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This guy has 800K in his CPF. (AK responds to HWZ Forum.)

A reader pointed me to a thread in HWZ Forum which discussed about my CPF savings being more than $800K. He wanted to clarify certain que...

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Get a bigger apartment with a baby on the way.

Wednesday, September 7, 2016

Hi ,

Would like to get your view on this plan that my Husband was thinking of. At the moment we are staying in a 1 bedder that belong to me that was bought in 2012. The original plan was to rent out this place but ended up stayed in after our marriage. Both of us SPR.

As I am expecting , we have to make plans for the future. My hubby has not own any property in Sg and he was thinking to buy a property for rental and in a way to cash out his CPF. With the rental (estimated 1.8-2k) of the new property, he planned to use the rental to pay my current property and new property instalment and pay the rest in cash. His Budget could only afford a 600K condo. Anything more than 600K will be too heavy for him.

I do have some cash to TOP up if we want to buy a 800K condo but somehow with the current economy situation (plus I am a home maker) and foresee will remain the same for the next 2 years , I am worried and indecisive of whether we should commit purchasing another property plan. What would be your advise? Thanks.


1) Make sure you have sufficient cash put aside for emergencies. As you are a homemaker, on a single income, having enough cash to cover 12 to 24 months of expenses is a good idea.

2) You might want to put aside some cash (in your war chest) in case there are good investment opportunities in future since you feel that the economy is not doing well.

3) There is opportunity cost in using money in our CPF-OA. When the gross rental yield is less than 4%, you want to be very cautious. Your $600K condo is expected to have a gross yield 3.6% to 4%. There is a 10% property tax plus monthly maintenance fee which you have to pay. You will also be incurring borrowing costs on the bank loan. The net yield is likely to be lesser than 3%.

Of course, with vacancy rates increasing, rental is likely to drift lower. Real estate is also very illiquid and with Seller Stamp Duty (SSD) thrown in, if there is a need to liquidate, in the short run, the cost will be hefty.

4) Since you are both PRs and cannot buy BTO HDB flats and single PRs cannot buy resale HDB flat, buying a 2 bedder condo for your future bigger family is one option and with a $800K budget, a 2 bedder is well within reach. Move into the 2 bedder and rent out your one bedder or if you would like to strengthen your balance sheet, you could sell the one bedder and not worry about the SSD.

Buy what we need. :)

Best wishes,

Related posts:
CCR, RCR or OCR for rental?
2. Buy shoebox apartment in NE SG?
3. What to do if I need a bigger home?


Kevin said...

Hi AK,

Getting a bigger apartment with a baby on the way and to collect rent from the bigger apartment somehow has a wee bit of contradiction? -__- "

AK71 said...

Hi Kevin,

Er, I suggested renting out the smaller apartment (i.e. the one bedder) which they are currently staying in once they move to a larger apartment.

Actually, to lower risk, it could be a better idea to strengthen the family balance sheet by selling away the one bedder after they move into a larger apartment since they are stretching their financial resources to buy a larger apartment.

Nick said...

A single income family with a child on the way should exercise financial prudence and not over stretched themselves. Consider selling the one bedroom apartment and purchasing a HDB resale 4-room. In Punggol, a 4-room resale flat costs between $4000,000 to $450,000.

This is on the assumption that the couple have been staying in Singapore for 3 years before they can purchase a HDB resale.

The only viable way for a Permanent Resident to become eligible for BTOs and special housing grants is for one of the spouse to be a Singapore Citizen.

HDB flats come with a minimum occupancy period (MOP) of 5 years. During this time, you are not allowed to buy any new residential properties, public or private. Neither are you allowed to sell your unit.

Remember to do your sums carefully before making any decisions because the transaction costs incurred when buying and selling homes can be a lot higher than what most people think.

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