Why did we invest in New Zealand property when everyone around us was upgrading to a condo
Living in a HDB has its advantages while they pursue other investment opportunities for Angela & Derek
Rising cost of living and the need to invest
Angela & Derek are in their mid-thirties and having worked for a while, they were keen to grow the pool of savings they had accumulated over the years. They are very comfortable with the current HDB they are living in, but as family and friends around them were upgrading to a condo and even a landed, they started to feel that might be a good idea to consider in multiplying their wealth through upgrading their own stay property. With inflation and the cost of living skyrocketing, they knew they had to do something and not just let their savings sit in the bank. They went on to find out more but realize that while the prospect of an upgraded home might seem appealing, they had their concerns that they couldn't come to terms with.
Asset progression. Sell HDB buy condo. Sell one buy two. Those were the common strategies promoted by various people they consulted with. While it could have worked for some, Angela and Derek realized that it might not be the most suitable choice for them. When we first met and had a lengthy chat, they lamented:
“How can our own house be an asset when it is not putting cash into our pockets? If I don’t sell, I will never be able to enjoy the growth in prices and if i do sell, then i will still have to buy another house to live in. I am not quite sure if its worth all the effort.”
Their HDB then had very little mortgage left and was close to being fully paid which gives Angela the flexibility to be a stay-home mum as they plan to start a family. Their main purpose then was to grow the pool of cash savings they had accumulated, and with that in mind, we explored the various potential strategies they could employ.
Owning a condo is an aspiration for many Singaporeans, but will it be a right fit for you?
Explored across various strategies based on their situation
Keep HDB and invest in Condo
This was the closest option that aligned with their investment goals. They enjoyed the current location & size of their HDB, being within walking distance to Agnes parents and having grown up in the neighborhood, she had fond memories of the area. They hope to keep the HDB and wanted their investment to be independent of their own stay property so that they could still retain all the conveniences brought by their current place. However, keeping their HDB and buying another condo would mean they will incur substantial costs in stamp duty; buyer's stamp duties and ABSD (Additional Buyer's Stamp Duty) alone amounted to more than $140,000 for a million-dollar condo then (this was before the recent increase in BSD & ABSD in 2023), and that was on top of the deposit they had to pay for the down payment on the property. The high cost of stamp duties as a sunken expense did not make financial sense for them to invest, plus it felt risky for them to concentrate a big portion of their resources on one investment property.
This option while attractive, was not feasible for them and was quickly thrown out of the window.
Sell HDB buy Condo
While reluctant, they explored the option of selling their HDB and upgrading to a condo within their area. This allows them to redeploy the sale proceeds from selling the HDB to buy the condo and at the same time, avoid any ABSD and only incur the usual buyer stamp duties. However, with condo prices already seemingly high and even HDB are the crossing the million dollar mark, they wonder where the profits potential could go to. They balk at the idea of paying for a condo that is 2.5 times their HDB purchase price and have to content with a much smaller living space. With family planning in their pipeline, they are not sure if they are willing to give up their current HDB which is spacious by most condo standards.
Stressful decisions down the road
Should they stick to this strategy, in order for them to potentially profit and en-cash from this condo purchase, they had to sell the condo home at some point in the future and then re-enter the market for a new own-stay home, hoping to pocket the difference as profit, if any. With property prices rising everywhere in Singapore, they are concerned that the future prices they have to re-enter at could be at a new high then, leaving them with little to no profits eventually. Even if they were to downgrade back to an older HDB with a much shorter lease, eventually, they may have to deal with hefty renovation costs, lease decay problems and worst of all, not being able to buy a place that is near to her aging parents by then. After shopping around and exploring a few condo options, they realized that despite an upgrade in "asset", it could be a downgrade in living space, as buying a condo with the same or larger space as their current HDB would have easily burst their budget by 30%. They also had to saddle with a much bigger mortgage on their own home, which could have limited their flexibility to pursue other goals and investment opportunities in the future.
Moving house can be an extremely stressful period for many
Moreover, with this strategy, they squinched at the idea of having to move house twice, having to first move out of the current HDB and into the condo, and eventually to move out to a new place when they decided to sell the condo, the day when they decided to take profit if any. They are already happy with current place. Their HDB is near to Angela’s parents, schools for their future kids and most importantly, they are happy living in the house. The size was alright and they had all the amenities they need nearby. By upgrading to a condo, these conveniences may not be easily replaced. While they thought that condos may provide amenities as a lifestyle, they wonder how much of it would they utilize and not to mention the costly MCST fees to pay regardless of usage.
If they invested in the condo and choose to continue to stay in it into retirement, there is no way for them to reap the benefit of the investment and they may end up living in an appreciated asset that cannot be used to fund their retirement. That defeated their original starting point of wanting to grow their current pool of savings.
With all that, they wondered if its all worthwhile?
Sell HDB buy two Condo (aka sell one buy 2)
This is a similar strategy as above, except to double down on the investment. Essentially, it entails selling their current HDB, and buying one condo each under their own individual names, in order to maximize profits eventually. This way, they also get to do away with the need of having to incur expensive ABSD as their property count remains as 1 per person. While the sell one buy two strategies may seem attractive on paper, it also comes with its own set of challenges and risks. This strategy is also the most capital intensive and takes on the most uncertainty should they decide to head this direction. These are their potential exit plans:
Sell both Condo and buy HDB or a smaller condo
This would have been their most preferred plan to exit both properties as it allows them en-cash their profits and downgrade to a more affordable property, be it an HDB or smaller condo depending on their needs at that point in future. However, it comes with the same set of challenges as mentioned above in the "Sell HDB buy condo" strategy. Having to face with potentially higher re-entry price (reducing their overall profits), and having to go through several rounds of moving houses and having to adapt to a new environment that they may not like.
In a recent coffee catch up session, we both agreed that this strategy has a new roadblock with recent changes requiring private property down-graders to hold out a waiting period of 15-30months before they can purchase a HDB. This further adds to the stress of more transition in moving houses and increased costs of having to rent during the waiting period. Although the rule exempt down-graders who are age 55 and above, they do not want to lose the flexibility of exiting the property investment should a good opportunity comes before the age of 55. Even so, policy and rules can continue to change down the road.
While downgrading in future is part of the investment strategy, it is not without uncertainty and much inconveniences
Sell one condo and keep one
Should they opt for this option, they would have to contend with having part of their wealth locked up in the condo that they are keeping, since they wish to continue to live in. Another area that they have yet to resolve as a couple is a big gap in their CPF balance the day this exit is executed. This is so because a large part of their CPF would have been used to finance the 2 condos, and since the condos are bought under each of their individual names, the one that is selling would have received a CPF refund plus accrued interest from the sales proceeds. On the other hand, the one who is keeping the other condo for them to continue to stay in, would have his CPF used up in financing the property, leaving a big gap difference in their CPF balance. While there is nothing wrong here, that is something they had to iron out in advance as CPF can form substantially of one's retirement.
Keep both Condo
Opting for this option would mean that eventually, they would have a large part of their wealth lock up in the 2 properties. They would therefore have to rely on their income and other investments to catch up on their wealth-building in order to have a backup to fund their retirement. While one of the condo may be able to provide positive rental income by then with the mortgages being paid down, they are concerned about keeping a leasehold property for long. In addition, this is something they are not ready to entertain as they do not want to be tied down to their jobs with no flexibility to pursue other interest should the day comes.
All options leads to the need to sell their home in future
Having thought thru the various options investing here in Singapore and looking at the life stage they are in, they prioritize flexibility in their career options without having to tied down with big mortgages on their own stay property. Almost all the strategies that they explored, involved them downgrading and selling their properties at some point in future, in order to meet their investment goals. The way they look at it, if there was an option to allow them to reap the benefits of property investment, without having to disrupt their current & future lifestyle, without having to risk buying their own home at a much higher price in future in a rising market, it would represent the most ideal situation. They also do not want to be limited in options in liquidating their investments without having to make major changes in future. This is not until they decided to explore the overseas property market.
New Zealand offered Angela & Derek several advantages on their property investment journey
Unearthed an untapped altenrative market
Discovered a gem market: New Zealand
Not too long into that, we caught up again and thru the conversations and sharing, they were glad that New Zealand offered a great alternative markets for them to multiply their wealth. This way, they get to keep their HDB and has the full flexibility to reap the benefits from their NZ property investments whenever the opportunity comes around. The lower price quantum for a freehold New Zealand property and the availability for financing options also meant that they need not put all their cash resources into just one property, but potentially spread over several properties for diversification.
After several rounds of chats and understanding the market, they made their first move and bought their first property in New Zealand, without having to pay stamp duties or ABSD. The savings in stamp duties was unbelievable for them at first, having always heard of hefty taxes when buying property in Singapore and other countries. This resulted them in having much leftover cash even after buying their first property in NZ, and looked to buy their 2nd NZ property to expand their portfolio. Today, their first property is already sitting on a 6 figure valuation gains and is in the mid of settling their second investment property.
Should I Invest abroad, stay put or wait?
If you are reading this, you are probably wondering what your next best steps in your investment journey could be.
Perhaps you are also contemplating your next upgrading property move? Will New Zealand market be a right fit for you and your family? Is this a good time to buy an overseas property, or should you wait and see?
Well, everyone’s situation is different. There is no one size fits all strategy. What has worked for someone, may not necessarily work for you.
At Brickzwealth New Zealand, our aim is to bring clarity to your investment decisions with extensive on the ground experience for the overseas market.
Whether you are a first time property investor or a seasoned buyer with a portfolio, we are here to provide an honest and objective view to your investment journey.
We can help you by:
1) Providing Strategic property advice that best fit the outcome you desire
2) Identify & spot investment opportunities that align with your goals
Kick-start a conversation with us today. Invest differently. Inspire your future.
Ryan Quah
Founder
Brickzwealth New Zealand
