Meet Alan, 35 years old today and owns a HDB since 2007. He purchased it for $400,000 at that time and has managed to fully pay off today. Together with the wife, they have saved another $200,000 to be used as down payment for a private property, which they will move in to. I was quite concerned when they revealed this plan to me. The first thing that formed in my head was this chart.
| Year | CPF Accrued Interest | Total CPF Accrued Interest |
| 2017 | $10,000 | $10,000 |
| 2018 | $10,250 | $20,250 |
| 2019 | $10,506.25 | $30,756.25 |
| 2020 | $10,768.91 | $41,525.16 |
| 2021 | $11,038.13 | $52,563.29 |
| 2037 | $15,986.50 | $255,446.58 |
At Year 20 in 2037, if Alan decides to sell the HDB, he needs to sell it at $400,000 + $255,446.58 if he intends to break even. So imagine this, would there be demand to purchase a 30 year old HDB at a price of $655,446.58? What happens if he sells it off at Year 30 in 2047 instead of Year 20 in 2037? (The CPF accrued interest at Year 30 is $439,027.03 mind you.)
Alan tells me this, he wants to keep the HDB initially because it will be a good rental income property. What he failed to calculate was the potential negative sales (when the selling price is lower than total amount owed to CPF) in the years to come if he decides to sell.
Now, let’s take the above chart and add 2 more columns.
Total Rental Collected.
Profit After Deductions.
| Year | CPF Accrued Interest | Total CPF Accrued Interest (A) | Total Rental Collected (B) | Profit After Deduction (B – A) |
| 2017 | $10,000 | $10,000 | $24,000 | $14,000 |
| 2018 | $10,250 | $20,250 | $48,000 | $27,750 |
| 2019 | $10,506.25 | $30,756.25 | $72,000 | $41,243.75 |
| 2020 | $10,768.91 | $41,525.16 | $96,000 | $54,474.84 |
| 2021 | $11,038.13 | $52,563.29 | $120,000 | $67,436.71 |
| 2037 | $15,986.50 | $255,446.58 | $480,000 | $224,553.42 |
Congratulations, after collecting 20 years of rental, you have made $224,553.42 after deductions. When divided over 20 years x 12 months, it works out to be $935.63 a month. And I have not deducted property tax, income tax, conservancy fees etc.
I have also not deducted the estimated $70,000 non refundable ABSD they have paid on the second purchase. (Assuming both Singaporeans, 7% x $1million property).
In Alan’s bid to make a monthly rental income of $935.63 (before cost deductions) using his HDB, he bore the risk of a depreciating asset over 20 years. He undertook the risk that he must be able to sell at $655,446.58, 20 years down the road. Is this risk worth taking?
Tips for you not to be caught in such a scenario
Check how much CPF accrued interest you owe at this point of time.
- Estimate how much your HDB potentially could be worth at the time you decide to sell or inherit to your children.
- Is it an asset or a liability by then?
Do not be caught in the blind where you sell off at negative losses!
Our team at MDL provides consultation in these areas and is set on helping you adjust your portfolio for better upgrades and returns.
Click here to WhatsApp us at +65 9007 4405 for any queries or submit the form below if you prefer a callback.
Where Can HDB Owners Upgrade To? Is This Potentially Another Opportunity You Might Be Missing?
Sometimes, the least ideal location property could be the money maker. Take for example this project with the following attributes.
- 10 minutes walk to MRT
- 2 level of shops managed by 1 developer owned mall
- 22 mins train ride to reach Orchard Station
- $970,000 quantum for a 3 bedroom
- Brand new, ready in 4 years time
- No more new condos launched nearby and being built at this moment
- Surrounded by at least 6 clusters of HDB BTO
Now, points 1 to 5 are common selling scripts you have heard before, and point 6 seems to be an odd reason for buying this project. What if I told you, the residents of these 6 clusters of BTOs are collecting keys? In 5 years time from now, 2 things will happen.
The Minimum Occupation Period of the owners’ BTOs is over.
Your Sellers’ Stamp Duty period of 4 years is over too.
There will be HDB owners who will sell their HDB and upgrade to a private residential. Now, it is most likely that their parents will be staying nearby and they have young children going to Primary Schools nearby. Will they consider moving out of their comfort zone, or choose to upgrade to nearby condominiums? Will the 2 levels of commercial shops further attract them to upgrade to this project, and it being brand new and ready to move in by then?
Is there a potential upside profit you can make out of owning this property due to its unique attributes which not all properties have?
Our team at MDL provides consultation in these areas and is set on helping you adjust your portfolio for better upgrades and returns.
Click here to WhatsApp us at +65 9007 4405 for any queries or submit the form below if you prefer a callback.
