Average Income HDB owners Buy 2 Condos WITHOUT TOUCHING SAVINGS?

Last updated on January 23rd, 2020 at 10:50 am

How much can you cash out after selling your HDB?

If you sold your HDB, the $500,000 will firstly pay off the outstanding loan. Assuming that the remaining loan is at $175,000, that will leave you with $325,000 remaining.

Next, lets assume that you have used CPFOA to pay $150,000 of your loan over these years. The next step is to return that $150,000 to CPFOA plus the accrued interest (which we assume to be $25,000 in our example).

That means a total of $175,000 will be returned to your CPFOA! The remaining house proceeds will be refunded to you IN CASH.

That works out to be a whopping $150,000 which is quite a nice sight to see in your bank account!

In this last week, have seen a few more examples of “wealth coaches” targeting HDB owners.

Back to our example. The $500,000 sold from your HDB will leave you with a total of

  1. A total of $175,000 in CPFOA (you and spouse)
  2. A whopping $150,000 IN CASH!

With a lot of wealth suddenly on your hands, it is easy to make mistakes. It is dangerous to assume that properties will forever appreciate or that you have a natural affinity with successful property investing.

After all, the BTO is a heavily subsidised flat which makes profiting from it easy. It is also coincidental that the past 5-10years have been favourable for property markets.

I suspect that the “wealth mentor” may move on to recommend that you buy not 1 …(drum rolls…)… but 2 private properties!

One for residence in your name and the second one for investment in your spouse’s name. Of course it helps that he happens to be the property agent transacting the deals…

The thought of owning multiple private properties may evoke strong desires in you because SUDDENLY YOU SEEM ASSET RICH!

The reason why the “wealth mentor” recommends you to do so with an individual name to each property is to tactically sidestep the additional buyers stamp duty (ABSD) ruling which is 12% in year2020!

If you had kept your HDB, this method may not be available as it needs to be in joint names. Suddenly, HDB rulings seem like shackles, holding you back from your property dreams.

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I did rough calculations based on the $175,000 in CPFOA and $150,000 in cash for a couple earning $5,000/month each.

It definitely seems possible to trade your HDB flat for 2 private properties and without touching existing savings.

Possible at current moment BUT take note!

The whole method is made possible by mortgage loans and the low interest rate environment we are in right now.

If property markets were to climb again in the next 5-10years, you may stand to make substantial gains and this method may actually seem brilliant!

However, before you jump on the bandwagon and trade away your HDB, do consider these points:

  1. Is your desire to own private properties clouding your interpretation of what is a good property deal?
  2. If you are investing into property, how certain are you that it will be rented out to cover your monthly mortgage repayment?
  3. If mortgage interest costs increase substantially, would you still be able to afford your monthly mortgage repayment?
  4. How certain are you to continue working to sustain the monthly mortgage repayment?
  5. Have you considered the stamp duties and agent fees carefully before investing?

It seems more than coincidental that HDB owners are targeted by “wealth mentors”. Perhaps its due to the lack of experience in property investments or a strong desire to upgrade.

While there may be other tips that the “wealth mentor” has that I am not aware off, I prefer to be prudent and not adopt his ideas.

At the end of the day, if you over-stretch your family’s finances when it comes to investing into a second property, you will have to live with the mortgage loan yourself.

Do remember that HDB’s default ownership is through joint-tenancy and not in individual names. From a financial planning point of view, it is actually the simplest method to ensuring that you leave behind a house for your surviving spouse.

  • Image from source: http://www.bamboocompass.com/culture-shock-in-china-for-chinese-canadians-143204.html

The Astute Parent

A parent who has a sharp acumen on sieving through 'alien' financial jargon to dish out bite size financial tips from a parent's perspective.

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