Current HDB’s Property Market
If you are currently staying in a HDB flat and have been checking on your housing prices, most of your would have noticed that the price of your property have remained stagnant or have not been increasing over these few years. Table 1 shows the resale price index taken from HDB and it has been on a constant decline. Are you aware that your HDB has aged over these few years? If you have bought a HDB flat from the resale market, what is the age of your HDB now? When your property ages, the value of your property is likely to depreciate as well.
|Year||Quarter||Index||% Change from Previous Quarter|
|Table 1: HDB Resale Price Index|
HDB has it’s own benefit as well, with the lower $PSF, most owners have the comfort of space. Changing a lifestyle is really a pain in the a**, but is this current lifestyle beneficial for you in the long term?
Using The Concept of Forced Savings
Let’s use a case study of two owners. Owner A bought a resale HDB for $600K while Owner B bought a private property for $1.2million. They both took a loan for 20 years. Would you agree with me that after 20 years both of them would have finished paying for their mortgage?
After 20 years Owner B has a property asset worth $1.2million while Owner A has a property asset of 600K. Can you see the difference there yet? We have not accounted for any depreciation or appreciation for the property yet.
Let’s say, one day you have retired and you have a sudden need for money for whatever reasons. You decided to downgrade your property to cash out on what you have accumulated. You downgrade to a property that is worth $300K. For the HDB owner, he is left with $300K for the rest of your retirement years. While for the private property owner, he is left with $900K for the rest of his retirement years.
How Long Can I Retire?
How long can $300K or $900K last you if you use $2,500 per month?
- $300K/$2,500/12 = 10 Years
- $900K/$2,500/12 = 30 Years
What age are you going to retire? 65 years old? If you only had $300K to last you for 10 years is it enough? Are you going to go back to work after 10 years?
Wait, I Am Paying More!
Well, some may argue that yes I will end up with more assets but I am paying more mortgage now! True, I do not disagree with you, this is called forced savings. You are literally saving up your money in a property. Ask yourself, where on earth is there a free lunch, if you want something of good quality should you be investing more? You cannot expect to obtain a $1.2 Million property without investing and saving more, it’s a fact.
What is the difference between saving in the bank? When you save in the bank you only get a peanut interest. When you put your money in property, you have a place to stay. Your property can appreciate in value. Most importantly, ask yourself, do you really engage in savings? How much of your income is being saved monthly? Investing in property forces you to save.
Notice those who own a private property are they poor? High chance is that they are not. Why? Buying a private property and coming out with more monthly payment makes you more hardworking. You work harder because you know the future is brighter, you improve on yourself so that you can get the promotion. Because the monthly payment is more you think of ways to earn the money, you end up earning more than what you expected, you become a high performing individual.
You really need to force yourself to save and purchase a private property is a smart way.
How Much Do You Need For Retirement?
How well do you want to live? You may say that you do not need much to live. I agree with you. It depends on the standard of living you want. I want you to ask yourself, do you want to have a choice or not?
Owner A asset worth $1.2 Million, who has many choices to decide on what he wants to do with the money OR Owner B asset worth $600K, who has to be stuck with his HDB? Would you rather have more and decide if you want to save up, or have less and have no choice but to save up.
Would you want to ask your children for money in future? How many senior citizens are asking for money from their children? It is the duty of the children to give their parents money but can you survive without their money? It is always a hassle to get money from others.
Is $1 Million Enough For Retirement?
A simple way to check would be estimating how long will you stay unemployed in future. Maybe from 60 to 80 years old? That is 20 years. Imagine you have $1 Million in cash, every month how much can you spend? It’s about $4,166.66. If you are a couple you may need to divide the answer by two. Take note that this amount is the maximum you have a month, if you have any emergency medical expenses, etc, you may need to use more.
Taking into account of inflation. If every month you receive $4,166.66 for 20 years, assuming inflation rate at 2%. Your money when at 60 years old before you even start using the money is actually worth $823,640.49 only. This is calculated using Time Value of Money Calculation.
If you need an in-depth analysis of how much you need you can check out CPF retirement calculator.
Start Your Forced Savings Journey
This article gives you a sense of how owners actually use real estate to plan for the future. In Singapore, real estate forms a huge part of a person’s net worth and many people are relying on their real estate for retirement through downgrading or selling off their properties in times of need. A real estate may not follow you throughout your life, you may purchase and dispose of your property depending on your needs, but ultimately the aim is to increase your real estate assets over time. Through proper restructuring and leveraging, we are able to do so. Contact me now to find out the proper way to do so and kick-start your first forced savings property for a better future!