I do realize the title of this post might attract some naysayers and unhappiness.
It is not “correct to say” that we should monetize our flat or public housing.
Instead, our HDB flats should be the basis of a home where we grow our family and it should never be monetized.
It should be viewed as an expense and rightly so – because we live in it.
But we should not discount the fact that HDB owners have made good returns and profited from their HDB flats.
The resale prices at this BTO project was a strong indication – the owners who chose to cash out and sell made very handsome profitable returns.
Some are monetizing the flat by renting out the additional rooms to tenants while the owners themselves are still living in the same space.
However the purpose of this article is not to discuss about the obvious way of monetization which is by renting out your HDB flat.
Here I like to discuss how your HDB flat can be “restructured” and be used as part of your strategy for:
- securing your retirement in 20-30 years time
- diverting your sleeping assets to those with better growth potential
- a chance to exit from a depreciating asset
Now if you are those who sincerely believe that a home cannot be an asset as you are staying inside – perhaps this article might not be suitable for you.
Step 1: Check if your HDB flat has appreciated or depreciated since you bought it
If you bought your flat at least 5 years ago, I recommend you check the most recent transactions of your area.
That will your likely valuation price.
How to check your valuation price: https://www.edgeprop.sg/analytic/edgefairvalue
Compare to the price when you bought it – and the difference is roughly the appreciation or depreciation.
If you have a positive number – GREAT!
You are on the positive side of the equation. You can choose to continue staying there – until the flat starts to depreciate.
Or you can choose to sell, move out and extract your gains.
Now… if you have a negative number, well … you are losing money TWICE.
- you are losing money from the depreciation (eg your depreciation is $60K over 5 years – means you lost $1k per month)
- you are also losing money from paying the monthly installments (either by cash or via CPF)
So how should you proceed next?
Step 2: Decide if your theoretical gains or losses are worth it
If you have made some gains – you are blessed. Because technically – you are actually being paid to stay in your HDB flat!
Of course, this is because your HDB flat valuation is on the upwards trajectory – you are indeed benefiting….
For those on the other side – the next part is for you to consider deeply – especially if your paper losses are worth it.
(You can consider the paper losses as part of your monthly expenses)
The quote “ignorance is bliss” is really applicable here – yes you might be “happier” to NOT KNOW.
But it is so much better to know now than to be taken by surprise in 20-30 years’ time when your retirement kicks in.
That is when you have no more choices available.
So what should you do next?
Step 3: Ask yourself – will this situation continue without any action from me?
If you are making gains, ask yourself the following questions:
- Will the appreciation continue indefinitely?
- Will the prices start to fall? If yes – when will that happen?
- Is it time to make an exit?
If you are making losses (or expenses if you prefer to call it):
- Should I continue to hold on to this flat?
- Will the price of this flat continue to fall further?
- If I am paying by CPF, I am directing my retirement monies to a depreciating asset. Is it prudent to continue doing so?
- Should I cut my losses and make an exit now?
Step 4: Divert your assets to better performing investment vehicles
You actually have 2 forms of assets right now:
- Your HDB flat – is it appreciating or depreciating right now?
- Your unused CPF monies – earning 2.5% interest in your Ordinary Account
Some of your CPF monies are already parked in your HDB flat as you continue to service your mortgage loan monthly.
Some of your CPF monies are sitting in your OA.
There is an opportunity that is available currently – you can choose to park your CPF monies into a better performing asset.
The latest round of cooling measures in July 2018 presents a great opportunity for those seeking to venture into their FIRST private property.
(If you analysed the July 2018 cooling measures, it was punitive and damaging for those interested in owning MULTIPLE properties. But for the rest who are looking to buy their first PRIVATE property – it actually came in at a good time.)
Property Appreciation Is Your Guard Against Inflation
Inflation is a fact of life in our current monetary system. Prices will always go up. This is why the wealthy likes to park their funds in property – it acts as a hedge against inflation. Otherwise, they lose money by letting their funds idle and do nothing.
The beauty is that when prices go up, our property prices will go up too.
This is why inaction or not doing anything will eventually impact you too.
Check out the rate of inflation at MAS website: https://secure.mas.gov.sg/calculator/goodsandservices.aspx
Factors That Will Work For You – If You Purchase A Private Property
A private property can be seen as a better store of value for you as compared to a HDB flat.
Here are some of the factors:
- The July 2018 cooling measures have forced developers to offer discounts to buyers. You have a better chance of making a bigger profit.
- Relatively lower interest rates for bank loans currently – compared to HDB loan of 2.6% interest rate
- A brand new property with a fresh 99-year lease has a better chance of appreciating compared to an older property
- Choosing the right property means capital gains – you could probably stay there for free as your capital gains cover your monthly mortgage!
- Likely to be easier for you to sell and downgrade to a cheaper home once you reach your retirement age. This means your retirement can be secured through property.
I know the feeling – we want to cling on to the safe and familiar. We are familiar with our HDB flats.
We are “comfortable” living in our HDB location.
The truth is this – something is only an investment when you choose to sell it.
Be it gold, stocks, unit trusts or properties – you can only realize your actual profits by selling that asset. Otherwise, it eventually turns into a liability.
Someone once said – Warren Buffet never makes any losses because he never sells whatever he holds. Unfortunately – we are not Warren Buffet. 😉
If you are ready to take action – we can explore your current choices based on your current financial standing. By allocating your unused funds in the right manner by parking it in the right assets – you can definitely secure your future retirement easily.
Ready to get started? Request for a no-obligation consultation session as we discuss your numbers.