condo after MOP without ABSD for investment.
2. Husband buys a three bedroom condo for own stay. Wife can buy a two bedroom condo for investment based on affordability.

Could you please let us know if our preferred option is realistic so we roughly know how much we should target to save? We are also keen on exploring other options such as 99 to one ownership and decoupling later provided it won’t break any IRAS rules. If you could shortlist a few developments as well that would be great!

Cheers!

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Hi there,

Thank you for writing in. We are grateful for your kind words and support!

It’s always good to plan ahead, as it allows you to not only determine the necessary funds but also formulate strategies for accumulating or enhancing your financial resources during this timeframe. Both your ages, coupled with a healthy combined income and your current ownership of a BTO flat, definitely places you in an advantageous position.

Before we proceed, it’s important to acknowledge that five years is a considerable amount of time when it comes to purchasing property. Many variables, including interest rates, market conditions, and the availability of properties, could change. (As you may have very well seen from the past few years of the pandemic). At this moment, all we can provide is a framework, which you may use as a basis for your decisions in the future.

Affordability

Here are some of the recent three-room transactions in Clementi for units that were completed in 2018 and have just obtained their MOP:

The average of these units comes up to $676,667, so without going through too much mental math gymnastics, let’s take the $650,000 as you have mentioned as a reasonable gauge. 

Selling (In 2027)

Description	Amount
Selling price	$650,000
Outstanding loan	$0
CPF to be refunded to OA	$164,393
Estimated cash proceeds	$485,607

*We are assuming here that the monthly mortgage repayment of $2,135 is paid fully with CPF (from now till 2027)

Before we get into the affordability, because we don’t know the split between your salary and commissions, we will just assume the full income and not apply a haircut to it. 

Husband’s affordability (In 2027)

Description	Amount
Maximum loan based on monthly income of $15.5K at age 34 with 4.6 per cent interest	$1,662,946 (30 year tenure)
CPF funds (Assuming equal split of $164,393)	$82,196.50
Cash (Assuming equal split of cash proceeds + savings of $1,105,607)	$552,803.50
Total loan + CPF + cash	$2,297,946
BSD based on $2,297,946	$84,497
Estimated affordability	$2,213,449

*This is assuming you do not have any other funds in your CPF OA besides the funds that will be refunded from the sale of the HDB

Wife’s affordability (In 2027) – Buying a private property

Description	Amount
Maximum loan based on monthly income of $7,800 at age 30 with 4.6 per cent interest	$836,837 (30 year tenure)
CPF funds (Assuming equal split of $164,393)	$82,196.50
Cash (Assuming equal split of cash proceeds + savings of $1,105,607)	$552,803.50
Total loan + CPF + cash	$1,471,837
BSD based on $1,471,837	$43,473
Estimated affordability	$1,428,364

*This is assuming your wife do not have any other funds in her CPF OA besides the funds that will be refunded from the sale of the HDB

Wife’s affordability (In 2027) – Buying an HDB (with a HDB loan)

Description	Amount
Maximum loan based on monthly income of $7,800 at age 30 with 2.6 per cent interest	$515,794 (25 year tenure)
CPF funds (Assuming equal split of $164,393)	$82,196.50
Cash (Assuming equal split of cash proceeds + savings of $1,105,607)	$552,803.50
Total loan + CPF + cash	$1,150,794
BSD based on $1,150,794	$30,631
Estimated affordability	$1,120,163

*This is assuming your wife do not have any other funds in her CPF OA besides the funds that will be refunded from the sale of the HDB

Given that you would have a substantial amount of cash in a couple of years, both your affordability can easily be adjusted by moving the cash around. 

So since we’ve established your affordability, let’s discuss the 99 to one/decoupling arrangement. This is generally done when buyers do not have sufficient individual funds to directly purchase two properties. 

Buying under the 99 to one arrangement allows them to secure a higher loan quantum with their combined incomes and use both their CPF funds, enabling them to purchase a more expensive property.

It also provides the flexibility, should they accumulate more funds in the future, to decouple with lower associated costs, as the party with the 99 per cent share will only be acquiring a one per cent share.

However, in your case, both of you have adequate funds to purchase one property each, making this step unnecessary.

Should you buy the executive flat first?

Based on your affordability, this option is definitely viable. 

If the property’s sole purpose is for personal residence, and capital appreciation isn’t a top priority, an EA would undoubtedly provide a comfortable living environment. With a budget of $1M, you could potentially secure one in a decent location.

Given the regulated nature of the HDB market (which is intended for personal residence rather than investment) it might be more prudent to assess whether the property has the potential to retain its value or depreciate at a slower rate. We’ve observed that in certain well-located HDB estates with a limited supply, older flats are capable of maintaining their prices.

Another noteworthy aspect of this option is the opportunity cost. Since you won’t be able to purchase a second property for investment until the Minimum Occupation Period (MOP) for the flat is fulfilled five years later, any potential gains that could have been realised during this five-year period will be forfeited. Additionally, your affordability may decrease, as the loan tenure will be reduced.

If you take this option, here’s what your husband’s affordability in 2032 would look like:

Description	Amount
Maximum loan based on monthly income of $15.5K at age 39 with 4.6 per cent interest	$1,549,859 (26 year tenure)
CPF funds ($82,197 plus interest earned)	$92,998
Cash	$552,804
Total loan + CPF + cash	$2,195,661
BSD based on $2,195,661	$79,383
Estimated affordability	$2,116,278

We can see here that although your affordability is reduced due to his age, the reduction is not a very substantial amount and you’d still have a healthy budget after five years. 

What should you do?

While it’s good to plan ahead, it’s also really difficult to accurately plan for what would happen in five years’ time. As you’ve seen from the past few years, the market has moved to an extent that no one would have been able to predict.

However, we think you can approach this by making decisions on certain conditions and criteria you’re looking out for.

When considering affordability, both executive HDB flats and private properties are viable options. The key question is: Why choose an Executive HDB when a private property comfortably meets your needs?

Here are a few reasons we can think of as to why you’d rather pick the HDB route first:

1. Capital appreciation isn’t important – Old executive HDBs may not offer significant capital gains due to lease decay, especially if you plan to hold it for the long term
2. Interest rates are still high – while it’s less likely that interest rates remain high in five years given its cyclical nature, we cannot deny the possibility. As such, taking on an HDB loan could be a more prudent choice now, helping you build capital for a future investment property. 
3. You’re saving up for a pricier 2nd property – Buying an executive flat first would allow you to save more to purchase a larger property later on which could be used for own stay or investment.

If interest rates become more favourable, considering two private properties might align better with your affordability and income. When it does come down to it, picking the right own-stay and investment property matters too so that both developments continue to meet your life’s goals.

ALSO READ: Will Singapore property prices drop in 2024?

This article was first published in Stackedhomes.