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Is property still the holy grail to riches?

Property hacks for couples and looking beyond a 2nd property as a means to grow passive income

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One of the key milestones in our lives and a mark of being an adult is the purchase of our first property. For many couples, including those with young children, this means moving out to a place you can call your own.
 
Your home is a huge financial commitment, especially in an environment where home prices remain high and interest rates are rising. That&rsquo;s why it&rsquo;s imperative that you start on your home ownership journey on the right foot.
 
Before purchasing your first property, you&rsquo;ll have to consider is your ability to make the down payment, service the monthly repayment for the loan, renovation costs as well as the purchase of appliances. That&rsquo;s a fair bit to consider, especially if you already have young children.
 
<h3 style="font-size: 18px; font-weight: bold;">Common hacks to make your first property purchase more affordable</h3>
 
Bearing in mind that your first residential property is likely to be the most significant single purchase you'll make at your current stage of life, it helps to take note of some hacks that can help to alleviate your costs.
 
Minimise renovation costs
 
Renovation costs can range anywhere from S$10,000 to north of S$100,000 for HDB flats and condominiums. But unlike property prices, which are dependent on prevailing market conditions, the scope and the overall cost of your home renovation works is one area that you have direct control over.
 
A couple of key questions to ask yourself before settling on a budget for your renovation are:
 
<ul>
<li>How long do you intend to stay in this home?</li>
<li>Are you planning to sell/upgrade to a private property?</li>
</ul>
 
If you plan to sell after the minimum occupancy period, which is 5 years for Housing &amp; Development Board (HDB) flats, a simple renovation is usually adequate. The reason behind this is that the new homeowner is likely to hack away everything and do their own renovation anyway. In addition, hacking works are expensive and might restrict your future buyer&rsquo;s design and budget.
 
If you have forked out a large sum of money for your down payment and might find yourself low on cash (especially newlyweds who had just hosted their wedding) you can consider taking up a renovation loan as could be a useful financial tool to plug your cash flow gap.
 
That said, you should work out your sums and budget your renovation costs accordingly, and take up a renovation loan amount that is comfortable for your situation so as not to overstretch your finances.
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<img src="/iwov-resources/media/images/Marketplaces/nav/property-hacks-for-couples/property-hacks-img-01.png" alt="property-hacks-for-couples" />
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Staggered downpayment for HDB flats
&nbsp;
If you are looking to purchase a Built-to-Order (BTO) flat from HDB, it helps to take advantage of the Staggered Downpayment Scheme.
&nbsp;
Married couples and those applying under the Fianc&eacute;/Fianc&eacute;e Scheme will qualify for the scheme if they meet the following conditions:
&nbsp;
<ul>
<li>Booked an uncompleted 5-room or smaller flat in any of HDB&rsquo;s sales exercises</li>
<li>Both are first-timer applicants, or a couple comprising a first-timer and second-timer applicant</li>
<li>Applied for a flat on or before the younger applicant&rsquo;s 30th birthday</li>
</ul>
 
The main advantage of using this scheme is that you can pay for the downpayment of your BTO in two tranches.
&nbsp;
Currently, we are seeing global interest rates rising and as such, it is perhaps most advantageous to take a HDB Loan prior to signing for the Agreement for Lease as you will only be required to pay a 5% downpayment at this stage.
&nbsp;
Given that it takes a few years between the signing of the lease agreement and your key collection, you can take this time to assess whether it would be more opportune for you to continue with a HDB loan or switch to loans from financial institutions like DBS Bank.
&nbsp;
At the time of writing, if you decide to continue with a HDB loan, you&rsquo;ll have to pay 15% of the purchase price as a remaining downpayment when you collect your keys. This can be serviced entirely using your CPF Ordinary Account (CPF OA) funds.
&nbsp;
In contrast, switching to a bank loan, will require you to pay a minimum of 15% of the purchase price in CPF OA funds and at least 5% of the purchase price in cash.
&nbsp;
Using CPF funds instead of cash
&nbsp;
To help finance your monthly mortgage payment, consider utilising your CPF funds instead of cash if you have a tight cashflow situation. However, before tapping on your CPF funds, do ensure that the amount in your CPF OA is enough to pay your monthly mortgage loan instalment as it might be finite as well.
&nbsp;
Once your financial health improves, consider switching back to using cash to pay your mortgage loan instalments, unless your investments can generate better returns than the CPF OA at 2.5% p.a.
&nbsp;
<img src="/iwov-resources/media/images/Marketplaces/nav/property-hacks-for-couples/property-hacks-img-02.png" alt="building-streams-of-passive-income" />
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<h3 style="font-size: 18px; font-weight: bold;">Looking beyond a 2nd property as a means to grow passive income</h3>
&nbsp;
By now, most of us are well acquainted with the fact that Singapore is one of the most property-obsessed countries in the world. We don&rsquo;t need to look further than our conversations with family and friends to realise that property locations and prices are often brought up. More recently, we&rsquo;ve also seen the re-emergence of conversation surrounding million-dollar HDB flats.
&nbsp;
For many of us, the aspiration to flip a property to buy better one or to own a second property as a vehicle to accumulate wealth is one that has almost been ingrained in us since youth.
&nbsp;
That said, this has its merits. Afterall, the value of residential properties has soared over the past 40 years and gave many older Singaporeans great returns. Moreover, land-scarce Singapore has a strong property market and has property here has long-earned the reputation of being a good investment. As such, the market is never short of those looking to turn a sizeable profit from real estate investment.
&nbsp;
This begs the question:
&nbsp;
&ldquo;Is property still the holy grail or the way to riches?&rdquo;
&nbsp;
In October 2021, a report published by DBS highlighted that a new private property may no longer be &ldquo;that pot of gold&rdquo; that Singaporeans can solely rely on as their retirement nest egg.
 
In the DBS report, Financial Planning experts and investment analysts looked into the returns of a 2nd property and found other investable assets provided better returns for investors in the last decade.
&nbsp;
After studying the total returns of different asset classes from 1Q2009 to 1Q2021, the best performing investments were S&amp;P500 and Singapore Real Estate Investment Trusts (S-Reits), followed by property assets.
&nbsp;
<img src="/iwov-resources/media/images/Marketplaces/nav/property-hacks-for-couples/property-hacks-img-03.png" alt="building-streams-of-passive-income" />
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More specifically, for every S$100 invested, an investor will stand to receive returns of about S$635 from the S&amp;P500 Index (a stock market index in the US that tracks 500 largest US-listed companies) and S$486 from S-Reits, versus S$399 and S$339, should the same amount be invested in a first private property or HDB flat instead.
&nbsp;
Buying a second private property yielded the lowest growth, with a return of a mere S$209 per S$100 invested, which significantly falls short of the returns on equities.
&nbsp;
One of the reasons why property market returns are no longer as attractive as before is due to cooling measures. As prices for homes have been rising steadily, there have been concerns that a booming property market might result in a bubble.
&nbsp;
As a result, the government has raised the Additional Buyer&rsquo;s Stamp Duty (ABSD) rates and tightened the Total Debt Servicing Ratio (TDSR) threshold from December 2021 to cool the market. Cooling measures were further tightened in end-September 2022 to encourage sustainable conditions in the heated property market by tightening borrowing and moderating demand. The most recent measures are intended to be temporary.
&nbsp;
What are the other ways to gain passive income?
&nbsp;
For most people, the main aims of purchasing a 2nd property are to profit off capital appreciation of the asset as well as generation of income through rental. With the latter, the rental yield (i.e difference between the income you receive from renting out your property minus the overall costs of your investment), is often not more than 4%.
&nbsp;
Bearing in mind that when you purchase a second property, you&rsquo;ll incur an ABSD of 17% as a Singapore Citizen and 25% if you are a Singapore Permanent Resident, there is one, more accessible option that you should consider.
&nbsp;
<img src="/iwov-resources/media/images/Marketplaces/nav/property-hacks-for-couples/property-hacks-img-04.png" alt="building-streams-of-passive-income" />
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Investing in Reits
 
It goes without saying that an all-rounded investment strategy plays a crucial role in achieve overall financial wellness. This means that property-related investments should form part of a diversified portfolio.
&nbsp;
However, for many of us, owning more than one residential property might not be feasible. Especially, given that residential property prices in Singapore have been steadily rising since early-2020, and interest rates are increasing, they don&rsquo;t come cheap either.
&nbsp;
Thankfully, through Real Estate Investment Trusts (Reits), retail investors can still gain exposure to property or diversify to other property segments without the hassle and high costs of owning physical properties.
&nbsp;
Reits are collective investment schemes that own and invest in income-generating assets (often through rent collection) across various real estate sectors. Properties in a Reit portfolio may include office buildings, shopping malls, warehouses, hotels and more recently, data centres.
&nbsp;
As such, Reits allow retail investors to pool capital to buy into properties that would otherwise be out of their individual reach. Reits listed in Singapore are known as S-Reits.
&nbsp;
The primary aim of Reits all over the world are identical - to generate a healthy level of income distribution and long-term unit price appreciation for its investors.
&nbsp;
Revenue generated by Reits come primarily from rental from tenants. This may come from individuals, small businesses or large corporations who rent premises to conduct their operations.
&nbsp;
While a separate asset class, Reits exhibit characteristics of both stocks and unit trusts.
&nbsp;
Investors can benefit from investing in Reits through:
&nbsp;
<ul>
<li>Dividend income: rental income and any earnings from sales of real estate assets</li>
<li>Professional landlord expertise: the day-to-day management is left to professional property managers</li>
<li>Capital gains: when the Reit is sold at a higher price than the purchase price</li>
</ul>
&nbsp;
Globally, Reits are viewed as an attractive &ldquo;income investing&rdquo; play as they have consistently delivered strong total returns (unit price appreciation + distributions to unitholders) over the past two decades.
&nbsp;
In Singapore, Reits have averaged a dividend yield of between 4% and 6% in recent years, beating the average dividend yield of the STI, government bonds and term deposits.
&nbsp;
<h3 style="font-size: 18px; font-weight: bold;">&nbsp;</h3>
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<h3 style="font-size: 18px; font-weight: bold;">&nbsp;</h3>
Disclaimers and Important Notice This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability. All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer. <a href="https://www.dbs.com.sg/personal/investments/investment-disclaimer.page?pid=sg-dbs-pweb-article-low-risk-investment-textlink-disclaimer" target="_blank" rel="noopener noreferrer">Disclaimer</a> for Investment and Life Insurance Products

Property hacks and looking beyond a 2nd property as a means to grow passive income

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