Should I sell my HDB flat to fund my condo purchase?

All of us aspire to a better life, to give our families a better life. 

This is only normal.

In Singapore, part of this aspiration to a better life for many is characterised by a desire to live in a condominium with full facilities and security.

For HDB upgraders, they might wonder if they should sell their HDB flats or hold on to them as income properties. 

The case to keep their HDB flats for rental income has been quite strong in recent years due to the buoyant rental market and the very low interest rate environment. 

It would be prudent to ask if such a scenario is going to last?

I replied to a reader who has the same question:

AK said...

You have rightly identified the two main considerations which will help you in making a decision.

1. Interest rates have been very low for many years. 

They could stay low for a while more but they cannot stay so low forever. 

The very low interest rates of the last few years are abnormal. 

When interest rates normalise in future, the logical direction they will go is up.
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2. How much we get in rental income, if any, like many things is a function of supply and demand. 

The oversupply situation in residential properties is not getting any better in Singapore and it will take years to correct (and we are assuming that they would). 

The slower growth in the foreign working population is not going to drive rental demand for residential properties like it did in recent times.

Would you be able to rent out your 4rm flat in Sengkang for $2.2K a month (if you could find a renter at all) in 2017? 

I do know it has been getting harder to find renters in recent months. 

I don't think anyone knows for sure what it is going to be like in 2017.
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In life, I like to go for low hanging fruits. 

I try not to climb trees and if I do, I try not to climb too high up into the trees. 

I go for the benefits which I know I will be able to secure with greater certainty.
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 Leverage is able to deliver benefits to investors if used correctly and if the conditions are favourable. 

The last few years saw households in Singapore leveraging more liberally because of the very low interest rates. 

Things still look OK now but a recent study showed that if interest rates were to normalise and rise by only 2%, 15% to 20% of households in Singapore could become over-leveraged.
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An over-leveraged individual uses more than 60% of his income to service his debt burden. 

So, someone could be using just under 60% of his income now to service his debt burden but when interest rates rise, which they will sooner than later, all else remaining equal, he could end up using more than 60% of his income to service his debt burden.

Reading your email, I get the feeling that your preference is to sell your HDB flat when your condo is ready in 2017 so as to avoid paying a 7% ABSD (and also end up servicing a bigger home loan). 

Well, I would say to keep your ear to the ground and see how things develop in the next two years.

If the residential real estate market worsens and if interest rates go up much more, the case for keeping your HDB flat as an income property will weaken. 






We cannot project current day rates into 2017 and think that things will not change.

Leveraging to fund prudent investments is a good idea. 

Leveraging to fund consumption is generally a bad idea. 







Interest rates have been too low for too long and many people have grown a bit too adventurous.

Best wishes,
AK

Related posts:
1. Buy that second property and pay the ABSD?
2. Should we buy a shoebox unit in NE Singapore?

Get someone qualified to fix the sorry state of our MRT.

I have said before in my blog I am not averse to companies I am invested in paying their top executives top dollar if they are worth the money. However, when it is obvious they are not worth the money, we should replace them.

I have been ranting a bit on my FB wall recently regarding SMRT after the massive breakdown a few days ago. It has gone beyond being a bit of an embarrassment and mere inconvenience. I think it is really unacceptable.

From my FB wall:

"Highest pay for SMRT CEO ever = Largest MRT breakdown ever?
What is LTA going to do? Slap SMRT with a big fine again?
Who is bearing the burden of the fines? SMRT shareholders!
Why not consider slapping the CEO with a fine?"

Enough is enough. It is time we get someone who can do the job properly to lead SMRT. It might have to be a foreign talent if no Singaporean has the knowledge or experience to do the job well.

Which is less embarrassing? Admitting that we need foreign talent or having a MRT system that keeps breaking down?

Related post:
MRT nightmare at Bugis.

SRS account, CPF account and rights issues.

I always avoid using money in my SRS or CPF accounts to buy stocks of companies which I think might need to do equity fund raising in future. 

So, no REITs or business trusts, for examples.




Here are a couple of conversations I had recently:

Reader #1...

this is the first time i'm writing, and I'm hoping you can spare a few minutes to share your knowledge and experience with me. 

i bought a counter through my CPF-IS long ago, and I have maxed out my CPF-IS. 

this counter has an on-going rights issue (190 for every 100 owned). 




i would like to sell the rights (as i don't have the "capacity" in my CPF-IS to buy the rights. 

assuming i owned 2000 shares, do i sell 2000 rights, or 3800 rights?

i tried asking my broker, but my broker doesnt seem to know the answer.

I know you have blogged about rights a number of occasions, so i figured you probably know better than most people. 

AK says...
I am not a licensed financial adviser or broker, so, take what I say with a pinch of salt. 

Disclaimer applies. ;)

First, find out if the rights are renounceable. 

If they are renounceable, then, you are allowed to sell the nil-paid rights given to you when they start trading.




If you are given 190 rights for 100 shares owned, if you owned 2,000 shares, you should be given 3,800 rights units (nil-paid) and that is what you can sell.

Oh, you might want to consider firing your broker. ;p

Reader #2...

Hope all is well.

Have been Following your blog silently for the past 5 years & invested quite a bit on reits. 

Thanks for the education.

Recently OUE Com Reit issued rights.
I bought some using SRS.

How do I subscribe to my entitled rights using my SRS?

If my SRS has no excess funds, what can I do?




AK says...
I only use my SRS money to buy stocks which I am pretty sure will not have rights issue precisely to avoid a situation like the one you have described.

If you do not have extra funds in your SRS account, then, you are caught in a difficult situation. 

You might want to call the bank your SRS account is maintained with and ask them for advice.




As an aside, in case there are people who are wondering why AK is not blogging as much as before, this is another recent conversation:

I need to learn how to break and blog. :)

Related post:
High yielding business trusts: A discussion.

A second chance to create your own Dividend Machines.

I received this message last month from a reader who is very interested in learning more about investing for income:

"... dividendmachine is no longer accepting members. Aiayh!!!! Your advertorial too good already lar, every time sell out. The dividendmachine is mostly modules that are done at the member's own time. Can ask them if possible to open just the module part if they are too busy to organize life classes as well as the weekly discussion? Merci!!!"

No longer accepting members?

OMG!

How come like that?

Well, there is good news for the reader and others out there who missed "Dividend Machines" the first time round. Yes, the second round is now full steam ahead and they are ready to accept new applications!

I have said before that my methods are more opportunistic than structured. For readers who wish to have more guidance and who feel that they would benefit from a more structured learning environment on how to more successfully invest for income, signing up for "Dividend Machines" is the best value for money option that I know of.

AK at one of Dividend Machines' workshops.

So, if you are thinking of investing for income, you might want to sign up for "Dividend Machines" and, in case you are wondering, no, you don't have to pay $X,XXX for this. It is unbelievably affordable.

Don't take my word for it. Find out more for yourself by following the link provided below and I think you will be pretty amazed just like I was. Go to: Dividend Machines.




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I have been told that the deadline for application is 24 July 2015 and, after that, Dividend Machines will not be available again for the rest of the year. So, if you are interested, you want to act fast too.

Regular dividends are not just comforting for regular folks like me. They are necessary if we wish for greater peace of mind in a world where goods and services are getting more expensive by the day.

Building our own Dividend Machines will help us move towards financial freedom more quickly. Yes, financial freedom could be closer to us than we think.

Remember, if AK can do it, so can you!

Related post:
Listen to AK and create Dividend Machines!