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$1m for 30 year old HDB flat and what now?

Saturday, September 2, 2017

I wonder what you will do if you were me- can you talk to yourself?

I finally sold my maisonette for >$1mil, as it almost hit 30 years old. 

 I had paid up my HDB loan a few years ago, so have this full amount available in cash and CPF.

I have a family of 5 including 2 teenagers and a helper, so am looking for a place to buy.

Although $1mil may sound like a lot, there is hardly any property to buy if I rule out HDB options. 

 My husband and I are in our mid 40s, and our income do not qualify us for BTO nor ECs. Newer resale HDBs may not be the option due to same issue of lease decay and no certainty of SERS...

If I look in the condo space:

- newer 99-year lease condo of at least 1200 sq ft- the location will be outskirts and not within walking distance to MRT station

- older freehold/ 999-years condo of the same size- good locations walkable to MRT stations will be at least $1.8mil at the lowest...

I cannot imagine paying $2mil and above for a property- all the cash (even if I have) will be locked up in ONE property...and cannot use as war chest or emergency fund in the event of unemployment...

What will you do in my case?? I solved one problem of selling off my old HDB, but seemed to have created another one...

This is why many people say there is no point in property prices going higher if the only property they have is their home. 

They would need a replacement property and it would probably cost the same or more, especially if they are not able to get a new HDB flat (i.e. BTO) as a replacement.

If our home is an ageing HDB flat, it makes sense to consider selling it in view of the lease decay issue. 

However, the issue really becomes more of a problem when the flat has less than 60 years left to its lease. I blogged about this, if you remember. 

I feel that you might have been in too much of a hurry to sell.

For anyone selling their flat and if they need a replacement property of comparable size, they should ask if they qualify for a new HDB flat (i.e. BTO). 

My sister successfully applied for a new 5 room flat and only put up her old 4 room flat for sale after her new flat was ready, for example.

For anyone selling their flat and do not need a replacement property of comparable size, downsizing is the obvious answer. 

A reader shared her family's experience of downsizing and downsizing again, for example. They are quite happy.

Without the BTO option, like you have shared, you are probably not going to find a new similar size property nor one with a much longer remaining land lease selling at the price or lower than the price you sold your 30 year old flat for.

The only reason why I would find myself in your shoes would probably be because I want to leave the family home as a legacy to my children. 

Why sell the flat which has another 69 years left to the lease when I am already in my 40s, otherwise?

However, as I do not wish to be asset rich and cash poor (which is the impression I get when you said you cannot imagine having $2 million locked up in ONE property), I would look for the largest and newest resale HDB flat (i.e. 5 years old) $1 million (or lesser) can buy. 

It might be smaller than my old flat but it would have to do.

Related posts:
1. Downsizing our homes.
2. Problem with older flats.
3. Legacy or location?


apex property investment said...

1 mil in cash. I would buy 2 properties, if next to each other would be perfect. Let the kids stay in 1 and the older folks in the other and the helper can alternate between the 2. In time to come, the kids would inherit both the properties. Say each property is $1 mil, that would set you back about $750k, with 250k to serve the 2 loans for a few years, just off the cuff thinking, it would be 4-5k a month for mortgage repayment. (note 1 is 80% loan and the other is 50% loan) I also assume there is no issue with TDSR. The savings would last you 50 months, 4 years.

of course, the BTO option is still the very best or buying a second hand HDB property with 20% down is also good. Let the money grow in other instruments and be ready in 5 years time to support your kids.

AK71 said...

Hi apex,

The first suggestion you made is not something I would do as both properties would be consumption items. There is a strong speculative flavor here while dealing with a weaker family balance sheet. The family must decide if they can stomach the risk.

I have blogged about something similar before which would see one of the two properties becoming an income property:
Have a fully paid HDB flat and make money?

The BTO suggestion you made is something I agree with but, unfortunately, it is not available to the reader. So, getting a much newer resale HDB flat would be the most undemanding option. :)

WTK said...

Hi AK 71,

I have a solution for the reader. However, I am not sure whether she would want to take up such solution. She would have to make a sacrifice in the location (Woodlands or Yishun or even CCK) and the housing type. The resale flats (Five room flats) in these areas are much lower. I believe that $500K is the maximum price which she and her husband need to fork out.

That being said, I am not sure whether she would want to move to either of these locations. If she and her family are willing to do so, their finance would be much more secure if they makes full cash payment on the resale flat. they do not have worry about the monthly mortgage. The absence of monthly mortgage will go to great extend of being afraid of retrenchment which is very prevalent in their current age group.

My two cents worth of opinion.


AK71 said...

Hi Ben,

I love that suggestion and I have often suggested to friends and readers to consider moving to CCK where my family home is. Cheap and it has all the amenities of any mature HDB estate.

The reason why it is much cheaper is, like you probably suspect, because most people don't want to move there. They think CCK is a farming community and part of Johor. :p

My sister paid $330K for her brand new BTO 5 room flat. Where to find? CCK lor. :)

I agree that the issue of financial security becomes increasingly important as we age and if we grow to have more dependents. This is why I feel that being less speculative and having a stronger balance sheet is probably a good idea for the reader who doesn't strike me as someone who is adventurous with money anyway.

WTK said...

Hi AK 71,

Don't mind if I could add to your opinion. Frankly, I am of view that the reader and her family are in the fastastic position. Based on the information provided, I believe that the family has no debt and this is an excellent circumstance. Furthermore, they have the cash in hand. Remember the phrase of "King is Cash". There is no need for the family to rush into buying the property. Meanwhile, they could rent if they are comfortable and want to do so. Most of the people are not in favour of renting due to monthly recurring rent. I will like to emphasize that rent is not the liability and the family can opt out of such arrangement at any point of time. Usually, rent tensure is for a short period of time.


AK71 said...

Hi Ben,

The reader is pretty prudent and, I believe, conservative as well. The fear of unemployment is also mentioned in the reader's email. So, the family is probably pretty down to earth.

What they have now is definitely not a crisis. :)

laurence said...

There was a time when this idiom " Home Is Where The Heart Is" seemed perennial. Nowadays, it has warped into "Home Is Where The Money Is".

Congrats, AK. In addition to CPF, stocks and shares, looks your advise regarding property is now also highly sought after.

I won't be surprised a few years down the road, readers will be seeking your advise on space exploration. Lol.

Kevin said...

Hi AK and apex property investment,

You forgot to factor in ABSD when buying 2 units. ;)

AK71 said...

Hi Laurence,

Many Singaporean parents want to leave some wealth for their children. Since most Singaporeans have much of their wealth tied up in their homes, it is quite easy to understand that when it comes to our homes, both the heart and money are involved.

AK71 said...

Hi Kevin,

And for a $1 million second property, the stamp duty would amount to $100,000! How is that for a wet blanket? I like your wet blanket. ;)

Mike said...

Hi AK and all

I only eligible to buy resale flat as a single man above 35 yrs old. I just wonder is it worth spending $400K to $450K for a 4rm unit that is already 37 yrs old?

Not really keen with the newer units as they are either too expensive (more than $600K in Bedok) or the unit is damn small.



AK71 said...

Hi Mike,

This blog of mine should be relevant to you:
Buying properties with short remaining land leases.

It depends on what is your plan for the property. :)

WTK said...

My take is that there is no need to rush into buying the resale flat for the singles who have reached 35 or above. Take the time and consider all the factors before committing to the purchase.

I think that this decision is a major milestone and requires deliberate consideration.


AK71 said...

Wei Qiang says...

1) For those who are staying in HDBs which are approaching 40 years old, should they be considering to sell it and purchase a longer lease one, or even change it to a small (FH or 999 years LH) private property

2) How should this advice be tailored to someone as he grows old, from being fresh off graduate to retiring. Assuming a graduate buys a resale flat 10 years old, but the time he retires it will be a 50-55 year flat which may be potentially worth less than what he bought it for.

AK says...
1) For HDB dwellers who just want a place to call home till the day they die, just have a flat with a sufficient remaining lease (i.e. longer than life expectancy). If they want their home to be a store of value for the next generation, then, obviously, they should consider something different like you said.

2) Refer to my above answer. ;p

AK71 said...

Reader says...
I don't understand why you say this about VERS:

"You will most likely have to downgrade or downsize or top up to buy a new home."

En-bloc sales should make money for us, right?

AK says...
If you are referring to getting a sum of money that is more than your purchase price of the flat 70 years ago as making money, you are probably right.

However, whether you would be able to get a newer replacement property with the same attributes with the monetary compensation then is the question.

I asked readers to read the related post at the end of the blog.

If you read related post #3, you will get an idea of what I am trying to say. ;)

HDB-HIP-VERS can eat or not?

AK71 said...

Yew Ngie says...
Vers like getting picked to win 4d - and being to you win in xx years should all your neighbours accept to win together.

Sers is like striking jackpot. Lower chance and no guarantee.

Both give chance for fresh lease at your chosen location at market price. Good deal

AK says...
Except that with VERS, your "winnings" means losing your home without an equivalent replacement.

I would not think of VERS as winning 4D.

It is really an asset sale.

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