Property loans are the mother of all loans. They can run into six figure sums, and they stretch for 25 to 30 years…which you may realize is nearly all your working years 😦
But none of this seem to dampen the property zeal among many Singaporeans, many of whom fantasize of owning not one but two properties, one to live in and the other as an investment.
Just how feasible is this dual-property dream? This is what I want to explore today.
Let’s be clear: it’s impossible to give a definite answer to this question because it depends on so many things; your income, private savings, CPF savings not to mention a host of financial rules and regulations that impinge on how much financing you can get,
Nevertheless, it is possible to have ballpark projections given certain assumptions. This is what I will try to show in the rest of this blog (health warning: a sea of numbers ahead).
To make my projections, I will assume that your first property is a HDB BTO flat, which is reasonable since this is how most young couples begin their married lives.
A savvy housing purchase strategy is to start with a modest BTO flat (say a 4-roomer), sell this for a profit (likely!) after the Minimum Occupation Period of 5 years, then apply for a second, bigger BTO flat in the second bite of the HDB cherry. By then, your family is likely to need more living space, so a 5-roomer will come in handy.
HDB flats are economical homes (low conservancy fees and carpark fees than most private housing). So if I were you, I would continue to live in the 5-roomer, dole out a bit of money to beautify it for a comfy long-term stay and….
…you guessed it – buy your beloved condo as an investment.
The downside of this strategy is that you will have two housing loans to deal with, which can be a heavy burden. And that is assuming you have the means to buy your condo in the first place, which isn’t a piece of cake given the eye-popping prices of condos even in so-so locations. As mentioned, there’s also a ton of financing rules that MAS has put in place to prevent people from over-stretching themselves. These are major road blocks to your private property ambitions.
I will run through the numbers using the following case. The case assumes that you will hang on to your second HDB flat and invest in a condo 10 years after buying your first flat. The main question for this case is whether you can will have sufficient savings (CPF and private) to make up for the portion of the condo price that banks won’t finance, and if the answer is no, what is a feasible Plan B?
The case solution is here. As it is kind of long, I explain it in a series of steps. You will see how time value of money is useful for thinking through each step and in answering questions like how much savings will I have by the time I consider buying the condo, how much can I borrow given my resources, what is the monthly loan repayment and so on.
If you have a financial calculator, punching a few keys will get you the relevant time value interest factors. If not, you can use formulas. If this is your expression after reading this sentence…
fear not – there’s always excel to hide nasty looking formulas. Anticipating this, I have coded the relevant interest factors for the case into this spreadsheet which you can use to check the case solution.