How Much You Need to Earn to Afford a Condo 2023
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TLDR
The blog post discusses the impact of the 15-month wait-out period cooling measure on private property owners in Singapore. It highlights the rationale behind the measure, its effects on the real estate market, and provides two case studies on possible strategies to navigate the waiting period. Additionally, it explores the potential implications of buying a smaller condo as an alternative to renting during the wait-out period. The post also touches on the likelihood of the cooling measure being lifted in the future and offers advice on whether to buy, sell, or wait in the current market conditions.
After two months of September’s 2022 cooling measures being in effect, homeowners are starting to feel the ripple effects.
Let’s take a moment to refresh our memories on this cooling measure.
What Is The 15-Month Wait-Out Period All About?
As per the new cooling measure, those who plan to sell their private property and shift to an HDB flat will need to exercise patience as they can only make the purchase after a waiting period of 15 months.
Who’s Affected By This Cooling Measure?
If you happen to be a Private Property Owner (PPO) who is under 55 years old and has been thinking of selling your private property to purchase a HDB flat, you might want to pay attention to this new measure. It will have a direct impact on your plans.
However, for those who are over 55 years old and have their sights set on a 4-room or smaller HDB flat (or even a 2-room flexi), there’s a silver lining – you’ll be automatically exempted from the 15-month wait-out period. So, it’s not all doom and gloom!
Why Is This New Cooling Measure In Place?
The Minister of National Development, Desmond Lee, revealed a staggering statistic – the number of PPOs who purchased a HDB resale flat has soared by twofold in 2021 and the initial three quarters of 2022 when juxtaposed with the preceding two years.
Evidently, this implies that as PPOs are making profits from the sale of their abodes at elevated prices, they possess a huge amount of spare cash to readily cover the Cash Over Valuation (COV) costs, which is in stark contrast to first-time HDB buyers or current HDB owners who aspire to upgrade to a more spacious dwelling.
Armed with greater financial means, they possess the power to surpass their HDB counterparts with higher COV payments, thereby inflating the resale flat prices and outbid other potential buyers from the market.
As a countermeasure to rein in this rampant trend and uphold the affordability of public housing, a new cooling measure has been implemented to steady the market.
Are There Any Ways To Work Around This Cooling Measure?
As the new cooling measures swept through the real estate market, homeowners found themselves at a crossroads – either retreat and remove their private properties from the market, or forge ahead and find a clever workaround.
Case Study 1: Bite The Bullet And Start Renting
For those determined to snag a HDB flat following the sale of their private property, and patient enough to endure the 15-month wait, this one’s for you.
But can it be achieved?
Let’s delve into the digits – for the time being, just the fundamental ones (without factoring in additional expenses like HDB admin fees, legal fees, and the likes).
In District 19, one of my esteemed clients is the proud owner of a luxurious 3-bedroom condominium that’s worth a whopping $1.95 million. However, due to their changing circumstances, they have decided to part ways with this property.
Despite having an outstanding loan of approximately $704,000 and a CPF OA return of around $350,000, they are still poised to receive a handsome cash return of approximately $896,000. (Note: Numbers used are purely for illustrative purposes.)
Imagine this – the prospect of signing a 2-year lease may seem daunting, but when you do the math, it’s a wise decision.
And at $3,500 per month, the total cost may seem steep – $84,000 to be exact. But fear not, because with that expense accounted for, our savvy renters will still have a grand total of $812,000 in cash to spare.
Here’s The Calculation:
$1.95 million (Selling Price) – $704,000 (Outstanding Loan) – $350,000 (CPF OA Refund) = $896,000 (Cash Proceeds Before Renting) – $84,000 (2-year Rental) = $812,000 [Final Cash Proceeds After Renting)
After patiently enduring a 15-month wait-out period, the golden opportunity has finally arrived – they are now eligible to purchase a coveted HDB flat! Imagine, a stunning and fully-furnished gem situated in the same district, with a price tag of $650,000.
With the freedom to utilize both cash and CPF to secure this dream home, a grand total of $512,000 in cash still remains at their disposal.
With careful consideration, it is possible to rent during the 15-month wait-out period and keep a comfortable safety net for unexpected expenses. Nevertheless, it is crucial to acknowledge that the rent paid for those two years, just to secure an HDB flat, will not be recoverable.
Case Study 2: Buy A Smaller Condo Instead
A viable alternative that may be worth considering is the acquisition of a smaller condominium, such as a two-bedroom unit, in the same district, given that the current property owned by the client is a three-bedroom apartment.
The justification for this proposition lies in the fact that private properties in D19 have appreciated by 6.3% in the past fifteen months.
As a result, the client may sell their current property at approximately $1,295 per square foot and purchase a smaller condo between $1,700 and $1,900 per square foot.
Additionally, by investing in a new launch property priced at over $2,000 per square foot, they would be capitalizing on the potential future growth of the property.
Assuming that the strategy is implemented and the client purchases a two-bedroom condo in D19 for roughly $1.6 million, what would be the financial implications of this decision?
The following is a brief calculation:
the purchase price of $1.6 million can be broken down into $350,000 from CPF, $600,000 in cash, and $700,000 or $4,500 per month from a loan.
By opting to service a mortgage instead of paying approximately $84,000 for a 2-year rental apartment, individuals may allocate these funds towards their mortgage payments.
Although this results in a lower cash balance of $296,000, compared to $512,000 if they had opted to rent, they acquire a property that will provide them with a comfortable living situation throughout their retirement.
Will The 15-Month Wait-Out Period Go Away?
Although HDB has indicated that the current 15-month wait-out period is subject to review depending on market demand and changes, it appears highly improbable that this cooling measure will be lifted, despite the inconvenience it poses to PPOs.
This is largely due to the fact that several cooling measures enacted years ago such as the Seller’s Stamp Duty (SSD), Additional Buyer’s Stamp Duty (ABSD), Loan-to-Value (LTV), Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) are still in place today, with no indication of removal.
In the event that you are considering appealing to HDB, it will be a case by case basis, you can check with me for some examples that I worked with my past clients.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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