In recent years, many Singaporeans have heard the term Asset Progression.
What exactly does it mean to progress your assets, and why is it beneficial as a form of investment?
At Property Science, we cover the what’s and why’s and give you a glimpse into why you should consider implementing these strategies as early as possible.
Read on to learn more…
In the Singapore’s real estate context, this means accumulating wealth through carefully curated assets and investments in order to achieve financial freedom and secure a nest egg for retirement.
While there is a commonly heard strategy of “Sell 1 Buy 2” (whereby a couple sells their existing property and unlocks the accumulated cash value, and use it to buy one for their own occupation, and another for investment), it is by no means the only definition of “progression”.
There are cases we have done in the past where our client sells 1 and buys 1. Nonetheless it is a progression because they have done from a smaller unit in an obscure development to a bigger unit in a good progressive development.
As you can see, there are many different methods and strategies which we deploy to suit your life stage, income and personal preferences.
In a country where generations have seen their parents and grandparents make their fortunes from property investment, it is the Singapore dream to own real estate, and if possible, multiple properties. Culturally, we have a very high home ownership rate at 91% (which is the 4th highest in the world after some smaller European countries).
In view of our open economy, take up rates by foreigners and Permanent Residents are also rather high (20%). In fact, many billionaires I have chosen to make their homes in Singapore. According to this Knight Frank report, we have 3306 UHNWI (Ultra High Net Worth Individuals) with a 28.8% forecast growth from 2019 to 2024.
Let’s list some reasons why Singapore remains an attractive city for foreigners and locals alike:
Many home buyers and investors have benefitted from capital appreciation, rental yields and even en-bloc sales. As a highly leveraged investment, property ownership in Singapore is a preferred choice for retirement planning.
Let us look at a condo that has recently obtained its TOP not too long ago to see what real estate investments can do for you when done right.
This transaction chart below shows how much the buyers who bought into North Park Residences (new launch) in 2015 and subsequently sold in 2019/2020 made.
In total, there were 183 profitable transactions to date.
The transaction data above shows that the lowest realised profit is $36,213 while the highest realised profit is $504,269. The average profit works out to $162,421 after deducting stamp duty.
Assuming the buyers took the maximum allowed mortgage loan, the highest achieved percentage return on investment based on the down payment paid is 217.7%.
All these was achieved within a 4 to 5 years’ time frame. Are you able to realistically save so much money from just your monthly income alone?
Investing in real estate is a stable and safe way towards financial freedom. This explains why all over the world, people love to accumulate properties. Unfortunately, for the layman, it is not easy to master the property market without in-depth research. Our education system does not teach leveraging on real estate as a subject.
If you want an unfair advantage, get a head start! Plan and execute your real estate moves in advance!
To briefly explain the chart above, each quadrant represents a life stage. There are 4 life stages: learning, wealth accumulation, wealth consolidation & enjoyment and retirement.
Our working lives are usually between age 21 to 65. During this time, many will buy their first property, which could be a HDB flat (very affordable) or a private property (with some help from loved ones).
After several years of Wealth Accumulation, some will enter Wealth Consolidation, where they are able to either upgrade their asset or purchase a second property. Many will stop their journey here.
Those who have been taught the Asset Progression Theory will proactively seek out opportunities in the market in order to upgrade their properties.
Just like us, properties also have their life cycles which see their value hitting an optimal level before they start declining. Those who are in the know will seek to offload their units before their prices stagnant or decline.
Upgrading does not necessarily mean forking out a lot of savings to buy a larger (and more pricey) property. It involves UNLOCKING the CASH that is locked up in a property by selling it, and using the money to invest in a high-performing property that will give higher capital gains or rent.
At Retirement, when kids have left the nest, some may choose to downgrade and sell off one or two assets and free up their money for their golden years.
Unfortunately, we have come across individuals who only come to realise at this point that selling their properties will result in a negative sale (where they will lose instead of gain money). For many HDB owners and some condo owners, the2.5% CPF accrued interest that has to be returned to their accounts means there is not enough left after the sale.
The million-dollar question is: Do you know what to do during each life stage? Has anyone taught you how to maximize your financial status through property? Did anyone discuss the implications of Asset Progression Theory and the consequence of missing the boat?
Curious to know what other people have done?
Here we share some personal stories of our clients (names changed) who have taken the first steps.
Mr & Mrs Silva are a pair of professionals in their early 30s whose HDB flat is about to hit their 5 year MOP (Minimum Occupation Period) mark. They hope to upgrade to an old condo which they liked for the space it affords them. Their combined income is $9000 to $12000 monthly and they want to know what strategies they can deploy since they are both relatively young.
They want to know the pitfalls they should avoid and whether it was possible to “sell 1 and buy 2”.
After finding out the expected price of their flat, as a first step we advised them to sell at MOP to unlock the innate value of their property for their next upgrade.
We also advised on the implications of getting a 25 year old condo which may face enbloc in the next ten years, as well as what other options are available to them, along with detailed financial calculations.
We also weighed the risks involved and counted their safety net for them in case they wanted to buy two units.
Mr & Mrs Leong are in their mid-30s. Mr Leong is a Permanent Resident (PR) while Mrs Leong is a Singaporean. They have sold their condo and have profits of $700,000 and currently have another investment condo which is tenanted out at $3200. Mr Leong earns $15,000 per month while Mrs Leong earns a basic salary of $9000 plus commission.
They are keen to upgrade to a bigger place but are unsure about the ABSD (Additional Buyer’s Stamp Duty) that they are liable for as PR and buying a second property, and how to avoid it.
We presented a few options, one of which was to decouple for their investment condo so that the next purchase could be in one individual’s name. This will help them avoid ABSD.
Nick, Lauren & Ethan are a family of 3. Nick and Lauren are in their 40s while Ethan is 9. They stay in a landed property in their joint names and have no plans to sell or move. However, they have cash savings of $1.5m. They want to know how they can do proper tax planning.
We gave them some options which included decoupling and buying a property in trust. After calculating the most cost-efficient method, they bought an investment unit in trust for Ethan since they are able to afford to pay for a property in full.
We also discussed whether in view of the economic climate, whether buying a new launch (which allows progressive payment) or a resale unit would give the best yields.
Wendy is a 38-year old salaried employee staying with her parents. She owns a HDB flat that she has fully paid up and is currently tenanted at $2100 per month. She has heard news that older flats may face difficulties finding a new owner and wants to know if she should change up her asset even though her current rental yield is very high.
After some calculations, we determined that she has $450,000 locked up and $250,000 left after accrued interest was paid back to her CPF. We managed to sell her HDB and she bought a new launch which has already earned $50,000 in paper value. When it is ready next year, she can expect to rent it out for $3500. What’s more, now she has spare cash of $100,000 towards her retirement funds.
We gave her a 10-year plan which will involve another round of sell/buy to grow her wealth.
Each one of our clients has different circumstances, age, objectives and finances and these affect our recommendations in terms of strategy, type of property to buy.
We often hear these common questions:
We will be very glad to have a friendly discussion with you if you have any of the above questions.
If you wish to optimize and structure your property portfolio, reach out to Benjamin or Glynis.
We are here for our clients for the long term and will want to be with you all the way for every step.