REC weekly #0120: Is it the right time to buy investment properties in Singapore?

In continuation for the previous article “what en-bloc owners must know about the property market”, this is the final part of the en-bloc mini-series – “Prudent Strategies for Asset Growth”.

In this final part, I will share 3 common strategies that en-bloc owners will likely be considering and provide my views in a series of 3 articles.

When enbloc owners receive their sales proceeds (or anyone striking a windfall from the stock market or lottery), it will be tempting to spend money quickly. This psychology is common, but is not a good idea. Some en-bloc owners will consider buying 2 properties – one as a replacement home, another for investment.

Case study 3A – Buying multiple Singapore Properties

A few of my clients told me that they want to buy 2-3 properties in Singapore when they get their en-bloc proceeds, what investment properties in Singapore should they buy?

The short answer is – this is not the time to buy investment properties in Singapore (unless it is a very good deal).

The usual me – being data and finance oriented, was tempted to take out my laptop and go through with them financial calculations and the numbers. However, instead of going to such details, I explained about where we are in the property cycle. I hope that this explanation will be informational for everyone. If you still are wondering about the financial numbers after reading this article, feel free to discuss with me further.

Where we are in the property cycle?

After being a real estate and stocks investor for about a decade now, reading countless books by Ray Dalio, Howard Marks, Warren Buffet, etc, and speaking to already seasoned investors, something that they all agree on is that they cannot predict the market, but they sure do need to know where we are in the market cycle. I too cannot predict the market, but understanding where we are in the market will give us an idea what to do.

Here are some facts about the market now:

1. Some property agents and even property buyers are saying – it’s time to buy because as Warren buffet says, be greedy when others are fearful. Perhaps this is being misused. There is less people buying now due to the cooling measures and people also worried that asset prices are overvalued. There is no blood on the streets, those words are best said in 2007/2008. Not now.

2. Investors are afraid that future generation cannot afford housing and fear of missing out (FOMO), they think prices will continue to go up indefinitely. I think that asset prices are inflated and the government won’t cause the prices drop, the global economic crisis will. When people think prices will continue to go up indefinitely, I start to worry.

3. Many property buyers today forgot about the financial crisis that happened. Perhaps they did not experience it first hand, or believe a crisis won’t happen again. I quote our MAS Chief, Ravi Menon’s words, he says that the risk of financial crisis is present, it is like energy, it is just converted from one form to another. In short, the next crisis is likely to happen, it just looks different from the previous one.

The above 3 points lead me to think that the psychology of investors are driven by optimism, trust in the future and less worried about risks. We are probably almost at the end of the property cycle.

Based on the above information and the property market outlook written in the previous article, buying an investment property in Singapore may not be a good idea. If you have not read my previous article, here is the summary.

We are currently in an investment climate of rising interest rates, stagnant rents and oversupply due to huge en-bloc redevelopment units coming onto the market.

With risk free investments (Fix Deposit rates closing on 2%) and gross rental yields at close to 2% and slow capital appreciation coupled with global trade tensions, it is prudent to hold more liquid assets. Some may remember, not too long ago, when the property markets were not overheated, some studio or 2 bedroom units had 5% gross rental yields. Today, the average yield is at 2.5-3%. Prudent investors will look at rental yields and decide how much they should pay for the units. After all, no investor wants to hold on to an asset with low returns. For rental yields to rise, 1 of 2 things must happen. Rents must rise or asset prices must go down.

Rental market outlook

Rents are unlikely to see any sustained rise due to vacancy rate of 7% here. There just isn’t as many expats here today compared to the good times in 2010-2013. In a recent catch up with a client at Club Street, a restaurant manager came to have a chat with us and he mentioned that the crowd at Club Street has shrunk. Many of the frequent Caucasian expats who like to hang out there seem to have gone back. My first reaction was, perhaps these expats could be hanging out somewhere else. However, on second thought, perhaps this is indeed a sign that we have lesser expats here due to the tight immigration policies by the government. Even if the government attracts more talents to work here, the economy will have to remain healthy and we are facing competition with other tech hubs in Asia. Given the above assumptions and information, I believe that rents will remain depressed for the next few years.

Property price outlook

Property prices currently as what Minister Wong (Minister for MND) mentioned in a recent redas meeting, “we are already seeing significant headwinds in the external environment, with trade, with global economy slowing down, with interest rates likely to go up. On TOP of that, within our domestic market, more supply is coming on stream”. His words sums up the question on where are are in the economic and property cycle. It will not be wise to think that property prices will only go up.

If rents are unlikely to go up, then for investments to be attractive, asset prices have to go down. The question now is – how low will asset prices drop in a financial crisis?

REC Views

Buying multiple properties in Singapore for investment with en-bloc proceeds is not recommended. Due to oversupply of residential properties in Singapore, rising interest rates and global economy slowdown.

Case study #2: The story of Forest vs Water

If you think that properties bought in the same time period will have similar returns, this case study will change your perception.

In 2014, I was referred to a property owner who unfortunately due to a business failure, had to sell off his property at Foresque Residences which was initially for own stay.

Image 1: Foresque Residences location / Source: Streetdirectory

Image 2: Foresque Residences details / Source: Squarefoot

When I first met Mr Tam (not his real name for privacy purpose), we went through the likely price he could sell, and we eventually worked out his breakeven price taking into account

Purchase price: S$1,207,000 (1,130 sqft)

1. The stamp duty he paid for purchase: 3% – $5400

2. The seller stamp duty (SSD) of 4% which he would have to pay

3. My broker service fee of 2% + GST for selling the unit

4. Legal fees and early cancellation fee for his mortgage (Property was just TOP, and CSC not obtained)

Adding up (1) to (4), the amount was about S$100k OR 8% higher than his initial purchase price. He had to sell the unit for S$100k above purchase price in order to breakeven, and to get back his initial capital paid for the down payment.

This seemed like an impossible task at that point in time, because there were still unsold developer units, and to make matters worst, there was going to be more new launches nearby Foresque Residences coming up and strong cooling measures by government.

As Mr Tam was really in a hurry to sell off the unit, we agreed that we will call it a ‘fire sale’ at that time to attract maximum exposure. Do note that the actual unit could not be seen yet as keys were not collected. Below is one of the old marketing pitch sent to agent cobroke groups.

Image 3: Mass send to cobroke groups

After 2 months, we were still not able to secure a buyer for the unit. At this point, Mr Tam and I had a chat about why he bought the unit at Foresque Residences. He told me that he liked that the development was near nature, and he found that the development being about 16-20mins away from MRT by foot acceptable. He also added that he was also considering Waterfront Keys/Gold at Bedok Reservoir when he was planning to buy the unit in 2011.

At that juncture, I told him “If you had bought the waterfront collection at that time, it will be easier to sell, more demand and the Bedok reservoir MRT was announced”.

Image 4: Profitable transactions Waterfront Gold / Source: Squarefoot

When I told him that a unit at Waterfront Gold would be a easier sell, he went on to say that he did prefer Bedok reservoir area, but the agent he bought the unit from manage to convince him that Foresque Residences was a better buy. Now buying a unit is entirely a property buyer’s call. An agent can only provide you their insights, and I am not suggesting that the agent gave the wrong advise. What this case study tells us based on the information available is, properties bought at the SAME time period can and will perform differently. Hence, property selection is critical.

Eventually, I sold the unit at Foresque Residences and Mr Tam managed to achieve breakeven price. However, if he had bought a property like Waterfront Gold (see Image 5 below for the location) which had better capital appreciation, the additional profits could have helped him in his situation with more profits to reduce his debts, his property also could have been sold quicker, reducing any emotional stress faced.

Image 5: Waterfront Gold location / Source: Streetdirectory

Let us now look at both Foresque Residence and Waterfront Gold performance over the years. Both properties obtained TOP in 2014.

Historical Transacted Prices – Foresque Residences

Source: Squarefoot

Historical Transacted Prices – Waterfront Gold

Source: Squarefoot

Analysing both Foresque Residence historical price trend, it has been rather stagnant overall, while price trend for Waterfront Gold had gradually increased until 2015. Both trended downwards after that to where we are now in 2018. During the period of 2011-2014, both properties performed differently with Foresque Residence being rather stagnant and Waterfront Gold prices were rising.

When we buy a property, it is common to buy what we like, or sometimes get swayed to buying something else. If we buy what we like, we need to consider if the majority of buyers will think the same, else this will be an issue later on when re-selling the unit.

Foresque Residences (surrounded by Forest) and Waterfront Gold (surrounded by Water) can be great Properties to stay, however when one considers potential profits, being near amenities (MRT, eateries, etc) which usually attract more demand is an important consideration. However, it is also critical NOT to overpay for amenities. I will share more about this in a separate article.

You may not know if an unforeseen event that requires you to sell off your property will happen, but if you take care of your property decisions and selections, i believe you should be safe.

Case study #1: 8 years NO profit??

You probably would have heard or believe that buying a Singapore property is a sure win, as long as you can hold, you will make money.

Unfortunately, this is not true for owners of Vivace, an apartment located in Robertson Quay vicinity.

Here are some info about Vivace.

Source: Squarefoot

In short, it is 999 year leasehold (As good as freehold) development in District 9. The owner, whom is currently a landlord I am representing, bought the unit in 2010 through another agent then.

In 2010, she bought the 441sqft, 1-bedroom unit for S$900k (inclusive of stamp and legal fees) as an investment.

8.5 years later, in October 2018, her unit is valued at the same price she bought. You can refer to the price chart extracted below.

The property has severely under performed the markets as many investors who bought properties in the same time period (2010) actually made huge profits.

If we were to analyse this property investment at Vivace, although the price remained stagnant from 2010 until now, the effects of inflation actually caused her a net loss as her property did not appreciate with inflation.

The weak rental market does not help increase her investment returns either. All in all, the opportunity cost of holding this investment property is massive!

In my opinion, I would attribute this stagnant property investment to entering at the wrong price and investors are not willing to pay a much higher price for resale units there due to Low rental returns, leading to lower demand and transactions.

In conclusion, not all properties perform in the same way. Property investors should not assume that their properties will definitely appreciate and see capital gain with time. Unless you wish to hold your property without seeing profits for a decade, do your due diligence and choose your property investments wisely.

REC weekly #0119: What every en-bloc owner MUST know about the property market

Delivering the continuation to a previous post “en-bloc owners will make the worst decision of their life…” this is Part II, continuation of the mini-series.

In order to curate the best option for property owners and buyers, we first need to understand the current property market cycle.

The environmental factors of the Singapore Property Market 

The Singapore Government apparent intention is to have rising property prices with income growth (2-3%), if any at all. This needs to be inline with inflation to allow housing to be affordable. This would mean that it is against policy for high property price appreciation. Coupled into an environment of rising interest rates, this is a consequential double whammy for Singapore property investors in a low yield environment.

It is often noted that buyers and investors purchase Singapore properties for capital gains, and lesser intent for rental yield. Now that capital gains are being squeezed, in light of the cooling measures. The current environment is much less conducive for property investment. Furthermore, there are events that could be waiting for us in 2-3 years time, namely, the next global economic downturn or crisis.   

Many industry stakeholders say that we are in a new up-cycle currently and the government had pulled the brakes. In my opinion, we are still in the up-cycle which started in 2009-2010 after the subprime crisis. However, we are also likely heading towards the end of the cycle. The 15-month decline in residential property prices was not a down cycle per se, but was more likely an anomalous correction caused by the implementation of cooling measures. The property market indicators and internals show that we are heading towards the end of the property up-cycle. We may be 6-12 months away from the start of the ACTUAL slowdown or slump.   

What does Singapore need to spur a growing property market?  

A. Rental Market

For the Singapore rental market to improve, a few things must happen:

  1. Expats will need better expat packages. Due to slowdown in economy, many expats have lower housing budgets and this has affected the rental market.
  2. We will need more expats to come in, so that demand for rental units can go up and vacancy rates can go down. My personal opinion is the government will allow talents we need (data science, blockchain, AI, cyber security, etc) but it will take time to attract these talents because Singapore is not the only country and also it will take time for foreigners to flow in.
  3. Increase in rental demand from en-bloc owners who will rent a home temporarily before purchasing their new home or while waiting for their new home to be ready. This is however only a short term increase in rental demand and is unlikely to be sustainable.

B. Property Price

For property prices to improve, these things need to happen:

  1. There must be an increase in overall investor demand. This means cooling measures have to be relaxed for both foreign and local demand.
  2. Foreigners need to start buying more units. In 2010, foreigners bought up many properties here causing prices to spike. Today, Indonesian buyers have slowed down due to the tax amnesty introduced. China buyers find it difficult to bring money out of the country due to capital controls, which is their government’s way of controlling their exchange rates. These challenges, coupled with cooling measures hinder the foreigners from buying Singapore properties. Chinese and Indonesians are the top foreign buyers for Singapore properties, the slow down in their purchases affect property price appreciation especially in the luxury segment. With both the ‘gates’ of Singapore and the foreign countries closed, the days of foreigners flooding in are over, at least for now.
  3. Local demand also needs to increase. With an aging population in Singapore, purchase decisions may change, when most property owners 10-20 years ago were young, property owners then can be more aggressive. The situation now is different as most property investors are at or close to their retirement age. The younger population, may not be as bullish on property investment. There are many other investment vehicles with the rise of robo-advisors, carefully selected overseas properties and cryptocurrencies. Real estate as an asset class, is just one of the many options. Especially when many think that real estate is a hedge against inflation, only to see their properties appreciate slower than inflation after expenses.

Where are we in property cycle? 

image 1 - private residential property index

Source: URA, REC Research

The property price index chart from 2009 to present can be read in two different ways. In 2017 during the strong en-bloc wave, there were talks that we are entering a brand new uptrend cycle and are turning around from a downtrend. This refers to the black arrows of 1->2->3 on the chart (Uptrend 2009 to 2013, Downtrend 2013 to 2016, New Uptrend 2016 to present). My personal view is that we have been in the same cycle which started in 2009, as seen with the red arrow. We are still in the same cooling cycle that started in 2009 and the 2013 to 2016 was a mere correction.

This is important because reading the cycles correctly will lead to different outcomes and projections. The property uptrend started in 2009 after the sub-prime crisis and next year 2019 will be the 10th year. This would be a good time to review where we are in the property cycle and be well positioned for what is ahead.

My view is that we are at or moving towards the end of current property up cycle. Let us look at a few critical facts about the property market (some of which I have mentioned in my previous article that was very well received – “5 facts you must know before your next property investment”)

Currently, we see that there is

  1. Real oversupply issues that will be present from 2021-2023, it is similar to facing a resistance block in a stock uptrend.
  2. There are affordability issues faced by the middle class to buy a private condominium.
  3. What is most critical and can directly affect demand supply balance is government policies, the cooling measures. The cooling measures that were implemented on 5th July 2018 were the strongest. Some analysts said the cooling measures were like using a butcher knife to kill a chicken. It is important to identify what the government wants to achieve from the cooling measures, too much cooling measures and property prices decline which will cause property owners to be unhappy. No cooling measures could mean runaway prices that will likely cause properties to be unaffordable for many Singaporeans.

After the introduction of the latest cooling measures, the government said that they want property prices to rise in line with income growth. The cooling measures were strongly directed at property developers more than property buyers as it is the developers that caused higher prices (from en-bloc sites) and higher GLS bids. Lets take a look at how this works.

image 2- illustration of aftereffect of en-bloc

Source: URA, The Business Times, REC Research

Take the popular Amber Park en-bloc in Oct 2017 for example. In a The Business Times article, an analyst noted that the redeveloped Amber Park would have a selling price of $2600 to $2700psf. Before the en-bloc was successful new launches such as Amber Skye and Marine Blue were selling at $2000psf price point (New Amber Park will sell at 30% premium). Nearby, The Esta and One Amber had units selling for an average of $1400psf before the en-bloc of Amber Park, months after, similar units were transacting at $1800psf (a 30% increase in price). These units at One Amber are still almost $900psf from the future selling price of Amber Park. Assuming we discount this amount, due to cooling measures, Amber Park may have a sale price psf of $2500psf ($700psf higher from One Amber $1800psf). This reflects a 38% price gap between the old and new. For average prices to move closer towards Amber Park’s new prices, assuming property prices follow income growth rates of 2% p.a, it would take almost 20 years (simple compound) for average prices to reach $2500psf.

I strongly believe that the government introduced the recent strong cooling measures in attempt to prevent further price increase that is attributed to developers redeveloping the sites. After all, imagine that developers will be making their usual double-digit profit margin that consumers will be paying for.

The latest cooling measures have also signaled that the current en-bloc cycle is approaching the end. We could see a few more good value sites en-bloc. After which the en-bloc wave should be cooled down. This is also a preventive measure from the government to cool the en-bloc market which will cause a massive supply increase as for every one unit en-bloc, about 3-4 more units are re-created.

What should you consider to do?

At this point, the upside potential of property investment is small compared to the potential downside. Property owners should consider reducing risk, repositioning to liquid financial assets and more importantly, avoiding being over leveraged.

Buying in the wrong part of the cycle could mean that you will need to wait for 8-14 years for your property to breakeven. This would mean a huge opportunity cost. If an investor breaks even in 8-14 years, you lose yearly inflation rate and potential gains. This is a MASSIVE loss. Risks can be reduced if an investor chooses the right property particularly when buying in the latter of the cycle. Of course, there are also homebuyers who do claim that they do not mind sitting on a loss making property, this is the mentality and preference of the minority of homebuyers. It is noteworthy to know that there are opportunistic plays in any part of the cycle, accentuating that property selection is the most important aspect of property investment.

In Part III of this mini-series, we will discuss what you can actually do to actively manage your and maximize financial portfolio that will be boosted by en-bloc proceeds. Stay tuned!

As always, please read my disclaimer here.

Asian, Emerging Markets and Singapore get burnt

The MadScientist’s Journal

This is dedicated to the four markets that have been beaten and burnt, all of which hit their downside targets this past week. So what would be in store for these markets, more downside risks and pain, or an opportunistic technical rebound from extreme oversold conditions? Let us see…

FXI, the China ETF, had been very volatile in recent months and having failed the weekly 55EMA, it struggled to sustain the breakdown out of a range. Alas, this week, it was battered into a previously marked downside target zone, and is likely to reach the next downside target, another -5% lower.

The Nifty50 ETF, INDY, has had a terrible four weeks of late, and resting just above a support (formed by a previous Gap & Run). Slightly oversold, if the support can hold, it would be a possible consolidation for INDY. Else, a breakdown of the support line would see…

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REC weekly #0118: En-bloc owners will make the Worst Decision of their lifes…

title image

Firstly, to all en-bloc owners whose apartment(s) had completed the en-bloc process before the latest 5th July cooling measures,

Congratulations!!

They struck a windfall that many envy, before the en-bloc market slowed down (or “crashed”).

There are currently more than 5000 en-bloc owners, and they will be making the worst decision of their lives… IF

  1. THEY DO NOT EXERCISE FINANCIAL PRUDENCE

financial health image

 

 

 

 

Getting en-bloc is like striking the lottery (think TOTO or 4D) or hitting a multi-bagger stock investment. Often, en-bloc owners get about double for their unit compared to what they could get if they sold on the open market. For example, Florence Regency was selling for around $900k in 2017 before the successful en-bloc and each owner received about $1.8mil. That’s a good 100% extra profit. With that much cash on hand, there is a possibility to over-commit on their next housing plan. 

‘Easy come easy go’ as people say, happens. I’m sure you have heard about people selling 2 condos to buy that dream Semi-detached house, only to sell it 5 years later due to having a serious health issue or due to loss of jobs during a financial crisis. This was exactly what happened to one of my client’s family during the 2003 SARS period. Exercising financial prudence and not being over leveraged can help prevent such events from happening to you. 

En-bloc owners who decide to buy a property that cost much more than the money they received will be faced with risk from over leveraging. Often, parents also buy properties for their children with the proceeds from the en-bloc. It is crucial to exercise financial prudence in those purchases as the debt obligation, if any, would rest on their children who are most likely young adults between 24-30 years old.

We will be reviewing a real case study that happened in after the Gigantic 2007 en-bloc wave in another article. Stay tuned for that. 

  1. THEY DO NOT SELECT THE RIGHT PROPERTY

ppty selection image

Selecting the right property is a whole topic by itself, and particularly a topic that I am passionate about and do research on a daily basis. Property investment today is a different ball game from the past, where you could close yours eyes, buy a property and probably make a fortune later (remember that $300k freehold landed). We need to understand that those days are over. If you want your property to at least appreciate with 2.5% inflation, property selection is more than just buying beside amenities like a MRT station,etc.

Mr Tam, a seller I served in 2013 whom needed to sell off his condo urgently, asked me why his brand new condo, Foresque Residences did not see capital gains while his friend who bought a unit at Waterfront Waves during the same period saw their property appreciate by more than 15%. This proves that 2 properties bought at the same time in different location can have totally different outcomes. Buying a property that performs badly can be detrimental to a property owner if there is a need to urgently sell off the unit.

As most en-bloc owners today are at or near retirement age, the “last” home they buy will be VERY important. At this stage in life, the search for an investment grade home diminishes, en-bloc owners will want a house that they love and comfortably retire in. Unless these en-bloc owners do not intend to pass the property down to the next generation, then, the investment value of the property will not be a priority. The key factor to keep in mind is, when selecting a property, one needs to consider who will be the buyers buying their unit when they need to sell the property years or decades later because what you like may not be what someone else likes. If you purchased a property that may have low demand in the future, you or your children will find it either difficult to sell off your property or the property will not see much price appreciation (if any). This consideration is very often overlooked by both buyers, as well as their advising realtors.

Over the last 18 months, I have met and advised more than 30 property buyers at their retirement age. Out of these property buyers, majority said they wished that their property still would appreciate in value over the long term so that they can pass on a valuable property to their children. Therefore, depending on one’s property purchase goals, property selection is critical.

  1. THEY RUSH TO BUY THEIR REPLACEMENT HOME

hurry image

The above two points are related to this. Often, armed with suitcases of cash (sales proceeds) en-bloc owners are eager to look for a replacement property because en-bloc owners usually need to move out of their home within 3-6 months notice. They may not be patient enough while looking for a good house, and sometimes succumb to time pressure if they are not able to find that dream house. In 2019, there will be a tsunami of new launches from both Government land sales (GLS) and En-bloc redevelopment.

I have heard and personally know some elderly who bought houses in a rush only to regret 6 months later. In today’s market, a property is almost illiquid in the first few years due to Sellers’ stamp duty payable, therefore it is extremely important to take time to make a informed decision especially if this is going to be one’s final home (I assume that many en-bloc owners in this wave are retirees).

OUR VIEWS

The largest en-bloc wave from 2005-2007 made many property owners wealthy and some not so wealthy. What en-bloc owners do with their proceeds from the en-bloc sale is crucial in determining their future wealth and retirement lifestyles.

Even before I became a broker, I am happy to have been able to assist my family, relatives and even family friends with re-investment suggestions that tremendously benefited them after they received their en-bloc sales proceeds. They bought a good property, diversified their wealth and are today living a comfortable lifestyle. Everyone is different, but if you want to retiree happily, live in a good property that you look forward to go back to after every long holiday, your children and your grand children look forward to gather at every weekend, then taking care of your financial health after an en-bloc is very important. When your financial health takes care of itself, you can focus on your physical health and spending quality time with your loved ones, because we all know – life is short.

Don’t allow yourself or people you care that had their property en-bloc make the worst decision of their life! Share this article with them so that more people are aware. As long as one person benefitted from this article, this article has reached its objective.

Once a development gets en-bloc, there will be people who come by with ideas for property, insurance, investments, etc, all targeting en-bloc owners. Instead of getting swept off with their promises, it is crucial to take time to reconsider and seek third party opinions, and do an overall financial health check and risk scenario assessment. Then revisit these proposals and see if these are suitable.

I hope that Part I of this en-bloc mini-series is informational for you. If you like to find out what you can do with your en-bloc sales proceeds whether or not you already have a house to stay, or have other investments, stay tuned for PART II of the mini-series about “What every en-bloc owner MUST know about the property market”. Click here to read!

 

 

The #1 most overlooked benefit of owning a private property in Singapore.

In a recently report by Credit Suisse, titled “HDB flats to be less attractive as buyers look for better store of value“, it was mentioned that home buyers will turn to private residential properties for store value. This has been a topic of discussion with numerous clients lately, in my opinion, this fact is debatable due to objectives of buying the property.

Over the last decade, I have always advocate my friends and clients that if they can afford to buy a private residential property (property selection is also critical), they should seriously consider. Many home buyers may overlook the benefits of having the ability to get a equity loan.

Let’s say you bought a HDB flat at Bidadari for $500,000 and after staying for 10 years, the flat is now valued at $700,000. Simply put (not including interest & transaction fees) you would have profit $200,000. And unexpectedly you need a large sum of money. Assuming this $200,000 would help, you will need to sell your flat in order to cash out your profits as banks currently do not give equity loans for HDB flats.

Image source: HDB

If you had bought a private residential property at Potong Pasir for $1,100,000 and after staying for 10 years, the flat value is now valued at $1,300,000. Similar to the HDB example, you have a $200,000 profit. As you own a private condo, you have the ability to cash out that profit (subject to bank approval). Assuming the bank approve your equity loan, you would have cash out ~$150,000 for your emergency use.

Image source: UOL-The Tre Ver

Now I am not saying that you must or will take an equity loan, my opinion is that having this flexibility and option may give you a lifeline. The best case scenario is setting aside your own emergency fund that is large enough.

In a recent article on The Business Times titled “Cash strapped Americans leverage their homes to pay bills“, it is mentioned that 24 million Americans had borrowed against their homes (equity loan) in order to repay their bills, send their kids to good universities and even for home improvement. In a country like Singapore where property is our largest asset, it is important to know our options when choosing to buy a home. The ability to take an equity loan depends on several factors like your earning power and price appreciation of your property.

In the next series of articles, I will be sharing how you can improve the chance of buying a property that will see price appreciation. Stay tuned! If you would like to find out more about equity loan you can read more here.

Disclaimer: As always please read the disclaimer provided in this blog.