How to “Have the cake, and eat it too” – Case Study for an EC owner who just reached their 5 years MOP.
How the meeting came about.
2 years ago, in 2023, a friend reached out to me. Let’s call her S.
S wanted to sell her Executive Condominium and hold cash. She felt that property prices have gone up significantly since Covid, and it is a good time to cash out. If she does that, she is able to sit on $500,000 and wait for an opportunity to buy something. At that point in time, S is not sure what that something is yet.
Knowing that I have been investing in Singapore property market since 2008 and she has known me for over 10 years, she reached out to me to explore her options. This was the process for both S and her hubby (let’s call him J)
Analysing their current property.
We started by reviewing their purchase price back in 2015, checking their outstanding loan and the current market value of the nearby, recently MOP ECs, and their current monthly instalments.
In 2023, if they were to sell their 1,065 sqft, 3 bedroom unit, they will easily get back cash proceeds of $1,360,000 (selling price) – $550,000 (outstanding loan) – $220,000 (CPF used) = $590,000
Trends for their current property – Executive Condominium
Next, we analysed the past transaction trends of other Executive Condominiums in Singapore all over Singapore. A huge cluster is at Punggol and Sengkang, but we have others in other parts of Singapore, such as Sol Acres, Bishan Loft, Citylife @ Tampines and The Tampines Trilliant. All the EC owners, who sold at the 5 year MOP mark, made significant profits. Some profits are above half a million, like what S and J enjoy.
However, I asked them,”What if you can keep this current property, allow the valuation to trend up higher, and at the same time, you can purchase a second property? In short, instead of going from 1 property to 0, how about going from 1 to 2 properties instead?”
Based on the EC trend, if they choose to hold their EC even longer, the prices will trend up even more, when the property is close to the 9th year mark. This can bring in an additional profit of $150,000 to $400,000, just by staying in the same property.
But since S and J are at the 5 year MOP mark, they wanted to do something. This is where my expertise comes in.
Why are Executive Condominiums better than Flats or a condo?
At the start, EC purchase prices are lower than those of condos, as the land is partially subsidized by the government. Hence, this is a more affordable way for first time buyers or HDB upgraders to make the jump to private property. For HDB owners, no ABSD is payable if there were to buy a New Launch EC before selling their current flat, hence making the purchase even more palatable.
At the end of the 5 years Minimum Occupation Period, EC buyers can buy under 1 name, and loans are taken under the TDSR, rather than MSR framework, is is applicable for flats and New Launch ECs.
If the EC has 2 owners, 1 party may choose to sell their share to the other, and move on to purchase another property, allowing a the husband and wife to own 1 property each. For a HDB, the only way to exit the ownership is by selling the flat, or if 1 of the owner passes on. Hence there is more room to navigate for ECs.
If the value of the EC has gone up significantly in the past, the owners can consider getting an Equity Term Loan, so that they can use this to fund other things. Some owners use this to cash out on their properties, instead of through a sale.
Analysing their current financial standing.
Both S and J have significant funds in their CPF Ordinary Accounts. They also have some savings on hand, that they can tap on to fund their purchase, without having to sell their current unit, if they choose to do so.
We also reviewed their income, debt servicing ratio, and monthly commitments. What stood out was this: S and J had enough in their CPF Ordinary Account to cover a decent downpayment, and they can easily decouple and have the funds to buy a second property — and this option is more apparent after we have reviewed their numbers and analysed their current situation.
Spring-boarding from 1 to 2 properties, instead of selling and hold cash.
In view of the above steps, I crafted the steps for S and J to undertake. Instead of selling, we decided to undergo decoupling, to build on their wealth and asset holdings.
But the question remains – What should we purchase, after decoupling?
- We know it has to be something that will grow in the next 3-5 years.
- We know that the price range we enter has to be safe, as we do not have a large pool of funds, since we did not sell their current place
- We look at potentially buying a new launch, as the progressive payment scheme in place would give S and J time to accumulate more funds through their work.
- We also tried looking to the North and West part of Singapore, as this is where S and J’s families are residing at, and there’s more familiarity in this area for both of their families.
- We also have to factor in costs for decoupling, which includes Buyer Stamp Duties and Conveyancing fees for both parties.
Finding the Right Property: Strategic Purchase of a New Launch at The Reserve Residences, a Fully-Integrated Project by Far East Organisation
This project comes with 5 components, being a fully Integrated Project.
- Residential
- Serviced Apartment, managed by Far East
- Shopping Mall
- Direct access to Beauty World MRT
- Bus interchange where the mall is, similar to what you see at Bedok Residence and The Centris.
Other compelling reasons are:
- The location being within the coveted 1 km radius of the very popular Methodist Girls Primary and Pei Hwa Primary School.
- The other projects nearby are all significantly older, and hence there is limited new supply in the vicinity
- The Launch prices are palatable for a Far East Project.
- There were changes in the Masterplan for the area, showing promising growth for the area.
In the end, our choice to go for The Reserve Residences was spot on. There was strong take up and interest during preview. 520 of 635 released units were sold over the launch, out of a total of 732 units (71 per cent overall).
Generating Cashflow from the EC unit
Once the decoupling and purchase of a unit under S’s name are done, they approached me with another arrangement – to rent out the EC, which is now solely under J’s name.
They wanted to do some simple renovation to J’s mother’s flat, and move in with her, so they can take better care of her. While the renovation was carrying out at the flat, I took the change prepare the marketing media for their place. It was well maintained, well loved, and under-utilised, as only 2 people are staying in their EC units.
We want to strive for a good rental price, and we set our sights on $5,800 for a 3 bedder at Sembawang. And, we manage to achieve just that, renting out to a single Australian lady. The rent allowed my clients to
- Cover the monthly mortgage (original 50% share of J’s ownership)
- Cover the higher monthly mortgage (the 50% share of the loan, which was price at market value when S exited)
- The MCST of their EC
- Any property tax/ increased in income tax due to the rental income
- Buffer for maintenance and upkeep in between
I then assisted my friend to rent out her beautiful, 3 bedroom unit at Parc Life at a record breaking price of $5,800 per month.
Outcome
It was a joy withing my friends-turned-clients. To me, seeing them grow from 1 property to 2, and still generating positive income from their first property, is a real win. Instead of selling her place and losing the value of her cash proceeds through inflation, now she and her husband each own 1 private property, and riding of the capital growth of the EC unit, it is beyond words.
I am thankful for the support and trust placed in my, and I look forward to growing with my clients in the years to come.
