We Have $1.2m In Cash/CPF And Own A Queenstown HDB: Should We Keep Our HDB Or Sell To Buy 2 Properties?

Hi Stacked homes,

I am a regular reader of stacked homes and am reaching out in hope that you can give some good advice on investing in a property.

My partner and I currently own a 4 room HDB in Queenstown. We are in our forties and our combined income is around 13k per month. Our current HDB is fully paid and would probably fetch around 950k-980k, and we are also renting out the 2 common rooms at 1.2k per month. We also have cash/cash equivalent & CPF amounting to 1.2 million.

We have always considered getting a 2nd property for investment since our HDB MOP a couple years ago However, we are unsure when would be a good time to enter the market and also, not quite sure what our options are. We have been reaching out to various agents to explore our options. However, all the agents are advising that we get new launches which doesn’t work for us as I don’t think we have sufficient funds to pay for 2 properties without selling the HDB first and we are also unwilling to consider renting while waiting for the purchased properties to be completed.

We are considering if we should

1. Sell the current HDB and get 2 private properties – one will serve as our primary residence while the other is more of an investment property. Each property will be owned individually so we do not incur the ABSD.
2. Retain the current HDB and buy a 2 or 3 room condo for investment. This will incur an ABSD as the HDB is jointly owned.
3. Buy a dual key unit or a larger condo and continue to rent out the spare rooms in our primary residence.

Besides investing our cash in property, there are other investment options such as bonds, treasury bills and equities that we can put our cash in as well so the expected return should be attractive as compared to other investment options. That said, we are hoping you can share your opinion on what is our best option if we want to invest our cash in property.

We are leaning towards getting 2 private properties as we do not wish to incur the ABSD, and if possible,would rather not have tenants in our primary residency going forward. However, we are concerned about the ease of selling 2 bedder condos as these tend to be on the smaller side and hence we also considered getting a dual key unit. We are also unsure about the profitability of a dual key unit and whether it will be easy to sell further down the road should we decide to cash out for our retirement. If the 2 bedders and dual key units are indeed harder to sell and profitability is a concern, we are also willing to consider getting a larger condo and rent out the spare rooms if that makes the most sense.

I hope you can shed some light on some of our concerns and our options, and I hope to hear from you soon.

Thanks & regards

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Hi there,

Thank you for writing in. 

By way of introduction, I’m Kenny and over the years, I’ve guided many HDB homeowners in optimising their property portfolios by capitalising on the profits from their HDB. 

As obvious as it may sound, owning two private properties will always make more sense given the fundamentals of Singapore’s property market and how prices have moved. 

In any case, let’s first examine your affordability.

Affordability

Since your current property is fully paid, you will receive the selling price as your cash proceeds. Let’s assume this to be $950K worth of cash and CPF funds. 

Let’s take a look at your individual as well as combined affordability. 

Husband

Description	Amount
Maximum loan based on the age of 48 with a monthly income of $7K at 4.8% interest	$536,192 (17 year tenure)
Cash + CPF*	$1,075,000
Total loan + cash + CPF	$1,611,192
BSD based on $1,611,192	$50,192
Estimated affordability	$1,561,000

*Here I’m assuming an equal split of $2.15M ($950K + $1.2M)

Wife

Description	Amount
Maximum loan based on the age of 43 with a monthly income of $7K at 4.8% interest	$626,994 (22-year tenure)
Cash + CPF*	$1,075,000
Total loan + cash + CPF	$1,701,994
BSD based on $1,701,994	$54,699
Estimated affordability	$1,647,295

*Here I’m assuming an equal split of $2.15M ($950K + $1.2M)

Given that you do have a considerable amount of cash savings, your individual affordability can easily be modified by adjusting the cash portion. 

Combined

Description	Amount
Maximum loan based on ages of 43 and 48 with a combined monthly income of $14K at 4.8% interest	$1,150,281 (19-year tenure)
Cash + CPF	$2,150,000
Total loan + cash + CPF	$3,300,281
BSD based on $3,300,281	$137,616
Estimated affordability	$3,162,665

Now that we have a clearer idea of your affordability, let’s look at the options you’re considering. 

Potential pathways

Option 1. Retain current HDB and purchase a second property for investment

First off, I generally recommend against paying the 20% Additional Buyer’s Stamp Duty (ABSD) for a second property unless you are certain of keeping the existing property for the long term. This stance is usually motivated by factors like the aim to secure consistent rental income into retirement or facing constraints in maximising leverage due to age or income considerations. 

For example, suppose you opt to retain the HDB and acquire an investment property priced at $1.5M. At this price point, the Buyer’s Stamp Duty (BSD) amounts to $44,600, with an additional $300,000 payable for ABSD, resulting in a total payment of $344,600.

Description	Amount
Annual rental income	$45,000
Property tax	$6,600
Maintenance fee (Assuming $300/month)	$3,600
Agency fees	$4,050
Annual profits	$30,750

Assuming a 3% rental yield, your annual profits amount to $30,750. (Plus, It’s important to note that we haven’t factored in interest expenses on the loan here). Based solely on this annual profit, it will take nearly 10 years to recoup the ABSD paid, which is a significant duration. Hence, this is not an approach I recommend unless it’s necessary or if you intend to retain your first property for the long term.

Don’t get me wrong – there are instances where paying the ABSD could make sense. An example is if your first property is worth retaining, such as a freehold property that is likely to appreciate well over time.

However, considering an HDB’s 99-year lease, it’s inevitable that its value will decline as it ages, making this option less ideal.

Nevertheless, let’s look at the costs involved should you choose to proceed with this approach. Since your HDB is fully paid, your Loan To Value (LTV) ratio will remain unaffected. However, as you won’t be cashing out from your current property, your combined affordability will be reduced.

Description	Amount
Maximum loan based on ages of 43 and 48 with a combined monthly income of $14K at 4.8% interest	$1,150,281 (19-year tenure)
Cash + CPF	$1,200,000
Total loan + cash + CPF	$2,350,281
BSD based on $2,350,281	$87,114
ABSD based on $2,350,281	$470,056
Estimated affordability	$1,793,111

Let’s assume you purchase an investment property at $1.5M with a rental yield of 3% and hold it for 10 years. 

Description	Amount
Purchase price	$1,500,000
BSD	$44,600
ABSD	$300,000
Maximum loan (75% of $1.5M)	$1,125,000
Cash + CPF required	$719,600
Cash + CPF remaining	$480,400

Costs involved

Description	Amount
Interest expense (Assuming 4% interest and 19 year tenure)	$360,013
BSD	$44,600
ABSD	$300,000
Property tax	$66,000
Maintenance fees (Assuming $300/month)	$36,000
Rental income	$450,000
Agency fees (Payable once every 2 years)	$20,250
Total costs	$376,863

Cost to hold HDB

Description	Amount
Property tax	$8,200
Town council service and conservancy fees (Assuming $77/month)	$9,240
Total costs	$17,440

Total cost if you were to retain your HDB and purchase a second property: $376,863 – $17,440 = $359,423

Option 2. Sell the current HDB and purchase a larger condo or dual-key unit

The concept of dual-key units presents an attractive option for owning “two properties”. Moreover, since the entire unit is not rented out, the property tax falls under the owner-occupied category, resulting in lower tax rates compared to non-owner-occupied properties. This makes a significant difference, especially since the last round of property tax changes. Not only did the tax rates go up, but so did the Annual Value (AV) which is used to calculate the taxes:

However, while it does make sense if you intend to stay and rent out for some income while still retaining a level of privacy – the target market when it comes time to sell is going to be smaller than a regular unit. 

For example, a 3-bedroom dual-key unit consisting of a 2-bedroom section and a studio would likely appeal to DINKs (Dual Income, No Kids), young couples with one child (or two if they’re comfortable with space constraints), and retirees. Alternatively, 4-bedroom dual-key units (3+1) might have better prospects, but the main obstacle would be the overall price quantum.

Previous analysis on the profitability of dual-key units have shown that they tend to have a lower growth rate compared to regular units within the same development. This can be attributed to factors such as lower transaction volumes, a smaller pool of potential buyers, and the initial introduction of dual-key units as investment properties. Investors, who primarily focus on rental income, may be less inclined to sell at substantial appreciation.

Finally, the layout is also seen to be less efficient since the extra pantry or shared foyer space is redundant for those looking at own stay options only.

Let’s now examine the costs involved over a 10-year period, assuming a purchase price of $2.8M and a monthly rent of $2,200 for the studio or extra bedrooms.

Description	Amount
Purchase price	$2,800,000
BSD	$109,600
Maximum loan	$1,150,281
Cash + CPF required	$1,759,319
Cash + CPF remaining	$390,681

Cost involved

Description	Amount
Interest expense (Assuming 4% interest and 19-year tenure)	$368,103
BSD	$109,600
Property tax	$78,800
Maintenance fees (Assuming $450/month)	$54,000
Rental income	$264,000
Agency fees (Payable once every 2 years)	$11,880
Total costs	$358,383

Option 3. Sell current HDB and purchase 2 private properties

This is the typical “sell one buy two” strategy that many of my clients have enquired about. The appeal of this strategy has dropped in recent years due to increased financing costs and where property prices are today, but of course it’s still viable if your finances allow for it.

First, let’s look at the investment property. Typically, a 2-bedroom unit would fall within the price range of $1.1-1.2M for a resale property. Let’s assume this property is purchased under the husband’s name.

Description	Amount
Purchase price	$1,200,000
BSD	$32,600
Maximum loan	$536,192
Cash + CPF required	$696,408

If you’re considering a new launch, entry prices currently range between $1.5-1.6M for a 2b2b. 

Description	Amount
Purchase price	$1,600,000
BSD	$49,600
Maximum loan	$536,192
Cash + CPF required	$1,113,408

Next, for your own stay purchase, a 3-bedder in the OCR easily costs $1.4-1.5M now. I will presume this to be purchased under the wife.

Description	Amount
Purchase price	$1,500,000
BSD	$44,600
Maximum loan	$626,994
Cash + CPF required	$917,606

	Total cash + CPF required	Cash + CPF remaining
Buy 2 resale units	$1,614,014	$535,986
Buy 1 resale and 1 new launch	$2,031,014	$118,986

From here you can see that choosing to purchase two resale units would leave you with a larger amount of reserve funds, which is a more prudent decision.

That being said, new launches offer the advantage of being able to compare multiple units and benefit from (sometimes) favourable price discrepancies between different floors or stacks. However, the extent of this advantage relies on factors such as the specific launch, timing, and pricing among other things.

(We have previously written a piece comparing the profitability of new launches and resale units which you can read here.)

Now, let’s examine the expenses over a 10-year period if you were to acquire two resale units. I’ll base the calculations on a 3% rental yield for the investment property.

Investment property under husband’s name – $1.2M

Description	Amount
Interest expense (Assuming 4% interest and 17-year tenure)	$164,352
BSD	$32,600
Property tax	$48,000
Maintenance fees (Assuming $250/month)	$30,000
Rental income	$360,000
Agency fees (Payable once every 2 years)	$16,200
Total gains	$68,848

Personal residence under wife’s name – $1.5M

Description	Amount
Interest expense (Assuming 4% interest and 22-year tenure)	$210,331
BSD	$44,600
Property tax	$19,800
Maintenance fees (Assuming $300/month)	$36,000
Total costs	$310,731

Total cost if you were to buy 2 resale units: $310,731 – $68,848 = $241,883

What should you do?

Let’s do a quick recap on the 3 options.

Potential pathways	Units held	Property value	Costs involved	Reserve funds (Cash + CPF)
Retain current HDB and purchase a second property for investment	1 HDB, 1 private property	$2.45M (HDB $950K, PTE $1.5M)	$359,423	$480,400
Sell current HDB and purchase a larger condo or dual key unit	1 private property	$2.8M	$358,383	$390,681
Sell current HDB and purchase 2 private properties	2 private properties	$2.7M (Investment $1.2M, Own stay $1.5M)	$241,883	$535,986

From these numbers, it shows that Option 3 (involving the sale of the current HDB and the purchase of two separate private properties) incurs the lowest costs and leaves you with the most reserve funds.

In Option 1, the significant ABSD payable significantly impacts the overall expenses. As discussed earlier, even without factoring in interest expenses, it would take nearly a decade of renting out the unit just to break even on the ABSD paid. Considering the gradual depreciation of the HDB over time, holding onto it and paying the ABSD may not be the most worthwhile.

Option 2 combines your investment and own stay property into one, necessitating sharing your home with tenants, which you prefer to avoid if possible. While a dual key unit is feasible in this scenario, as previously mentioned, it may have drawbacks compared to a regular unit in terms of its potential buyer pool and profitability in the future.

Of the three options, Option 3 appears to be the most advantageous. It maximises your available funds while still maintaining sufficient reserve funds. Additionally, it allows you to collect rental income while keeping your investment and own stay properties separate for greater flexibility in potential future decisions.

We hope that our analysis will help you in your decision-making. If you’d like to get in touch for a more in-depth consultation, you can do so here.