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Thinking of moving out of the family home?

Saturday, June 10, 2017

Dear AK,

As we know, Singapore citizens can buy a HDB if they are married. If they remain Single, they can get a flat at 35 years old.

Each citizen cannot own more than one HDB at any point in time

My father passed away some years ago, and I co-inherited the HDB with my mum. Hence, I am the half owner of my parent's HDB apartment.

I do not get along well with my mother, and I wish to move out as soon as possible. However, as I am already an owner of parent's HDB apartment, I will not be able to get my own HDB apartment even if I get married, or pass 35 years of age.

This means I have only the following options:
1) Rent forever (or until my mum passes on, and I inherit the entire flat)
2) Buy a private property, with no subsidies

The Dilemma:
I am able to afford both options with ease, but the dilemma I have is I'm not sure which option is the most prudent.

Asian culture tend to favor home ownership, so I feel compelled to select option 1), to buy a private property. However, this option would mean most of my net worth will be locked up in a property, and my CPF account will be exhausted.

If I chose option 2), and rented, then my net worth will be liquid. This allows more opportunities for investments or whatever other endeavors; after all, cash is king.

When my mother passes on, I will inherit the entire HDB from my her. Then I can terminate my tenancy and move back home.

If you were in my shoes, what would you have done? Please start talking to yourself so that I can eavesdrop hahaha.
I really appreciate your help.




Hi ,

I won't tell you what is best for you. I will just raise a few points.

1. You already have a property (i.e. HDB flat).

2. Do you want more of your wealth to be in property or would you rather have more cash to invest with when Mr. Market is feeling depressed?

3. A home is a consumption item and it does not generate income. If you are concerned with having more passive income, buying that private property would probably set you back. As long as you are staying in the property, it is not an investment.

4. If you must use your CPF money if you were to purchase a private property, remember the cost of borrowing money from yourself.

However,

5. If you able to find a good value for money private property in Singapore, buying could be a good choice.

Related posts:
1. Accrued interest.
2. Buy or rent?
3. Affordability or value for money?

4 comments:

simplyme said...

Hi AK,

As the post's on the topic of CPF OA interest lost when using it for HDB, could u help out with my thoughts on the following;

For those who're tapping on CPF to pay the monthly mortgage, am I right to say that the "real" interest rate is: i) 2.5% (interest lost from CPF OA by govt) and ii) the interest incurred on the bank loan. Meaning if one borrows $100,000 from the bank @2% interest and opts to pay the mortgage using CPF OA, the "real" interest rate is 4.5%? I know that the CPF portion is ultimately paid into our OA when the property is sold but if we consider the interest as originating from the govt then shouldn't it be considered as being being "forfeit"? Not sure if I'm double counting here...

AK71 said...

Hi simplyme,

A person in such a situation would be losing the 2.5% interest he would otherwise be getting from the CPF. On top of this, he is paying a 2% interest to the bank. In effect, the real cost is more than 2% in interest.

Spur said...

Hi simplyme,

Even when the amount is paid back into your CPF when you sell the property, you're supposed to put back the amount you took out PLUS the 2.5% interest that you would have obtained if you didn't touch your CPF OA.

This is what AK means by not forgetting that you're also actually borrowing from yourself if you use CPF OA.

So when you borrow from a bank & then use your CPF OA to pay, you're:
1. Borrowing from the bank @ whatever mortgage rate.
2. Borrowing from yourself @ 2.5%

Not so easy to earn money from property investment horrr!! Heheheh!!

In mature market like S'pore, maybe if buy only during major recessions or mortgagee auctions.

simplyme said...

Hi both,

Yup, thought so too. Thanks for confirming my suspicions :)

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