Hi there,
I’ve really enjoyed reading your real estate advice column and hope you can help us to think through our options.
We are currently renting a 3 bedroom condo for $2800 and it’s about 1300 sqft. We have reason to believe our landlord is going to ask for a large increase when the lease is up at the end of the year. We love where we are living but the property is old and landlord is not one keen on putting in any money into the property. We actually love older condos but this unit is in dire need of some TLC. Since we are also considering buying a property, we are weighing our options.
Option 1:
Continue to stay at current condo if the rent does not increase above $3500. Take advantage of staying in a home we like and enjoy the large space and try to negotiate to get what we want (new aircons and also new kitchen cabinets. We think both are at least 15 years old). Buy a 2 bedder mass market condo in somewhere like D19 and rent out before selling in the next 5 years. Then, buy our forever home which will likely be an older, larger, freehold condo which we can renovate to our preference.
Option 2:
Buy a freehold older condo that’s at least 1000 sqft and make this our forever home now. We don’t want to spend more than 1.4mil frankly and are not fussy about facilities as long as the whole property is not in disrepair. We’ve been looking around and not all 25 year old and above condos look the same. We do want to be in an accessible place and preferable close to greenery. Rent out 1 bedroom to help with the mortgage. We are keeping our minds open to any district.
Option 3:
Buy a smaller leasehold condo but move before lease decay sets in too much. This is our least preferred option but will consider if this is the most financially prudent option. We need at least 2 bedroom and I cannot see us living in less than 850 sqft.
Our combined annual income is 340,000 but our preference is to be prudent about housing costs and save for retirement/invest in other vehicles instead. I’m also 40 so I’m keeping in mind how that might factor into mortgage down the road.
Hope to hear your thoughts. Thanks in advance!!
Cheers
Hello,
Thank you for writing to us, we’re happy to hear that you’re enjoying these advice pieces.
Given the current high levels of both rental and interest rates, making the choice between continuing to rent or purchasing a property isn’t an easy decision.
Let us start by looking at your affordability.
Affordability
Since you’ve mentioned that you would prefer to limit the property price to $1.4M, here’s a simple illustration of how your age may affect the loan quantum (since this was also a concern you raised).
The following is based on a combined annual income of $340,000, at an interest rate of 4.6% and with the assumption that both you and your partner are the same age.
| Age | Loan tenure | Maximum loan |
| 40 | 25 years | $2,775,056 |
| 42 | 23 years | $2,650,997 |
| 44 | 21 years | $2,515,007 |
| 46 | 19 years | $2,365,939 |
| 48 | 17 years | $2,202,534 |
| 50 | 15 years | $2,023,415 |
Do note that although your maximum loan quantum may be high, your actual affordability is dependent on how much cash and CPF funds you have to make up the 25% downpayment. For example, in order to take the maximum loan of $2,775,056 (75% loan), you will need to have $925,019 (25% downpayment) worth of cash and CPF.
Clearly, you can see from the table that as you age, the loan tenure, and in turn the loan amount, goes down.
For a $1.4M property, here are the funds you’ll need.
| Description | Amount |
| Purchase price | $1,400,000 |
| 25% down payment (Minimally 5% cash, 20% can be paid with CPF) | $350,000 |
| BSD | $40,600 |
| Loan required (Assuming you were to take the full 75% loan) | $1,050,000 |
Let’s now look at the options you’re considering.
Option 1. Continue renting and purchase a 2-bedder for investment
Looking at your current rental price of $2,800 for a 3 bedder, that’s definitely a very good rate in today’s market. Rental prices are coming down though, as more supply comes onto the market (more new condos being completed).
Given that installing new air-conditioning units and kitchen cabinets involves significant work and cost, it could prove challenging to convince the landlord to agree to these demands, particularly if their intention is to maintain the property as a rental. Many landlords are hesitant to undertake extensive renovations as it can impact their rental yield. It might be worth exploring the option of negotiating a reduced rental rate if these requests cannot be accommodated.
We assume that your objective in purchasing a property for rental purposes is to partially offset your own rental expenses, potentially generate some capital gains, and simultaneously allow time to accumulate funds for your forever home. As evident from the provided table, the maximum loan amount you’re eligible for will decrease by $300-400K over a span of 5 years, which is a considerable reduction. However, this may not be a concern if your plan doesn’t involve taking on such a substantial loan.
Suppose your rent is raised to $3,500/month. Let’s look at the costs involved should you decide to continue renting, and at the same time purchase a 2-bedder for investment. We will also presume here that you would like to keep the purchase price for the investment property under $1.4M. Given your specific mention of D19, it’s possible that you favour this area due to familiarity or proximity, making property management more convenient.
Nevertheless, as an investment property, its potential for profitability should take precedence over location. These are some newer projects with good rental yields that are currently on the market. We have excluded a handful of the newer developments in D19 as they’ve just obtained their TOP so there aren’t any/many rental transactions yet.
| Project | District | Tenure | Completion year | Unit type | Size (sqft) | Asking price | Avg 2-bedder rent (May-Jul) | Rental yield |
| Kingsford Waterbay | 19 | 99-years | 2018 | 2b2b | 678 | $980,000 | $3,573 | 4.4% |
| Sol Acres | 23 | 99-years | 2019 | 2b2b | 732 | $1,100,000 | $4,400 | 4.8% |
| Parc Riviera | 05 | 99-years | 2019 | 2b2b | 646 | $1,120,000 | $4,138 | 4.4% |
Do note that these projects are picked out purely because of their age and rental yields. We strongly suggest that you consult an agent for further analysis.
So let’s say you were to purchase a unit at Kingsford Waterbay. These are some of the recent transactions for units of the same size:
| Date | Size (sqft) | PSF | Selling price | Level |
| May 2023 | 678 | 1,430 | $970,000 | #15 |
| May 2023 | 678 | 1,283 | $870,000 | #01 |
| Apr 2023 | 678 | 1,445 | $980,000 | #12 |
We will use the average transacted price of $940,000 as the purchase price in our calculation.
Cost of renting your current place while purchasing a 2-bedder at Kingsford Waterbay and renting it out for 5 years
| Description | Amount |
| Purchase price | $940,000 |
| 25% downpayment | $235,000 |
| BSD | $22,800 |
| Loan required | $705,000 |
We will presume you have the funds required for the 25% downpayment and BSD.
| Description | Amount |
| Interest expense (Assuming a 4.6% interest with a 25 year tenure) | $152,959 |
| BSD | $22,800 |
| Property tax | $30,875 |
| Maintenance fee (Assuming $290/month) | $17,400 |
| Rental income (Assuming $3,573/month) | $214,380 |
| Agency fees (Payable once every 2 years) | $11,577 |
| Rental expenses (Assuming $3,500/month) | $210,000 |
| Total costs | $231,231 |
As you can see from the table above, your rental income effectively offsets your rental expenditures. However, the elevated interest rate significantly contributes to the overall costs, making them quite substantial.
Using the annualised growth rate of 2.21% for private properties over the last decade, we will do a simple projection to determine how much capital gains you may potentially make in 5 years.
| Time period | Potential capital gains | Property price |
| Year 1 | $19,227 | $959,227 |
| Year 2 | $38,879 | $978,879 |
| Year 3 | $58,965 | $998,965 |
| Year 4 | $79,495 | $1,019,495 |
| Year 5 | $100,479 | $1,040,479 |
Taking the potential capital gains into consideration, the total cost of extending your current lease while purchasing a 2-bedder to rent out for 5 years is: $231,231 – $100,479 = $130,752
As your plan is to sell this property and possibly purchase your forever home in 5 years time, let’s also look at how much you may potentially make from the sale.
| Description | Amount |
| Selling price | $1,040,479 |
| Outstanding loan | $620,434 |
| CPF refund | $465,791 |
| Potential cash proceeds | -$45,746 |
The CPF refund is calculated based on an annual compounding interest of 2.5% and takes into account the 20% from the initial downpayment of the property assuming that the monthly mortgage repayment of $3,959 is also paid using your CPF funds.
From the above table, we can see that even though the property did appreciate, due to the inflated interest rate, you may face a negative sale even in a short span of 5 years.
Do note that this option means delaying buying your freehold property which can be risky because the loan you can take only reduces as you age – unless your income grows which is nowhere near as certain as ageing.
Another option you can explore is purchasing a new launch property. Since new launches offer a progressive payment scheme, the interest expenses will be reduced during the construction phase.
At the moment, there are just two new launches with 2-bedders under $1.4M, namely The Arden and The LakeGarden Residences. Let’s say you were to purchase a unit at The LakeGarden Residences for $1.25M (currently the most affordable 2-bedroom unit in the development) and sell it after 5 years.
| Description | Amount |
| Purchase price | $1,250,000 |
| 25% downpayment | $312,500 |
| BSD | $34,600 |
| Loan required | $937,500 |
| Stage | % of purchase price | Disbursement amount | Monthly estimated payment | Monthly estimated interest | Monthly estimated principal | Duration | Total interest cost |
| Completion of foundation | 5% | 62,500 | $351 | $240 | $111 | 6-9 months (from launch) | $2,160 |
| Completion of reinforced concrete | 10% | $125,000 | $1,053 | $719 | $334 | 6-9 months | $6,471 |
| Completion of brick wall | 5% | $62,500 | $1,404 | $958 | $445 | 3-6 months | $5,748 |
| Completion of ceiling/roofing | 5% | $62,500 | $1,755 | $1,198 | $557 | 3-6 months | $7,188 |
| Completion of electrical wiring/plumbing | 5% | $62,500 | $2,106 | $1,438 | $668 | 3-6 months | $8,628 |
| Completion of roads/car parks/drainage | 5% | $62,500 | $2,457 | $1,677 | $780 | 3-6 months | $10,062 |
| Issuance of TOP | 25% | $312,500 | $4,211 | $2,875 | $1,336 | Usually a year before CSC | $34,500 |
| Certificate of Statutory Completion (CSC) | 15% | $187,500 | $5,264 | $3,594 | $1,671 | Monthly repayment until property is sold (6 months) | $21,564 |
We are assuming the longest duration for every stage.
Cost of renting your current place while purchasing a 2-bedder at The LakeGarden Residences:
We will presume you rent it out for 1.5 years after the project obtains its TOP, before selling. For the purpose of the calculation, we will base the rental on an average 3% yield.
| Description | Amount |
| Interest expense (Assuming a 4.6% interest with a 25 year tenure) | $96,321 |
| BSD | $34,600 |
| Property tax (Only payable after TOP) | $10,200 |
| Maintenance fee (Only payable after TOP – Assuming $300/month) | $5,400 |
| Rental income (Assuming $3,125/month) | $56,250 |
| Agency fees (Payable once every 2 years) | $3,375 |
| Rental expenses (Assuming $3,500/month) | $210,000 |
| Total costs | $303,646 |
As you will not be making any rental income during the construction period (which can take 3-4 years), there is nothing to help offset your rental expenses, which increases the overall cost.
We will also do a simple projection based on the annualised growth rate of 2.21%.
| Time period | Potential gains | Property price |
| Year 1 | $27,625 | $1,277,625 |
| Year 2 | $55,861 | $1,305,861 |
| Year 3 | $84,720 | $1,334,720 |
| Year 4 | $114,217 | $1,364,217 |
| Year 5 | $144,367 | $1,394,367 |
Taking the potential capital gains into consideration, the total cost of extending your current lease while purchasing a new launch 2-bedder is: $303,646 – $144,367 = $159,279
As evident from the calculations above, assuming a similar growth rate of 2.21%, it’s clear that even with reduced interest expenses, there will be a significant overall cost. This is due to the absence of rental income during the construction phase of the new launch, which could otherwise offset your rental expenses. Nevertheless, an increase in the rental yield or its appreciation rate has the potential to mitigate the incurred costs.
Option 2. Buy a freehold property
Finding a freehold property that aligns with your criteria at the $1.4M price range could prove to be quite a challenge. A brief search on various property portals reveals that the majority of units priced below $1.4M that come with at least 1,000 sqft of space are typically penthouse units that come with a sizable roof terrace.
From what you’ve said, it’s reasonable to assume your preference lies in having a larger amount of liveable space instead. Also, it’s worth noting that many of these developments are boutique projects, which may not always be the best when it comes to potential appreciation. Considering your eligibility for a higher loan quantum, it might be worthwhile to contemplate expanding your budget to enhance the range of available options.
These are some available units on the market that match your requirements. They are also within a 15-minute walk to the nearest (existing/future) MRT station:
| Project | District | Tenure | Completion year | Unit type | Size (sqft) | Asking price |
| Wing Fong Mansions | 14 | Freehold | 1997 | 3b2b | 1,130 | $1,320,000 |
| Sunflower Lodge | 14 | Freehold | 2005 | 3b2b | 1,023 | $1,300,000 |
| Ris Grandeur | 18 | Freehold | 2006 | 2b2b | 1,065 | $1,400,000 |
Given that it is quite a challenge to find a freehold unit over 1,000 sq ft under $1.4M, for the purpose of our calculations, let’s say that hypothetically, you manage to find a suitable unit at $1.4M.
Although you’ve mentioned that this will likely be your forever home, we will still use the same 5 year time frame as with Option 1 to make it a fair comparison with option 1. It’s important to note that while this is a 5-year timeframe, the profit/cost would likely continue in its trajectory many years down the road. So if it’s profitable in the next 5 years, the profitability should grow in subsequent years and vice-versa for losses.
Cost of purchasing and holding a freehold property for 5 years
| Description | Amount |
| Purchase price | $1,400,000 |
| 25% downpayment | $350,000 |
| BSD | $40,600 |
| Loan required | $1,050,000 |
Similarly, we will presume you have the funds required for the 25% downpayment and BSD.
| Description | Amount |
| Interest expense (Assuming a 4.6% interest with a 25-year tenure) | $227,811 |
| BSD | $40,600 |
| Property tax | $8,400 |
| Maintenance fee (Assuming $350/month) | $21,000 |
| Total costs | $297,811 |
We will also use the annualised growth rate of 2.21% to do a simple 5-year projection.
| Time period | Potential capital gains | Property price |
| Year 1 | $30,940 | $1,430,940 |
| Year 2 | $62,564 | $1,462,564 |
| Year 3 | $94,886 | $1,494,886 |
| Year 4 | $127,923 | $1,527,923 |
| Year 5 | $161,691 | $1,561,691 |
Taking the potential capital gains into consideration, the total cost of buying a freehold property and holding it for 5 years is: $297,811 – $161,691 = $136,120
Option 3. Buy a leasehold property and move before lease decay sets in
Predicting the exact point at which lease decay will set in lacks a definitive formula. This timeline can vary across projects, depending on the supply and demand dynamics of their respective locations.
It’s hard to say exactly when this decay would set in, but our most recent study of past transactions has shown that buying an old leasehold project (defined as 20 years or more) and holding it for at least 10 years or more isn’t as bad as people make it out to be. This is at least what we’ve observed from real-world transactions.
That being said, it would be irresponsible to assume no lease decay moving forward since past performance is not indicative of future performances. A study conducted by NUS, a general guideline indicates that 99-year leasehold developments typically begin to experience price declines around the 21-year juncture.
This serves as a driving factor behind the inclination of many Singaporeans to gravitate towards acquiring younger properties. However, it’s important to note that the profitability of a younger development is not assured. As previously mentioned, the crucial determinants remain the interplay of supply and demand within the vicinity, coupled with the prevailing market conditions both upon entry and exit.
These are some relatively new projects that are available on the market that meet your requirements:
| Project | District | Tenure | Completion year | Unit type | Size (sqft) | Asking price |
| The Visionaire | 27 | 99-years | 2018 | 3b2b | 980 | $1,399,999 |
| Parc Life | 27 | 99-years | 2018 | 3b2b | 1,001 | $1,300,000 |
| Treasure at Tampines | 18 | 99-years | 2023 | 3b2b | 915 | $1,390,000 |
Let’s assume you were to purchase a unit at Treasure at Tampines. Here are some recent transactions for units of the same size:
| Date | Size (sqft) | PSF | Selling price | Level |
| Jul 2023 | 915 | $1,563 | $1,430,000 | #08 |
| Jul 2023 | 915 | $1,530 | $1,400,000 | #08 |
| Jul 2023 | 915 | $1,612 | $1,475,000 | #12 |
The average transacted price is at $1,435,000 which is slightly over your budget. So for the purpose of this calculation, we will assume the purchase price to be $1,400,000. We will also use the same 5-year holding period for comparison’s sake.
Cost of purchasing and holding a leasehold development for 5 years
| Description | Amount |
| Purchase price | $1,400,000 |
| 25% downpayment | $350,000 |
| BSD | $40,600 |
| Loan required | $1,050,000 |
As before, we will presume you have the funds required for the 25% downpayment and BSD.
| Description | Amount |
| Interest expense (Assuming a 4.6% interest with a 25-year tenure) | $227,811 |
| BSD | $40,600 |
| Property tax | $8,400 |
| Maintenance fee (Assuming $350/month) | $21,000 |
| Total costs | $297,811 |
We will also use the annualised growth rate of 2.21% to do a simple 5-year projection.
| Time period | Potential capital gains | Property price |
| Year 1 | $30,940 | $1,430,940 |
| Year 2 | $62,564 | $1,462,564 |
| Year 3 | $94,886 | $1,494,886 |
| Year 4 | $127,923 | $1,527,923 |
| Year 5 | $161,691 | $1,561,691 |
Taking the potential capital gains into consideration, the total cost of buying a leasehold property and holding it for 5 years is: $297,811 – $161,691 = $136,120
Since your plan is to eventually sell this property and possibly purchase your forever home, we will also look at how much you may potentially make from the sale in 5 years’ time.
| Description | Amount |
| Selling price | $1,561,691 |
| Outstanding loan | $924,051 |
| CPF refund | $693,707 |
| Potential cash proceeds | -$56,067 |
The CPF refund is calculated based on an annual compounding interest of 2.5% and takes into account the 20% from the initial downpayment of the property assuming that the monthly mortgage repayment of $5,896 is also paid using your CPF funds.
As with Option 1, due to the high-interest rate, even though the property did appreciate, you may still face a negative sale in a short span of 5 years.
What should you do?
| Continue renting and purchase a resale 2-bedder for investment | Continue renting and purchase a new launch 2-bedder for investment | Buy a freehold property | Buy a leasehold property and move before lease decay sets in | |
| Potential cost incurred in 5 years | $231,231 | $303,646 | $297,811 | $297,811 |
| Potential gains in 5 years | $100,479 | $144,367 | $161,691 | $161,691 |
| Potential Profit/(Loss) | -$130,752 | -$159,279 | -$136,120 | -$136,120 |
Considering the minimal discrepancy in costs across all three options, the key factor in your decision should be what best meets your personal needs and wants.
For Option 1, it would be logical if the rental income generated from your investment property can effectively counterbalance, or at the very least significantly alleviate your personal rental expenses. By doing so, you can negate or lessen the financial impact of renting. This pathway enables you to stay in your living space of choice while potentially accruing gains from the appreciation of your investment property, all the while affording time to accumulate greater resources for your forever home. It’s worth noting that within a span of 5 years, your maximum loan quantum and tenure will reduce. However, if your intention doesn’t involve leveraging the maximum loan, this factor might not pose any concern. You could try to negotiate for a longer lease with a lower rate since you know your time frame, and if the landlord refuses to budge on the upgrades, factor those in yourself in your calculations depreciated over 5 years.
Option 2 is a promising pathway and it avoids the need for multiple relocations. Opting for a freehold property is certainly a good choice for a long-term hold, but as with what we’ve written about recently, it’s not the only option to consider. However, it’s worth contemplating the feasibility of increasing your budget to widen your options, particularly as you’re open to the idea of renting out a bedroom to help with the mortgage repayments.
Within a $1.4M budget, the range of options remains somewhat limited. Assuming you can secure a common room tenant at $1,200 per month for a span of 5 years, that would accumulate to $72,000, substantially offsetting over half of the incurred costs as per our calculations.
We would recommend this option if you feel your source of income won’t be as high 5 years down the road (or if you don’t have the cash required to cushion your purchase later).
Since you are open to locations and aren’t picky when it comes to condo facilities, you may very well find your ‘forever home’ now.
If your income does rise, however, and perhaps interest rates fall, you may very well find yourself in a position to buy another freehold condo that you feel is better.
Option 3 also stands as a feasible choice. With a $1.4M budget, you can acquire a relatively young and reasonably sized property. This option is more or less similar to Option 1, the distinction being that you’d be residing in the property instead of renting a separate space. The cons are the same here – your loan is reduced over the next 5 years which can substantially reduce your options later.
In short, if you are confident in amassing additional resources before investing in your forever home, while simultaneously capitalising on short-term property gains, Options 1 and 3 emerge as viable choices. On the contrary, if you’re already well-equipped with the necessary funds for a property where you foresee long-term residency and are more risk-averse, then Option 2 offers a more appropriate pathway since you wouldn’t have to bank on another property for income/gains and also lose out on being able to loan an extra $332,872 if you wait 5 more years.
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5 Comments
One suggestion:
In the cost table, could u pls separate the income and expenditure into different lines with +/- sign to indicate each? it makes the table more easy to read. thanks
Thank you for the detailed analysis
How is it that interest cost for the full 25 year lease is compared to capital gains for a 5 year period? Obviously this isn’t like-for-like.
When you sell a property eg after 5 years and repay the loan, you won’t have paid the interest for the full loan tenure.