Sunday, January 28, 2018

First property: Investment or live-in

To Singaporeans, property isn’t just an investment. It’s more like that magic lamp in Aladdin. People seem to think it makes you rich, improves your love life, and probably cures cancer. It might explain why Singaporeans rush to invest in it as soon as possible. Not a bad idea; but before you make your first house a pure investment (e.g. you rent the whole thing), you’d best make the right preparations. We take a closer look in this article. When it comes to investments, plenty of options are available in the marker. For example, you could purchase a HDB in Bukit Batok, which is considered one of the more populated areas in Singapore. Or you can opt for a cheaper HDB somewhere a little further down and pray for development to come in a few year’s time. I'm sure different investors have different strategy in this matter.

Owner Occupancy vs. Pure Investment
In some sense, every property is an investment. Even if you don’t rent out your house, it’ll still sit there and accumulate value, year-on-year which is called as capital appreciation. Some investors look for capital appreciation when it comes to buying their HDB. But some people aren’t content to wait. They want their property to be a cash-generating asset, and they want to see bigger returns. So the first HDB they buy isn’t for shelter, it’s purely to generate money. That’s why shoebox flats surged in 2010 to 2011. Wannabe property tycoons used their limited funds to get whatever private housing they could, then lived with their parents (or whoever). However, that shoebox craze is over. But even now, first-time HDB buyers snap up units they have no intent to stay in. Is it a good strategy? It all depends on several factors.

The Pros
If you have somewhere to crash, you might be tempted to play landlord from the start. In which case, you can revel in the following:-

Higher Returns
In Singapore, there are almost over four million people crammed on this island. If you search hard enough, you would be able to find a place that people would want to rent it for. Assuming you buy a $1-million-dollar condo, and rent it out. During that time, your monthly loan repayments will probably be around $2,000 – $3,000. But most condos generate between $4,000 – $4,500 when wholly rented out. So in effect, the tenant will be paying the housing loan for you. After that, you might be tempted to eventually sell the place. Whether you sell high or low, your tenants would have paid the bulk of the costs, not you. All things being even, you’d see higher returns at resale as a landlord than as an owner-occupier (who’s been making loan repayments out of pocket).

Side Income
As mentioned above, rental income usually exceeds the cost of loan repayments. You can make a side-income this way, or you can do multiple jobs to gain extra money. However, the surplus depends on the home loan interest rates. If you get the cheapest home loan, you’ll earn a lot more.

The Cons
The method is not risk-free. Every so often, a first-time investor gets bitten by one of the following:
  • Not Having Your Own Place
  • Facing Vacancies and Unreliable Tenants
  • Assuming You Can Get a Second Property

Not Having Your Own Place 
So, let’s say your first property is rented out. This means you have absolutely no place to stay, except at your mum’s house or you resort to renting out another HDB for this purpose. If you ever need to move into your HDB, it means kicking out the tenant(s). Even if you don’t mind tenants as HDB-mates, your rental income will be diminished. And if you have a shoebox, renting out rooms is obviously not an option. Your either become an owner-occupier, or sell the property.

So I’ll Sell It. Big Deal.
Should you choose to sell, you’ll face the SSD (Seller’s Stamp Duty). It’s as follows:
  • Selling on first year of ownership – 16% of market value or purchase price (whichever is higher)
  • Second year – 12%
  • Third year – 8%
  • Fourth year – 4%
And do remember, you need to sell it if you want to buy a BTO HDB flat in Bukit Batok. Simply put, your investment can become a liability, if you’re reliant on rental income to pay the home loan. If you can afford the home loan without a tenant, you merely become an owner-occupier.

Facing Vacancies and Unreliable Tenants
Prolonged vacancies are rare in Singapore. So are unreliable tenants, who might disappear while owing three months rent. However, this does not mean that such things won’t happen in the market. There are occasions when the rental market is bad. You can still find a tenant when that happens, but you may not find a tenant who can meet your desired price. You might even need to drop the rent, to the point where it’s barely covering the loan repayments. For the cases of tenants disappearing without rent, the likelihood of recovery of those amount is low to near impossible. You might need emergency funds for those kind of rainy days.

3. Assuming You Can Get a Second Property
Rental income is fantastic, so by the time you need a second property you can surely afford one right?

Yeah, if you’re still living in 2008. These days, the government looks at multiple-property buyers. So their new cooling measures restrict the LTV (Loan-to-Value ratio) to 50% or 40%. Minimum cash down is 25%. This results in a whooping amount of $400k – $600k lying around for your second HDB or condominium. As for your CPF, remember you’ll need to set aside half the minimum sum in your Ordinary and Special accounts. If you can’t make that amount, you can’t use your CPF for the second or subsequent property. Therefore, you are recommended to check out your TDSR before acquiring a second HDB or condominium for yourself.

In Conclusion
There are strong upsides to making your first property buy a pure investment. However, you need to meet the following:
  1. You are not reliant on rental income to cover the loan repayments.
  2. You are confident you won’t need a place to stay, at least within the next five years.
If you don’t meet either of these conditions, don’t play landlord. You’ll just end up selling at a cost.


  1. It's important to do alot of research and learn more before we start to invest and buy property! Would love to learn more and invest if I am able to.

  2. Good infos. Kalau ada property eloklah dijadikan sebagai investment. Rasanya, senario di Malaysia pun sama juga. Kalau ada duit banyak, memang akan buat rumah sebagai investment.

  3. Bukan senang nak membeli property ni lebih2 lagi du luar negara. Bagus ada info sebegini sekurang2nya boleh jadikan rujukan buat mereka yg nak jadikan property sebagai investment

  4. Apa sahaja yang melibatkan wang. Kena buat survey, research dan tengok sendiri dengan mata kepala sama ada Lokasi tersebut sesuai ke tidak. Tambahan kita dah bekeluarga. Mesti nak semua selesa.

    1. Ruby, we really need a strategic location for everyone convenient.

  5. hmm don't play landlord part.. what you say is true. if money management not well manage and plan not well plan for sure end up selling off property at cost... or might be lower... - Rach

    1. Rach, that's why we need to choose the right property to invest.

  6. I do agree with your point of view. We need to think properly before we invest in property. I recently just move in to my new house and just did my cleaning such as rug cleaning and curtain cleaning. Informative post and thank you!