Real Estate Investing for Retirement in Singapore – Strategies and Considerations 

Introduction

No one enjoys being held beholden to a boss, whether you like your job or not. There will come a day whereby things turn against your favour and threaten both you and your family’s livelihood.

Congrats on taking your first step towards building a retirement blueprint to free yourself.

Focus of this article – How Singaporeans can use real estate for retirement

We are mindful of not writing another generic article about financial freedom and early retirement.The goal is to provide real depth and value upfront, specifically pre-empting the priorities and considerations that a 45+ to 50+ year old Singaporean property owner has in mind.

The article was inspired by real considerations and challenges gathered from numerous consultations with readers texting in to explore optimal moves to make in real estate for retirement.

Quick Introduction – Decoupling Expertise

We are a team of realtors that thrive in helping our clients navigate complex real estate situations. We pride ourselves in helping our client derive the best strategies to own their 2nd and 3rd properties in Singapore. 

Our capabilities fall within the intersection of real estate investing, financing strategies and real estate legal and regulatory consideration. 

Topics that fall within our niche, comprise the following.

• Property portfolio optimisation for owners planning for retirement
• Decoupling private property to minimise ABSD on second investment property
• Property inheritance and next steps consideration
• Structuring HDB ownership for future ownership of second property
• Alternative property investment – industrial and commercial property investing
• Property consideration in view of divorce
• Reverse equity loan to unlock equity from current asset

Common and important considerations to note when planning for retirement.

The real estate investment strategy that we commonly prescribed to a younger property owner in early 30s to early 40s will differ greatly from that of an older 45+ and 50+ property owner.

Typically a younger couple can go for more aggressive strategies focusing on maximising capital appreciation with greater leverage, i.e. bank loan.

Due to being younger, loan tenure can be extended, hence monthly mortgage payment can be less hefty as compared to an older property owner. 

In the paragraphs below, we will build context by articulating the priorities of a property owner in 45+ to 50+ planning for retirement

Strategy #1 – Decoupling and purchasing a 2nd property for rental income

This is one of the most cost effective means of retaining your current property while purchasing a second property for rental income.

If your goal is to own a rental property that will provide stable recurring income monthly to fund your retirement, then this is the most straightforward way to do it.

Overview for steps required as follows.

1. Decouple and free up 1 spouse’s name in current property
2. Purchase 2nd property without ABSD
3. Focus on minimising the use of loan to get this executed
4. Focus due diligence on selecting 2nd property that maximise monthly income with ability to hold value.

Decouple and free up 1 spouse’s name in current property

For those that are uninitiated, decoupling property is a process in which 1 spouse will buy over the shares of the other spouse in the current property that is jointly owned. The goal is to free 1 party from up from the ownership of the current property and purchase the next property without ABSD.

Note, there is a cost to be incurred when decoupling, we will detailed this in later section on cash, cpf and loan requirement to execute this move.

Purchase 2nd rental property without ABSD

The next step would require you to go in search of a rental property that is within your budget. The key thing to note at this point, for couples looking to retire, would be to manage your purchase quantum to minimise the loan required to fund the property.

Depending on the cash and CPF savings you have on hand, some couples may even fund the property with full cash and CPF. The minimal use of loan helps reduce interest expense and maximise net monthly cash flow, fulfilling the goal of generating monthly passive income for retirement.

Challenge: Increase in overall leverage in the household

For this strategy to work, both husband and wife will need to each undertake a mortgage One for the existing property and another for the 2nd investment property.

Given reducing the overall mortgage obligation for the household remains a priority when retiring. The idea of having to take on more mortgage obligations often serve as an obstacle for most couples looking to retire.

Applicable when you have got substantial cash on hand

From experience, this strategy works the best when the following two circumstances are met.

• When your current property is fully paid up or have minimal outstanding loan
• When you have got significant cash on hand potentially from savings, retrenchment payout or sale of a profitable business.

With these conditions met, you would be able to minimise the leverage taken for both properties. This will help realise the full potential of using the 2nd property as rental income property, minimising interest expense and realising the full monthly rental cash flow..

keen to explore this strategy

Financial calculation is key to assessing if this strategy is right for you.

To take the next step, drop us a whatsapp text and we will take you through a detailed calculation to let you know the cost involved and how much potential rental income you could be expecting.

Strategy #2 – Sticking to one property but upgrading to a higher growth property

As you approach your retirement, you would look to position your portfolio more defensively. Sometimes sticking to 1 property is better than over stretching yourself to own 2 properties, especially if your goal is keep life simple and be as stress free as possible.

But a common mistake committed by many property owners is to hold on to a property that is ageing and have little capital appreciation potential.

The crux to playing the single property game, requires you to keep trading up to a newer property with greater capital appreciation potential and eventually downgrading to unlock and monetise that capital gain that you have accumulated.

The steps to this strategy are as follows.

1. Sell current property .
2. Trade up to a younger property with better capital appreciation potential.
3. Keep repeating this process within a reasonable 4 to 5 year time frame.
4. Sell the property and realise its capital gain.
5. Trade down to a older and smaller condo or even a HDB when you are ready to retire
6. Draw down on the 500k to 700k capital gain accumulated for retirement or reinvest in a safe fixed income asset for monthly retirement income.

Selecting the right property to trade up to

There are two key components that need to be in place for this strategy to be successful.

One being able to select property with higher capital appreciation potential than your current one.

Generally you look out for the following factors

• Ensuring your property possesses attributes that appeal to local homestay buyers over investors or foreign buyers.
• Ensure entry price is reasonable and not overpriced.
• Avoiding boutique development, go for top of mind developments with at least 300 units.
• Go for developments within 1km radius to a reputable primary school
• Go for a 3 bedroom unit with efficient layout

This topic deserves articles dedicated to it and we have written many.

• Is resale condo worth buying ?
• Buying resale ec – Is it profitable ?
• Best condo size for investment in 2024
• Which condo is good for investment in Singapore ?

Being mindful of the Freehold property trap

At this juncture, it will be helpful to segway into a common notion that could hamper property owners from maximising their capital gains for retirement.There is a conventional belief that freehold property is always superior to leasehold property, this result in two suboptimal action taken by property owners.

One being, overpaying for a freehold property, believing that its appreciation will catch up with the premium being paid. The second point, connected to the first, having paid a premium for a freehold property, owners tend to hold on to a freehold property for an extended duration even though prices have plateaued.

Both these actions triggered by the conventional freehold bias could potentially lead to owners sacrificing time and capital to hold to a freehold property as compared to making more shorter flips for a leasehold property.

Freehold property can work in the right location, targeting the right exit audience

Spending a little more time on this, as this is a common topic for discussion during our calls with readers. 

Borrowing from the tech startup world, there is a concept called Product-Market fit. Similarly, freehold properties have its place and advantage when you purchase it in the right location targeting the right exit audience.

To cut the long story short, purchasing a freehold property makes sense when you are buying into an area like D15 Katong, D10 Bukit Timah. These are areas whereby the target exit audience are slightly wealthier and pursue freehold status as a parity feature.

It would be a misalignment if you are purchasing a freehold property in a typical heartland district like Serangoon North, Hougang etc. The HDB upgraders in the area would prioritise affordability over paying a premium for a freehold property.

If this is a topic of interest, check out the following article for more detail. Freehold condo vs leasehold condo.

Willingness and ability to trade down later

The other important component for this strategy is that you must be willing and able to downgrade to a smaller property in a less central location down the road.

You will be working on the assumption that your child would have grown up, have their own homes and you will be able to downgrade from a 3 or 4 bedder to a smaller 2 bedroom condo.

In the more extreme cases, you will be looking to downgrade to a smaller 4 room HDB when you reach the 55 years mark.

As a side note, once you reach 55 years old, you will not be required to serve out a 15 months wait out period to purchase a resale HDB, if you purchase a unit that is 4 rooms or smaller.

Drawback to this strategy

The drawback to this strategy, compared to owning 2 properties, is that in the absence of having a second property for passive income. You will have to stay committed to your job throughout the investment cycle, till the day you are ready to downgrade and monetise your capital gain.

For a dual property strategy, you are able to pay down and reduce your mortgage for homestay property while letting your investment property fund itself using its rental income. This gives you an earlier opportunity to have the leeway to not keep to your high salary job while still having your property investment play out within its own funding mechanic.

We discuss more about the pros and cons of this strategy in the following article “Should I upgrade to a bigger property or should I buy a second property?“

Strategy #3 – Buying a Dual Key Unit

This is a middle of the road strategy, it allows you to stick to owning 1 property but yet be able to create a secondary source of rental income.

So the typical pathway for this strategy involves a retiring property owner selling off their current property and purchasing a 2+1 dual key unit. For those new to the concept of dual key units, these are 3 bedroom units that are subdivided into a 2 and 1 bedroom unit, with 2 point entrance and common foyer.

This allows you to rent out the 1 bedroom unit without compromising on privacy.

Steps to execution as follows.

1. Sell current property.
2. Reinvestment capital in a dual key unit.
3. Rent out the 1 bedroom subdivision for passive income.

Finding the right entry price for a dual key unit

Dual key units are priced at 5% to 15% premium at launch compared to normal units.Hence, it is also sold at a premium on the resale market. To make this strategy, you will seek to optimise for the best and most affordable entry price for a dual key unit.

Buying into a dual key unit is the right location

Given that dual key units are geared for rental, you will need to make sure your unit is located with great proximity to a MRT station and address tenant demand from a nearby white collar commercial hub.

List of developments with Dual key units

Mistakes to avoid in real estate when planning for retirement

Holding on to a property with decaying lease

Applicable for both HDB and Private property owners, especially if you are counting on a single property portfolio as your retirement asset.The least ideal thing to do is to fork out a large quantum to upgrade into a bigger, higher quantum condo with a decaying lease.

This is a common move made by owners prioritising family homestay needs first over investment. Buying for based family needs as priority often serves as the dominating reason to justify the purchase of a maisonette or large 4 to 5 bedroom private condo with ageing lease.

Ageing property with decaying lease has compromised resale value.

As future buyers will experience financing challenges for both Bank loan and CPF.

For a property with 60 years or less lease life remaining, banks will not grant the full 75% loan to valuation ratio. The situation worsens as the property has less than 30 years of lease life remaining banks will not grant any financing.

For CPF usage, if the lease is unable to cover the youngest owner till the age of 95, only a prorated CPF amount can be used to fund the property purchase.

Buying into a boutique condo development with hope of investment returns

Sometimes we can get carried away by convincing sales pitches or the appeal of living in a quaint neighbourhood and buying into a small boutique condo development.

The challenges with these small boutique developments are as follows.

Low transaction volume

First there is limited transaction volume to help prop up your benchmark selling prices. It gets worse if your neighbour sells his unit at a loss, and his selling price becomes a benchmark price for your unit.

Low buyer and agent awareness

If you were to observe, the property market functions within a reflexivity mechanism, I.e in a self fulfilling cycle.

When a popular condo development gains popularity amongst property agents, these go on the ground readily promoting it to buyers. Buyers then further fuel the cycle by asking more agents about these properties.

This results in a positive cycle of buyer’s interest being unfairly skewed towards larger and more popular developments.

Setting benchmark price for HDB purchase

Purchasing million dollar HDB flats and setting record prices is a risky move for all property owners, even more so if you are planning to count on the property capital appreciation for retirement.

The challenge with paying a premium for HDB flats is that there are uncontrollable and unpredictable headwinds that could be thrown your way by the government. 

The government has repeatedly stated that HDB is positioned to be affordable housing for the masses and it has reinforced it by unleashing regulatory constraints to cap price appreciation.

If you are paying a premium to buy into a resale HDB with hope of substantial future price appreciation, there is a chance that you could be disappointed.

Portfolio Restructuring

Life’s not always perfect. It is our job to fix it and make the best of what we have got.

If you are currently owning properties in any of the 3 categories listed above and you feel like you need some opinion on what to do next.

Drop us a whatsapp text and we can explore options with you.

Relevant reads pertaining to Real Estate Investing for Retirement

• Is it safe to enter the real estate market during a recession ?
• How to own cashflow positive investment properties ?
• Highest Rental Yield Condo in Singapore that are actually investable
• HDB 15-Month Wait-Out Period Removed – How Private Condo Owners Can Now Cash Out and Retire Early