There will always come a time where you will need to upgrade your home. Be it out of necessity, with a growing family or to get the home of your dreams. That being said, the turbulence that’s been around with the market recently had bread a lot of fear, uncertainty and doubt within the minds of homeowners and upgraders.
That’s why, in this month’s article, we’ll be talking about how to upgrade your home in 2022! We’ll be tackling the challenges upgraders face, common mistakes made by upgraders, important questions to ask yourself and of course, case studies and our suggestions.
We’ve also got an added bonus for everyone in this article! All you have to do is read on to find out!
Recent News
As usual, we’ll first be diving into recent news before going into our topic of the month! This time, we’ll be talking about the recent new that happened in Belgravia Ace and Jalan Tembusu.
Belgravia Ace
First off, we’ll be talking about Belgravia Ace – The strata landed near the Ang Mo Kio – Seletar area. It came out to be 72% sold. 90% of which, were sold on launch day itself. The cheapest unit there went for $4 million. The strata consist of three terrace houses, while the rest were semi-detached houses.
Having sold 64.8% on launch the question becomes…are the results for Belgravia Ace surprising?
The answer? A Resounding NO.
How did we come to that conclusion?
First and foremost, landed properties will be seeing an increase in popularity in the near future, because it caters to the new “sandwich” class of upgraders – upgraders that require 4-5 bedrooms with multi-generation families.
The take-up rate, however, was very astounding at the $4 million price point because plenty of buyers looking for this unit type are split between either landed or buying newly launched 99-year condominiums priced between $2.5-3 million. So, when upgraders see the slight difference in price point, they start to consider topping up to buy a freehold landed property.
The predicted rise of prices in 99-year condominiums has also pushed up landed prices. Today, at a $4.5 million price point, you would expect inter-terrace properties as opposed to semi-detached properties. Even most inter-terrace will require some sort of ANA for 3-5 bedrooms.
Belgravia Ace was launched at an opportune time because it provided a much-needed product from the growing group of upgraders. This is a great example of the macro trend that large units/developments will increase in demand moving forward.
This also clearly reflects the macro trend of increased affluence among Singaporeans. The launch was done right after the cooling measures. And as predicted, the cooling measures didn’t largely impact the high quantum OCR owner-occupied units.
Does this show there’s a lot of hype in the market?
Again, the answer is NO.
As many buyers have been anticipating the launch of this project and have figured out what their personal needs are. If this had been a 99-year development, there would have been an immaterial decrease in take-up rate.
Jalan Tembusu
On to our second piece of news- the Jalan Tembusu GLS land sale.
Jalan Tembusu, a highly sought-after land sale, came out at $768 million – $1,302 psf ppr. It is one of the most recent land sale in Thiam Siew Avenue, which was bought by Hoi Hup Sunway. The per square feet differential was only 10% making Thiam Siew Avenue look like a good deal.
If the Thiam Siew Avenue plot launches in 2028/2029 – considering the land cost – it represents a good value for money. It is also a big plot, potentially housing up to 800 units, split into 2 developments.
Despite Jalan Tembusu being near Thiam Siew, the latter is somewhat at a better location. Although it is important to note that Jalan Tembusu is nearer to the upcoming Tanjong Katong MRT while Thiam Siew is closer to Kong Hwa School.
Jalan Tembusu had a low number of bids with only 8 bidders. One cause of it boils down to the cooling measures targeting the developers. The government raised the ABSD – from 15%-30% in 2018 compared to the increased 45% today.
However, the main reason might be the uncertainty from construction costs, caused by the pandemic. This increases the probability of undersupply in 2025/2026 causing a price hike.
Current prices of District 15 developments will look more acceptable considering the future prices – launching at $2,400-$2,500 psf. With CDL setting new benchmark prices, it shows developers are confident that there is room to raise the prices in the area. Today, developers cannot afford to hoard their land – they need to sell all within the 5-year mark.
Upgrading Your Home in 2022
Now, with all the recent news done, we’ll be talking about how to upgrade your home in 2022. We’ll address the challenges faced by upgraders, how to navigate the property market (including why CPF accrued interest is important), new vs resale, common mistakes made by upgraders, important questions to ask yourself and of course, our suggestions.
Challenges faced by upgraders in 2022
All upgraders, regardless of the type of properties, are wondering if today is a desirable time to upgrade.
Even with everything getting more expensive, desirable properties are still being sold. New launch properties are also selling out quickly and resale property prices are sky-high.
For instance, buying 4-bedders in District 19 is almost impossible with all properties getting swiped off the market right after being listed. Getting a hold of a new launch property would also necessitate renting (till the development TOPs) and the rental market, in its current state is also bloody. Let’s not forget all the uncertainty in the market; the recent cooling measures, increasing interest rates, the stock market taking a dip…
Taking into consideration everything that’s going on, it can seem like the cards are stacked against your dreams of upgrading. That being said, there are steps upgraders can take to achieve their goals of getting that upgrade property that suits their needs and wants.
Navigating the market
To expertly navigate the property market in 2022 the first thing one must do is focus on constants. The things that will not change.
For example the supply side of the market and HDBs hitting MOP.
As 2022 begins and interest rates increase, recent cooling measures will breed fear and uncertainty. Regardless, the HDBs that will hit MOP in 2022 wouldn’t change. Historically high numbers of HDBs will hit MOP this year and consequently, more upgraders will enter the market.
The aforementioned increase in interest rates will have a very minimal impact on the real estate market, especially on properties in Singapore. And as we discussed in our cooling measures video, the latest round of property cooling measures will not have a large impact on the upgrader market.
Upgraders should also be aware of and understand the market they wish to enter (upgrade into). HDB upgraders should be aware of where the HDB market will be in ideally, 10 years but minimally at least in 2-3 years.
Is the price increment in the HDB market sustainable? No. It is mostly caused by the delay in BTO construction stemming from the pandemic. Of course, the government is taking the necessary steps to alleviate the issues plaguing the market today. They are trying to control the supply by penalizing the developers with a significant increase in their ABSD.
Interestingly, this is apparently working. The decrease in the number of bidders in Jalan Tembusu land sale compared to more than 10-12 bidders in GLS before the cooling measures reflect the efforts that the government made.
Consequently, If the developers refrain from buying much land and do many en blocs, construction capacity for BTO frees up.
Also, after the new round of cooling measures, the government will also be increasing the supply of HDBs in the market – Averaging 20,000 in the next 2-3 years. This will force a lot of supply into the market without an increase in demand.
The increase in demand for the resale market in the past couple of years is artificial due to upgraders looking for alternatives of getting a home in lieu of the delay in BTO construction.
Once the BTO construction shortage ends, and the timeline goes back to the usual 3-4 year waiting time, demand will pour back in from the HDB market.
An increasing HDB supply and declining demand will tell you all you need to know about projected prices.
Similarly for the private market – try to foresee where the market is headed in the next 5-10 years. Focus on supply-side issues
This naturally leads us into 2025 – 2026, in three to four years’ time. This can be seen as the next upcoming critical juncture for the Singapore property market.
Why 2025/2026 is the next critical juncture for the property market?
Because this will be when all the under-supply in the private market is going to impact Singaporeans.
The fact that the government has not been releasing enough land ever since the last cooling measures in 2018, means 2019, 2020, 2021 all of this will result in a prolonged period of very little TOP in the market. And that’s going to force prices to come up significantly.
CPF accrued interest
CPF accrued interest is also a very important aspect of upgrading and it’s scary how little the average Singaporean knows about how CPF accrued interest works, especially with all the cooling measures in place, property prices will not increase the same way they did in years past.
In the good ol’ days, CPF accrued interest was not necessary due to the fact that property prices would double every decade. For instance, a $50,000-$70,000 HDB flat will amount up to about $400,000 today. The increase easily beats CPF interest rates, essentially eliminating the need to understand how it works.
To give another example, let’s take a loan with an interest rate of 2%. An individual would take a 30-year loan with CPF accrued interest at 2.5%. There’s a capital appreciation of 2%. And that changes in increments over the years, up till you are 70 years old.
Assuming the individual purchases a property for $1,000,000 at 35 years old while taking a 75% loan, only putting in the minimum sum they would need at $50,000, and the remainder with CPF.
How is that gonna work out in terms of your cash proceeds moving forward?
If the property appreciates at 2%, then that’s fine as they will always have cash proceeds regardless of whenever they sell.
However, if that same property were to appreciate at a rate of 1% per annum, in 15 years, when they’re 50 years old, it would then become an unprofitable, negative sale.
A negative sale here would mean that they’ve sold their property at $1.16 million, after returning the outstanding sum from the loan along with the CPF refund. Once that’s done, the cash proceeds are negative.
While they would not have to fork out cash to pay this differential, it does mean that there will be no net profit from the sale. And who would not want to earn money from the sale of their home?
A lot of upgraders tend to neglect the need for capital appreciation in their properties. They usually upgrade with other factors in mind; space, location, schools, etc. While it is good to focus on important needs and wants, it is doubly so to be aware of and learn the how-to calculate accrued interest to plan for the possibility of falling into a negative sale.
There are cases where individuals need to sell their houses for cash.
There are those that can get some cash because their CPF hasn’t been sitting in the property for long. However there are instances where a property is sitting on a $100,000-$200,000 negative sale.
Many would disregard the negative $200,000 because there’s no need to pay it, however they lose in terms of opportunity cost. They also continue to pay the mortgage without a single cent coming back in cash.
Even if capital appreciation is the last thing you need, being aware of it and understanding CPF accrued interest rate is crucial.
Imagine, if you were to get stuck in a negative sale and did not have alternatives, you can no longer consider your property as a profitable asset. The only exit you would have is to wait and turn 65 years old, which would also severely restrict you.
Speaking of flexibility, this leads us straight into our next point: New vs. Resale.
New vs. resale
We’ll be taking a look at the market by order of the three different regions of Singapore. The OCR, RCR & CCR, and explain what’s going on with new vs, resale units in the market.
It’s important to note that first and foremost that in terms of fundamentals, the market is as strong as ever, regardless of it being “overheated”.
OCR (Outside Central Region)
For the longest time, the new launch and resale psfs have been divergent. A couple of years back, the new launch prices were booming and resale prices were stagnant. So, we have thankfully come to a stage whereby resale prices today are catching up with, and narrowing that gap. In general, this narrowing of the new launch and resale psfs is a good thing for the market as It encourages sustainability in the market.
Why is this happening?
Because new launches are not available, thus people are being forced to venture into the resale market. It is also because of the excellent positioning of resale sellers. So sustainability-wise, yes, generally it works well for the market.
RCR (Rest of Central Region)
The gap between the new launch and the resale is not too high. Similar to the OCR, today, that gap is also narrowing.
CCR (Core Central Region)
Similarly in the OCR and RCR, that gap is narrowing also as well.
The market is entering a very natural equilibrium moving forward. Fundamentals are as strong as ever.
So all-in-all, is it a good time to upgrade? Yes.
You just need to have the confidence or sufficient knowledge to have conviction in the market moving forward.
Common mistakes in upgrading
Kicking it off with viewings
Upgrading is, understandably a very emotional process. There are many things happening all at once. People have a plethora of factors to contemplate; location, layouts, prices, schools…the list goes on.
Naturally, then, people would be eager to go for viewings, to get a better visual of how their home will work.
A side effect of this? Viewings tend to stir up emotions along with feelings of attachment which also get them excited most times. Next thing they know, they’ve been swept off their feet by the whirlwind of emotions, leading straight to their purchase.
There are many a case of clients going in without any intention to buy, but upon viewing the unit, they became very emotional, making a commitment on an impulse buy.
Before, it would have been fine to make a mistake of this nature, as market correction and longer holding periods generally net a positive sale. However, today, these fixes would simply not be enough to beat CPF accrued interest.
Not budgeting the “right” way
payslips and ask the bank for the amount that they are eligible for and factor up from there. But conventional in this case, is not “right”.
It’s always best to work your way backward from a comfortable monthly expenditure for you and your family. Work your way up from there to find a budget that is not only comfortable but sustainable. This is because banks do not account for your expenditure for the next 5 years and bankers’ calculations off of TDSR are what you can afford on the date of application.
If you work backward and start your calculation from a comfortable and sustainable monthly expenditure, you’re essentially future-proofing your financial property/your property financial plan, giving you a little bit more confidence when it matters.
Once the financials are done and are rock solid regardless of what might happen, you will never be in a situation where you would have to even consider selling the property. This will also increase your holding period, negating the need to be forced to sell the property at an undesirable time.
Too emotional/too logical
As we mentioned above with starting with viewings, there is a need to take a middle ground between logic and emotion. Eg: There are cases where one partner might be too logical while the other too emotional. It helps to then have a third party to help with weighing each against the other. This also manifests itself when individuals are unsure of the “right” budget to be spending, leading to irrational fear.
Fear
There’s a noted difference between rational and irrational fear. Ie: Confusion over the size of budget is rational fear because it can be solved by sitting down and calculating it. On the other end, irrational fear is something that cannot be eliminated with planning, solutions or calculations.
How can you reduce irrational fear?
Irrational fear can be reduced with knowledge, good and careful planning. We cannot however completely eliminate irrational fear.
Trying to tick all the boxes
In an ideal world, the house of your dreams with everything you both need and want aligns with all your needs and wants. Unfortunately, you cannot have everything, so instead, you have to be realistic about it. Trying to get everything will hinder your move.
Focusing too much on square footage
Most of the time, upgraders would have certain square footage requirements, 1,000 sqft for instance. They then search for a property and filter the results for no less than 1,000 sqft.
Square footage can be deceiving. Let’s take a look at these two floor plans that are from the same development. The 1,033 sqft unit has 3 bedrooms and the living room looks decent. However, the long corridor takes up a lot of extra space.
The client that viewed the 2 units preferred the 990 sqft unit with 4 bedrooms because there’s not much wasted space, in contrast to the former.
The 990 sqft unit has 4 full bedrooms that can fit a queen-sized bed in. You can also fit in any sized sofa with a dining table without a hassle, unlike the 1,033 sqft unit.
The client that viewed the 2 units preferred the 990 sqft unit with 4 bedrooms because there’s not much wasted space, in contrast to the former.
The 990 sqft unit has 4 full bedrooms that can fit a queen-sized bed in. You can also fit in any sized sofa with a dining table without a hassle, unlike the 1,033 sqft unit.
They would’ve missed the opportunity to view the 990 sqft unit if they had stuck to their 1,000 sqft requirement.
This requirement may also lead you to units built in the early 2000s that have bay windows. These units tend to have less ideal layouts in contrast to those without bay windows. It also would have a lot of unusable space.
The important thing is to explore your options by reducing 100 sqft from your initial search requirement.
Questions to ask yourself
What am I waiting for?
For those that are on the fence and have been saving up to make room for a larger budget to accommodate a development you have your eye on, you’re on the right track. If you’re also waiting for a particular unit to come up, and the unit has already been transacted, you’re on the right track too.
On the flip side, if that lad is still sitting in a reserve site, hasn’t been released for sale, or are waiting for prices to drop it is not recommended for you to wait.
Am I capitalizing on the macro trends?
The market is at a very unique point where gaps have been created due to the pandemic. These gaps bring with them lots of pricing disparities and macro trends that have been very obvious. Understand the market fundamentals and take advantage of them. From there, you can decide if you want to “play” with this macro trend or not, which is still a better option than overlooking it and losing out on the option completely.
What are my alternatives and options?
For instance, you wouldn’t want to do anything because the market is too expensive. Still ask yourself, what are your alternatives?
Staying put? Using your CPF spreadsheet? Jump from HDB to HDB? Perceive how that might play out for your finances over the next 5 years.
Ask yourself at least, what are my alternatives?
Staying put, fine. Staying put – how is that going to play out for my finances over the next 5 years?
Use my CPF spreadsheet, okay. How is that going to play out right if I jump from HDB to HDB, how is that going to play out?
Or if you’re holding a condo especially, plenty of individuals may also be holding on to ECs hitting their MOPs and there are many options available to you.
“Method D”, buying with trust, straight up selling-buying. Do I sell and buy with one name or sell and buy with two names? At the very least you have to go through all these alternatives.
It is important that with all of the aforementioned alternatives you understand your options clearly.
What is my exit?
What is my exit strategy if I don’t do anything? What is my exit if I make this one move? What are the potential exit strategies available to me?
If you are entering into a purchase and you see only one route of exit – hold forever, then that probably is not going to be the best, most optimised plan for you.
Every time you take a step into a potential move, have at least 2 potential exit strategies for yourself.
Planning property move w/ clarity
Think two steps ahead
Foresight is extremely important when it comes to clarity. That being said, one should not just think of their next move and should instead think two steps ahead. You need to plan your subsequent possible purchase after the current purchase. This will also give you a goal and with it confidence and clarity, and the flexibility to move around in the event news like market correction hits.
Be aware of all exit strategies
EC and other private homeowners would easily have 4-5 exit strategies available to them. On the flip side, HDB owners would have about 3 different exit strategies available to them. Knowing what they are for the type of property you have is paramount in having clarity when you plan.
Visualize the exit
Speaking of exit strategies, it helps to know who you are gonna sell your property to – picture your target buyer, who is potentially gonna buy the property from you.
If you cannot visualize your potential buyer, you are in trouble. Especially if a buyer really likes the property a lot, it might be an emotional buy. It might be that they are the only person that is interested in the property which would bode badly for future exit strategies.
Case in point, 1-2 bedroom penthouses with huge roof terraces. There’s not a very big group of people that you can potentially sell those units to.
Do regular health checks
Similar to how your insurance agent comes to you every single year to do a check on your insurance policies, and how you’d go for your annual health check-up with your GP, you need to get regular “check-ups” on one of your biggest assets – your property.
Every year, keep track of the important numbers to prevent your property from falling into negative sales or plan how to navigate out of it. You’ve got to check to be informed and then plan.
Flexibility – It is very crucial to have flexibility in your property plan. It comes from having various exits that play hand-in-hand with one another.
It is also important to be flexible in how you think – Never plan on holding your property forever.
1 trick to achieve clarity
The factors should be ranked by priority – size, location, budget, growth.
Understand that no property will have every single check-box ticked, and if you look for everying, chances are you’d end up with nothing. So, if you have a partner, communicate with each other and come up with a comprehensive list of factors, from most important to least important.
If you have a partner, communicate with each other and come up with a list that will be the most important factor for you. No property has all of the things you are looking for. You’ll end up with nothing if you’re looking for everything.
Case Studies
We’ll now be taking a look at two case studies. Mr & Mrs. Wong, and Mr & Mrs. Mhd. Let’s explore how they ranked their priorities and the eventual outcome!
Mr. and Mrs. Wong
Mr. and Mrs. Wong have a daughter and were initially focused on location due to requiring their parents’ help with the care of their daughter. The price and budget were the second and least important due to their high earning ability.
At first glance, growth might have been the least important factor. However, after extensively searching for the right property, they realized that growth was their top priority. This is simply due to the fact that the property they were looking at wasn’t one they are 100% happy with.
Never make do. If the property you find feels lackluster or just “okay”, try searching for alternatives – in this case, they took advantage of their age and income to go for growth of the particular property.
Then, after making a profit, and playing with macro trends they can utilize it and go for a property that they really desire.
Mr. and Mrs. Wong ended up in a new launch development within their desired location after thoroughly establishing their goals. They might have paid more than they outlined in their original budget but they traded it for
They became comfortable with the additional price after recognizing the potential growth the property offers – making it future-proof.
Mr. and Mrs. Muhammad
Owning a 4 room HDB in Sengkang, they wanted to upgrade for more rooms and larger square footage.
Budget was the biggest concern since only the husband is the sole breadwinner, and they were also expecting their third child. Due to the constraint in the budget, price became the most important factor for them after their journey of discovery.
The second biggest was growth after going through the CPF calculator. They couldn’t afford to let their property depreciate nor be stagnant. Based on these factors, they panned away from resale HDBs – which had their desired size requirements.
After discussing whether it was fine for them to ditch their initial plan, they ended up on a resale EC in the east. Since then, the price of their property has been appreciating and they are very happy about their decision.
Our Suggestions
Remaining Stock
If growth was the most important factor for you, check out the new launch remaining stocks. The narrowing of the gap between resale and new launch prices shows the new benchmark prices – making the current stock worth contemplating.
Resale ECs
Another point on growth is on resale EC’s acceptable quantum. Demand for large units in the OCR will increase due to increased affluence in Singapore.
Single income households wouldn’t be able to stretch their budget – especially HDB upgraders – demand will shift to the resale ECs with a lower entry price.
Balance ECs
They also don’t include ABSD, like in Province, Park Central, and Park Greenwich.
For upgraders unwilling to rent or pay ABSD, this is worth taking a look at. Even with ridiculous price points in the current market at $1,100/$1,200 psf, the holding period of 7 years will make those price points acceptable.
Older 99yr leasehold condos
Concerning upgraders that prioritize size and budget, older 99-year leasehold condominiums prove to be an excellent value for money. However, there’s a need for a longer holding period until it goes en bloc.
Not to recommend the risk of waiting for en bloc – It is not set in stone. But this is still nonetheless a good option for people that want new, large, and budget-friendly properties.
If you cannot quite meet that size requirements for your budget, simply lower your budget all the way down and buy an old 99yr leasehold condo. This will hopefully lower your budget down enough that it can be bought under one name – offering you more exit strategies and options moving forward.
Reinvesting
If you still cannot afford the budget for a property with your desired size, buy a property within budget – regardless of the size – and rent another with the size you intended to get for your own stay. This leads to;
Renting a landed property
Landed properties in rental markets are a bargain. The rent for a corner terrace is priced between $4,000-$5,000 a month.
Once you feel that you are making do and overpaying for a 4-5 bedroom property, drop to a 3-bedroom instead then rent it out.
Case in point, a client who couldn’t manage to purchase a property big enough for the family ended up on a resale in Tiong Bahru at $1.7 million. It yielded $6,000 in rental, which they then used for their rent on a landed property that was a mere $4,500. The $1.7 million would never have afforded them a landed property.
The CCR
Undersupply in the market is pushing the prices in the OCR – for instance, Jalan Tembusu mentioned earlier that hit $2,400 psf. It is thus that upgraders should start to consider the CCR which offers freehold with $2,600-$2,700 psf. It will seem to have a lot more value in the market.
