Today we’d be discussing about the better way to build your wealth, be it for retirement, for a better lifestyle, to upgrade your home or whatever the case, having more beats having less right? It all boils down to the choices you make, or don’t make. It’s very much a personal choice.
Let’s check out this case study.
| Mr and Mrs Tan got married when they were both 28 years of age, and successfully balloted for a 4-room Punggol BTO, priced at $300,000 after numerous tries. They don’t know if the unit they chose is the best or not, but they’re surely relieved that they had finally succeeded in the first step in building their family. They are earning a combined income of about $6,000. |  |
| Fast forward 3 years, they are both 31 now, the BTO finally finished building and they had gotten their keys! After renovation, they moved into the next phase of their lives. |  |
| Fast Forward another 5 years, they are both 36 now, their flat had reach M.O.P (minimum occupancy period) of 5 years. They are now a happy family of 4, with 2 kids aged 3 & 4! Everything is going well, and they are pretty happy at this point in their lives with stable income of $9,500 | |
I’m sure this scenario is quite common right? Many of you or your friends find yourself in this stage, thinking “should I do anything?”
We have to assume some numbers at this point to let make it a clearer picture.
 savings account |  Existing combined CPF OA |  Amount of CPF used for home (include interest) |
| $60,000 | $50,000 | $200,000 (from CPF OA) |
Outstanding loan : $120,000
Option 1.
They can stay put in their current flat. Profit = $0.00, Savings +$0.00, CPF OA +$0.00
Result : Nothing changed. HDB flat would maintain same value or drop over time. (Fact)
Option 2.
They profit from their BTO home and try to amass some wealth. Assuming they sell their flat at $500,000 (this is not an impossible number, to check your estimated home value please contact us and we’d generate a home report for you backed by actual transactions)
Cash Profit = $500,000 – $200,000 (CPF Used) – $120,000 (Outstanding Loan) = $180,000
Result from Option 2 after selling
| savings account | Existing combined CPF OA | Amount of CPF used for home (include interest) |
| $60,000+$180,000 = $$240,000 | $50,000+$200,000 = $250,000 | $0.00 |
They then went ahead to purchase a 5 yrs resale EC 3 bedroom unit with full facilities at $900,000.
They would need to pay
- 5% CASH down payment = $45,000
- 20% CPF down payment = $180,000
- Buyer’s stamp duty = 3% of purchase price – $5400 = $21,600 (cash)
- 75% bank loan = $675,000 (Bank loan)
Result from Option 2 buying
Savings Account | Existing Combined CPF OA | Monthly Mortgage |
| $$240,000 – $45,000 – $21,600 = $173,400 | $250,000 – $180,000 = $70,000 | $2591.50/mth |
They had successfully upgraded to a condo without digging into their savings account, in fact they have more now in their savings account than before. They could actually take less loan and paying more cash upfront but we didn’t want to complicate things in this case study.
HDB Prices are highest at the 5th year MOP (fact)
Future Potential: Comparison of Staying put vs Profiting & Moving
| BTO 5th yr to 10th yr | Move to Resale EC | |
| Value of home | No change | Modest appreciation 5% |
| Savings account | No change | Gained over $100,000 Cash |
| Lifestyle | No Change | Upgraded to condo, their young kids have easier access to facilities & safer environment |
| Potential | Most likely no changes in the next 5 years | Since they bought a 5 year EC, when it reaches the 10 year mark, that EC would classified as fully privatised. |
As summarized by the table above, not only the monetary gain that can tide them over for rainy days and since they have 2 children now, it’s better to have more rainy day fund stashed away for them.
The potential appreciation of the EC is surely better compared to HDB. Lifestyle changes might let the kids grow up and have a happier and more fulfilling childhood.
The potential profit is already there, imagine if you were to try to achieve a $100,000 to $200,000 cash through saving monthly, how long would it take?
It’s not easy to save $100,000 or $150,000 in a young family such as Tan’s. Daily expenses, insurance, education, food costs, transportation costs, GST are almost always increasing.
There might be other scenarios for other families, it’s not always about upgrading, maybe your family grew with 3 or more kids and are looking to get a bigger space? Or your kids grew up and got their own home so you’ve no need for such a big space anymore.
Remember, The profit from your BTO is there for you to make use of it. Its just paper profit unless you do something about it. Think of it like you’re holding a stock that’s already in profit. Would you want to sell and take the actual profits or wait and see?
We have the figures to back up what we say in this article, to have a no obligations chat with us about how you can improve your families’ lives today click on the whatsapp button to chat with us!