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.