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Should I sell my home and downsize or downgrade?

Tuesday, June 12, 2018

This is a reply to Ruby, a long time reader of ASSI, but it turned out to be quite lengthy.

So, I decided to publish it as a proper blog instead.

Ruby's comment and questions:

My reply:

Hi Ruby,

Of course, the property agent would want you to sell your home and buy a new one (probably from him too). ;p

Ask do you need to sell or do you want to sell your home?

Your home is a freehold property and does not suffer from lease decay.

This is a fact.

Aging freehold property?

I don't understand why is that an issue.

From the perspective of your home holding its value over time, what's wrong with that?

Now, if you need more money for retirement and if selling your home is the only way to achieve this, then, you have to do it.

Then, you can choose to either downsize (rightsize) or downgrade.

You could get another freehold private apartment but one with a smaller footprint if you care about your home holding its value and often people care about this because they want to leave their home as a legacy for their future generations.

I think a one bedroom 500 sq ft apartment should be good enough for a married couple if the space is used efficiently.

If you need the same amount of space as your current home, if you want to stay in Singapore, then, downgrading to a public (HDB) flat is the only way to go and, with the current rules, resale flats are your only option.

As retirees, I guess you don't have to be located in mature HDB estates.

It is a fact that flats in non-mature HDB estates would cost less and this option would leave more money in your pocket.

Also, as seniors, if this is the route you choose, you don't have to be so particular about shorter remaining leases of resale HDB flats as long as the price is right because HDB flats are for staying in and not meant to be a store of value for legacy planning.

You might also want to read the related post at the end of this blog which is about another reader who was thinking of downsizing.

Wishing you good health and good luck!

Related post:
Downsizing our home for better?


AK71 said...

Raymond Ng says...

He has intention to cash-out his FH property for retirement (the agent comment is just a trigger?).

May be he should work out the "Cash out" amount before opting for replacement home.

For example if the net 'cash out' is $1M, and he would like to have $500K for retirement, then use the balance $500K for purchase his replacement home.

AK71 said...

Jackson Yang says...
Another option: lease out their current apartment and rent a smaller hdb one? I believed net net wise should be enough to give them extra cash?

Alternative may be they could check with cpf if they could get some money from their current house (if last time bought with cpf) for their retirement fund in cpf?

AK says...
I don't know if the idea of renting out and renting another is appealing to them but it wouldn't be very appealing to me in my golden years. Too much work lah. I lazy.

As for CPF, the only way is opting for BRS so that they can have more money withdrawn from their CPF accounts but if they wish to take back all their CPF money used in the purchase of their home minus the FRS, the only way is to sell.

blazingruby60 said...

hi AK
Thank you for your swift respond. I have rented out my apt out to tenants for a few years and the condition of the apt was just sad when it was return to me after tenancy is finished so this passive income method doesnt work for me.
It has always been in my plan to sell my freehold property for a stress free retirement. issue is what happens if I dont want to buy a resale hdb at all? Does it make sense for me to buy a lease decaying resale hdb ? what are the choices out there for me?
Your suggestion of leaving a legacy for my children. My mum left me her 3 bedroom resale hdb flat which has 52 years left. It is in an estate where it is not well kept. I put her unit up for sale at an amount well below valuation price in the resale hdb market and no one responded for the longest time.
it gives me shivers to think i have to get a resale hdb flat .. I am more inclined towards silver lodging by hdb .. stay there for say 50 years and return to hdb to be leased out again. dont you think?

Yan said...

It actually makes a lot of sense to downgrade to a HDB flat in your retirement years. For a start, we will actually need more healthcare services in our silver years, and if you remain in a private apartment or landed property, you will not be entitled to the subsidies provided for by our government. You will have to cater for your medical needs with your medisave, or your retirement stash, all of which will not last very long if you are a private patient.

Secondly, as your apartment ages, it will require more fixes and repairs. Having stayed at a private development before, I know that workmen generally charges more for work done at a condo than a HDB apartment.

Besides having reduced or no income in your silver years, you will have to pay a lot more towards the development's Maintenance and Sinking Fund. Maintenance fees for HDB is a fraction of what you will pay if you stayed at a private establishment. Sometimes, the government chips in and helps to pay a month of your maintenance fees too.

However, I feel that renting out the apartment is not a good idea as you will still have to be responsible for fixes and repairs. One will have to sit down, realistically decide what accommodation type you want, and do your calculations to see if it makes sense to move.

There are many benefits and advantages of staying at an HDB apartment. (near market, near amenities, near mrt station, etc) but ultimately the decision rests on the individual. It is important to know what you want.

AK71 said...

Hi Ruby,

I thought of the new HDB flat option for seniors but I am not sure that it is immediately available to those who own private properties unless they sell and wait for 2.5 years. Have you checked with HDB?

Personally, I think a newish resale HDB flat (i.e. a bit more than 5 years old) in a non-mature estate is a pretty good idea.

Of course, do what you feel comfortable doing as long as it meets your objectives. :)

AK71 said...

Hi Yan,

Those are all very good points.

Thank you the time and effort to share with us. :)

AK71 said...

PK Jan says...

may consider to apply for the 2-room HDB short-leased flat which cost much less. It is under a separate scheme and people with private property may also apply. They will need to dispose of their private property after collecting the keys to the HDB flat.

apex property investment said...

I'm afraid you don't qualify for BTO flats as there is a 60 months wait out time from the time you cash out your private property. You could of course appeal.

Community vs money, this is something you need to consider. The neighbourhood's support for old folks are important. In the next 3-10 years, I suppose property price is going to be stagnant and rental will continue its freefall. Of course, I'm crystal balling a bit, depending on policy implementation.

Don't need to buy cheap.

oh, do not be tempted to use your Class A benefits with or without insurance. It would escalate your cost upwards.

Get a older flat, in a well located neighbourhood with lots of amenities, leach on Govt support Gao Gao. You will do well.

AK71 said...

Hi Apex,

Is the waiting time 60 months (5 years) now?

When I checked just a few years ago, it was 2.5 years.

I also feel that Singapore property prices would likely be moving sideways for years to come and private properties are more a store of value than good investments for income. Definitely only for those with deep pockets.

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