Speaker 1: You're listening to a CNA podcast.
Speaker 2: Hey, this is Andrea Heng and I'm back with the
Speaker 2: Money Talks podcast where we specialize in talking about money.
Speaker 2: More importantly, all the things you can do with it.
Speaker 2: So in the previous episode, we looked at how to
Speaker 2: add resilience to our investment portfolio, especially with a looming
Speaker 2: recession that dreaded our word. Go check out that episode
Speaker 2: on Spotify or Apple podcasts. Will you?
Speaker 2: Now our episode today focuses on a bigger longer term investment,
Speaker 2: owning a second property. It's especially appealing to couples, for example,
Speaker 2: who can choose to take advantage of two income streams
Speaker 2: and turn it into another income generator by owning two properties, right?
Speaker 2: But decoupling has also become a bit of a hot
Speaker 2: button issue, especially with the new A BS D. That's
Speaker 2: the additional buyer stamp duty and
Speaker 2: that was announced in April of 20% for Singaporeans buying
Speaker 2: a second property. Now, some of you might be wondering
Speaker 2: what's decoupling. We'll get into that later. Trust me. So
Speaker 2: is two truly better than one, what should we consider
Speaker 2: before taking the plunge? And should we start thinking of
Speaker 2: a second property as a form of inheritance for kids.
Speaker 2: Let's take a look at some of our options. Now
Speaker 2: with Clive Cheng of Red Brick
Speaker 2: Advisory. Thank you for joining us on the Money Talks podcast. Clive,
Speaker 2: thank you for having me. So, Clive in your line
Speaker 2: of work. How many people have you encountered owning a
Speaker 2: second property? Actually quite a few out of 10 inquiries.
Speaker 2: And with, I mean, private property owners, maybe you get
Speaker 2: 30 40% of them. Wow. Yeah, thinking about owning a
Speaker 2: second property. So whenever someone has a cash or they've
Speaker 2: gotten a windfall from,
Speaker 2: from their work through bonuses, I mean, the immediate thing
Speaker 2: they always think about is I want to own a
Speaker 2: second property and be a land. Yeah, exactly. Ok. So
Speaker 2: what then become their biggest financial concerns when they are
Speaker 2: considering buying that second property, it's always a matter of
Speaker 2: getting the proper financing and trying to avoid as much
Speaker 2: tax as possible, you know, trying to make the purchase
Speaker 2: as streamlined as possible. So when we're talking about buying
Speaker 2: a second property
Speaker 2: in Singapore today, obviously additional buyer stamp duty becomes a
Speaker 2: large topic because like you mentioned earlier, it was revised
Speaker 2: to 20%. So if you're purchasing a million dollar property
Speaker 2: and you have to pay $200,000 of additional buyer stamp
Speaker 2: duty that really burns a hole in your pocket. So
Speaker 2: couples are always thinking of ways to try to make
Speaker 2: their purchases more efficient and that's when you mentioned, rightly
Speaker 2: where this thing called decoupling comes into the picture.
Speaker 2: Perhaps, let me explain a little bit more about that. So,
Speaker 2: decoupling is a process where for example, husband and wife
Speaker 2: owns a private property and now they want to own
Speaker 2: another one. So the husband purchases over the wife's share, right?
Speaker 2: Or vice versa, leaving the wife property less. Right? So
Speaker 2: now that you don't own a property, you purchase your
Speaker 2: own private property,
Speaker 2: you won't have to pay for additional buyer stamp duty. Right? Yeah.
Speaker 2: So if you are Singaporean citizen and you're buying your
Speaker 2: first property, there's no additional buyer stamp duty. Ok. And
Speaker 2: do they tend to be married? Couples do singles do
Speaker 2: this or I guess, parent and child? Yeah, it can
Speaker 2: be in any form of configuration most commonly they usually
Speaker 2: husband and wife. Yeah.
Speaker 2: But yeah, I've seen quite a few cases as well
Speaker 2: where it's a parent and a child or even between
Speaker 2: two friends, there are no restrictions to who can be couple. Ok.
Speaker 2: Before anything else, I believe there are questions that we
Speaker 2: need to ask ourselves as usual as part of our homework.
Speaker 2: When considering buying a second property, I think it's best
Speaker 2: to think about it in three ways. Ok.
Speaker 2: Intent and eligibility. So let's talk about the first one
Speaker 2: and arguably it's the most important affordability, right? What aspects
Speaker 2: of our financial health do we need to look at
Speaker 2: to determine if we can in fact, afford a second
Speaker 2: home basically also what should our financial threshold be, for example.
Speaker 2: So mes and the banks have put in regulations to
Speaker 2: prevent someone from over leveraging. Now on the topic of
Speaker 2: affordability commitments are usually the biggest thing that we think about, right,
Speaker 2: how much you spend on your credit cards, whether you
Speaker 2: own a car or multiple cars, whether you have personal loans,
Speaker 2: all these commitments greatly impact the amount of loan you
Speaker 2: can actually obtain from the banks when you're looking to
Speaker 2: purchase a property. So affordability, if you're looking to purchase
Speaker 2: a property, you would want to always make sure that
Speaker 2: you keep your commitments to, you know,
Speaker 2: a low, right? Make sure that in check, make sure
Speaker 2: there are no late payments. You don't default on any,
Speaker 2: any payments because that's what you mean by low, not
Speaker 2: necessarily volume but just making sure you pay your bills
Speaker 2: on time. Yeah, I mean volume does come into play
Speaker 2: as well because if I have a car and the
Speaker 2: monthly installments on the car is like $3000 a month,
Speaker 2: that is going to substantially bring down your loan eligibility, right?
Speaker 2: And if you also make late payments that would show up.
Speaker 2: So whenever the banks determine your loan eligibility, they would
Speaker 2: always run a credit bureau search that basically gives an
Speaker 2: indication to the bank of your repayment history. So if
Speaker 2: you've been late
Speaker 2: on certain credit cards for like 30 or 60 days
Speaker 2: doesn't look too good. And because of that, they may
Speaker 2: impose some stricter conditions, like, instead of being able to
Speaker 2: grant you the maximum of 75% loan, they probably say
Speaker 2: I grant you 60%. What about thinking about time frames?
Speaker 2: I mean, I don't want to be servicing a home
Speaker 2: loan
Speaker 2: well into my seventies and my eighties as well. Right.
Speaker 2: Isn't that something to consider as well? Yeah. Well, the
Speaker 2: cap today, I mean, if you're an investor, you would
Speaker 2: actually think a little bit differently. You won't mind serving
Speaker 2: the loan until you like at the age of 75
Speaker 2: for example, and here's why. So when someone buys a
Speaker 2: property today, the banks would always grant you a loan
Speaker 2: tenure up to the age of 65. So for example,
Speaker 2: if I'm 50 years old, I'll get a 15 year
Speaker 2: loan tenure, right?
Speaker 2: Some people get even imagine I'm 60 years old, for example,
Speaker 2: extreme case, my loan tenant is five years and because
Speaker 2: the loan tenant is five years, my monthly installments tend
Speaker 2: to be quite high, right? And that eats a lot
Speaker 2: into my cash flow. So some people will be like, hey, Clive,
Speaker 2: I actually want to get a longer loan tenant, you know,
Speaker 2: because if I can extend my loan tenant by 10
Speaker 2: years from 5 to 15 years,
Speaker 2: the commitments drop by more than 50% and it doesn't
Speaker 2: hurt your cash flow. Yeah, so it's better for me
Speaker 2: because the cash that I save can potentially be reinvested
Speaker 2: into something that gives me a better return. Exactly right. So,
Speaker 2: so there are a lot of considerations when you know,
Speaker 2: deciding on how much loan you want to take, how
Speaker 2: much CPF you want to use, how long of a
Speaker 2: loan tenure you would like to take really depends on
Speaker 2: the requirements at that point of time. But the good
Speaker 2: thing is that, you know, you get to review your
Speaker 2: mortgage portfolio every two or three years, it's necessary
Speaker 2: and you can always make some changes along the way
Speaker 2: in terms of like your loan tenure. Or if you're
Speaker 2: looking to make a lump sum repayment, you can actually
Speaker 2: basically refinance the mortgage. You have a lot of flexibility
Speaker 2: when you refinance your mortgage. Ok? So there are also
Speaker 2: certain laws and regulations that we need to consider when
Speaker 2: working out affordability. Of course, I'm going to bring into
Speaker 2: the picture. Now, the new A BS D and we
Speaker 2: have to think about that in mind. There's something in
Speaker 2: there about the A BS D
Speaker 2: involved in the transference of property into a living trust, ok?
Speaker 2: You need to average man this out for me like, ok,
Speaker 2: so now let me start off by saying, ok, recently
Speaker 2: the government has introduced this thing called an A BS
Speaker 2: D trust. So if you're buying a trust, a property
Speaker 2: under trust, you would have to pay for the additional
Speaker 2: buyer of 35%. It's 35% now. So let's rewind this
Speaker 2: a little bit
Speaker 2: if I don't want to have to pay for additional
Speaker 2: buyer stamp duty. When I, you know, buy multiple properties,
Speaker 2: one of the ways of acquiring properties is through my
Speaker 2: sons and my daughters. Of course, being of legal adult age,
Speaker 2: you don't have to be, you don't necessarily, I can
Speaker 2: even set up a trust for my kid who is
Speaker 2: three years old. Oh, wow. Ok. Now, here's the thing
Speaker 2: when you buy a property under trust
Speaker 2: for someone who is a minor. Uh, the property, number one,
Speaker 2: you can't take a loan on the property. The property
Speaker 2: has to be fully paid for in cash. Ok, let's
Speaker 2: assume a property purchase price of a million dollars. So
Speaker 2: you buy a million dollars in cash. On top of that,
Speaker 2: the government will charge you 35% additional buyer stamp duty. Now,
Speaker 2: is there a way to get this 35% back? Yes,
Speaker 2: that a win. Now, why is there even a 35% additional? Let's,
Speaker 2: let's talk about that for a moment. Everyone likes to
Speaker 2: find loopholes when it comes to investing in the property market. Absolutely.
Speaker 2: And in the past, there have been people who have
Speaker 2: bought properties under the kids name under trust and when
Speaker 2: the property has appreciated in its value, they sell off
Speaker 2: the property
Speaker 2: when it's actually meant for the kid. So they purchase
Speaker 2: a property for an investment under the disguise that I
Speaker 2: would like to buy this for my kid in future.
Speaker 2: And that's perfectly legal in the past. So of course,
Speaker 2: it's going to be a problem because, you know, you
Speaker 2: get a lot of rich Singaporeans or even pr or
Speaker 2: foreigners buying, stepping up properties because they have a lot
Speaker 2: of cash and then just flipping it when the time
Speaker 2: is right. So now this the government because of this
Speaker 2: has imposed this 35%. Ok. If you want to do this,
Speaker 2: you pay an additional, I mean, if you can afford
Speaker 2: a million dollars in cash, you can't afford another 350 K. Yeah,
Speaker 2: you might be right. But I mean when it comes
Speaker 2: to that level, you know, do you think it's been
Speaker 2: effective though? It has so, so paying another 35% and
Speaker 2: we're not talking about, you know, a million dollar purchase,
Speaker 2: usually the purchases tend to be a bit larger of
Speaker 2: 234 million number paying 35% of that is going to
Speaker 2: be painful, right? So
Speaker 2: they've put in place this additional bias and duty, but
Speaker 2: there is a way of getting it back provided that
Speaker 2: you fulfill certain requirements, right? So the requirements for example
Speaker 2: would be, oh, ok, you cannot sell the property, you
Speaker 2: cannot be the one selling of the property, the property
Speaker 2: has to be left for your kid, right? You cannot
Speaker 2: make and you cannot put it
Speaker 2: any additional clauses saying that, ok, I still have the
Speaker 2: power to sell away the property, for example, because it
Speaker 2: is technically not yours. Yeah, exactly. So I won't go
Speaker 2: into the real technical details. I think that can be
Speaker 2: found online as well. But there are certain requirements have
Speaker 2: been set up to ensure that in the bid to
Speaker 2: ensure that you are just
Speaker 2: legitimately buying this property and leaving it for your kid
Speaker 2: and not any other funny business, but you can prove
Speaker 2: that that's the case. You will get your 35% back. Wow,
Speaker 2: talk to us also about the taxes involved and using
Speaker 2: CPF for your second property. Yeah. Ok, great. So now
Speaker 2: assuming that I intend to hold the first property and
Speaker 2: continue to purchase the second property. So it's a second
Speaker 2: property that I'm going to own under my own name. Now,
Speaker 2: number one,
Speaker 2: if I have an existing mortgage on property, number one,
Speaker 2: and now I'm looking to get a mortgage on property.
Speaker 2: Number two, the maximum loan the banks will grant me
Speaker 2: is only 45% right? So we have to take note
Speaker 2: of that. Whereas when you buy a first property, you
Speaker 2: can get a maximum loan of 75%. So that's additional
Speaker 2: cash that you have to come up with. That's number one,
Speaker 2: number two, if I intend to use CPF on the
Speaker 2: second property
Speaker 2: and I have already used CPF on the first property.
Speaker 2: That's a limitation as to how much CPF I can
Speaker 2: actually use. Right. I have to set aside to make
Speaker 2: sure that I have the basic retirement sum. That's right
Speaker 2: in the O A and the A combined and anything
Speaker 2: in excess of that I can then deploy in my
Speaker 2: second property because it's technically seen as an investment. You
Speaker 2: would do the same with your investment money, right? In
Speaker 2: your CPF. Ok. Ok. So when it comes to buying
Speaker 2: a second property, you would realize because of the
Speaker 2: lower loan to valuation and the lower amount of CPF usage,
Speaker 2: you tend to have to come up with a lot
Speaker 2: of cash adding on to that. Besides your regular buyer
Speaker 2: stamp duty, you would have to pay for additional buyer,
Speaker 2: stamp duty as well. 20% if you are a Singapore
Speaker 2: and it gets higher if you are apr Oh yeah, definitely. 20%
Speaker 2: is like the already in the second property. Yeah. So
Speaker 2: you would have to fork out quite a fair bit
Speaker 2: of cash you realize on the second property itself, right?
Speaker 2: So, and that's the reason why, you know, people are
Speaker 2: embarking on if they have an opportunity to decouple on the,
Speaker 2: on the right? Ok. That makes a whole lot of sense. Yeah.
Speaker 2: But if you are a single owner and you're looking
Speaker 2: to purchase the second one, I'm sorry. I mean, those
Speaker 2: are the options either if you, if you're looking to
Speaker 2: you know, leverage at the maximum loan because sometimes if
Speaker 2: I own a condo under my sole name and let's
Speaker 2: say I've been owning it for a few years now,
Speaker 2: my outstanding
Speaker 2: loan might have come down quite a fair bit. Right.
Speaker 2: I may consider just paying off the loan on my
Speaker 2: first property. So that on property number two, I can
Speaker 2: leverage at 75%. Got it. Yeah, that's a smart move.
Speaker 2: So another financial assessment that we need to think about
Speaker 2: is thresholds because I mean property here is notoriously expensive
Speaker 2: and all those really strict rules and regulations and limitations
Speaker 2: that you were just talking about.
Speaker 2: So second homes are not always attainable to many of us.
Speaker 2: So what should our financial threshold be in the first place? Ok,
Speaker 2: so let's talk about eligibility, right? Whenever you purchase a property,
Speaker 2: let's talk about a private property, you immediately get subjected
Speaker 2: to this thing called the total debt servicing ratio. Sr right,
Speaker 2: simply put it,
Speaker 2: your total commitments cannot exceed 55% of your total income.
Speaker 2: So for instance, if I'm earning $10,000 a month, my
Speaker 2: entire liabilities including the property or whatever car loans or
Speaker 2: personal loans, I have cannot exceed $5500. Right? So if
Speaker 2: I'm looking to buy a second property
Speaker 2: and I already have an existing mortgage that eats into
Speaker 2: my 55% of course, and let's say I only have
Speaker 2: $1000 left, right. To be able to obtain a mortgage.
Speaker 2: I would realize that I actually can't borrow much from
Speaker 2: the bank. Yeah, a lot. Yeah. So either I have
Speaker 2: a lot of cash, you know, to throw into the
Speaker 2: property or because of my loan is small or
Speaker 2: I embark of maybe purchasing commercial properties instead because commercial properties,
Speaker 2: the regulations are a little bit different as compared to
Speaker 2: residential properties, you still can get 70 or 75% loan
Speaker 2: if you own a residential property and you're looking to
Speaker 2: buy a commercial property and commercial properties doesn't come with
Speaker 2: additional buyer stamp duty. Yeah, so that's usually when you
Speaker 2: have an investor who has maximized their residential portfolio,
Speaker 2: then you would realize they start moving into the commercial space. Ok.
Speaker 2: So that brings us to our next consideration intent. So
Speaker 2: what questions do we need to ask ourselves with regard
Speaker 2: to the purpose, the objective, the goal of buying a
Speaker 2: second property is passive income. The only reason worth doing it. Well,
Speaker 2: that's usually the first thing that people think about, but
Speaker 2: we always have to remember. Yes, you are
Speaker 2: a landlord. Your tenant is paying you, but you have
Speaker 2: to make your monthly mortgage payments. So if your monthly
Speaker 2: mortgage payments are $5000 and your tenant is paying you 5005,
Speaker 2: your passive income is $500 every month. And, and that is,
Speaker 2: and we haven't also considered property taxes, maintenance fees, for example.
Speaker 2: So you might end up with a negative cash flow
Speaker 2: even though you're a landlord.
Speaker 2: So that's not the only thing that one would consider
Speaker 2: when purchasing a second property to get passive income. We
Speaker 2: are also looking at capital appreciation, right? You buy a
Speaker 2: property now or you buy a property when it's new
Speaker 2: after five years, most probably the property is appreciated in
Speaker 2: its value. And then you sell and then you realize
Speaker 2: the returns after that and if you get a positive
Speaker 2: cash flow on your tenancy, great, right. Good for you.
Speaker 2: That's a bonus,
Speaker 2: but you're not just going to ride off how much
Speaker 2: you're getting in terms of your, your rental and just
Speaker 2: bank on that in making an investment decision, you always
Speaker 2: want a greater upside. So that's the other upside, you know,
Speaker 2: capital appreciation.
Speaker 2: And I mean, if you're owning a property in Singapore,
Speaker 2: chances are the property would retain its value. You wouldn't
Speaker 2: see property prices just come crashing down. So to many
Speaker 2: people that is like a safe bet, you know, uh
Speaker 2: as compared to putting my money into the equities market
Speaker 2: and you know, the Cryptocurrency market. So, so that's a
Speaker 2: different thing altogether. But yeah, I think that's the consideration,
Speaker 2: the intent cannot just be purely ok. I just want
Speaker 2: to get passive income, but you're thinking longer term, fine.
Speaker 2: Five years, seven years. What are you gonna do with that?
Speaker 2: As if I'm going to dispose of that asset how
Speaker 2: much am I going to get in return? Right. And
Speaker 2: if you analyze it, am I getting 2 3% per
Speaker 2: annum or am I able to get 6 7%? Because
Speaker 2: if I'm only gonna get 2 3% I may be
Speaker 2: better off also trying to diversify and put my money
Speaker 2: into different. Exactly. I mean, from what you're saying, it
Speaker 2: really feels as if we need to look at it
Speaker 2: as we look at any portfolio asset in there.
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Speaker 2: Ok. So here's what I understand. Some people say that
Speaker 2: you can afford to and want to leave your child
Speaker 2: with an inheritance. It's best to buy a second home now,
Speaker 2: while prices are relatively within reach, what do we need
Speaker 2: to know before we secure property for our Children? We
Speaker 2: touched on this briefly from the trust point of view.
Speaker 2: What what else do we need to think about?
Speaker 2: I think at the end of the day you must
Speaker 2: have a will set up. Yeah. I mean, that's important
Speaker 2: because if I purchase a second property and I'm not
Speaker 2: buying it under the trust because I'm not rich enough
Speaker 2: to buy a property fully in cash. And I buy
Speaker 2: a second property today. If I'm going to leave it
Speaker 2: for my kids. Number one, I need to make sure
Speaker 2: that I have a w will set up. Oh, yeah, yeah,
Speaker 2: because if I don't have a will then, you know,
Speaker 2: the
Speaker 2: it it gets distributed to people who I may not
Speaker 2: have the intent to, you know, in the first place,
Speaker 2: have them have the property, so have a will set
Speaker 2: up most importantly as well. I think get insurance if
Speaker 2: you buy a second property and you know, halfway through you,
Speaker 2: you meet up with a life changing accident or worst
Speaker 2: case scenario, you no longer on the face of the planet,
Speaker 2: what's going to happen to the mortgage, right? If, if
Speaker 2: your kid inherits the property with the mortgage, you know,
Speaker 2: that's going to be an issue as well. So a
Speaker 2: lot of people tend to forget this and I've seen
Speaker 2: many cases like that too where, you know, owners buy
Speaker 2: a second property with the intent to, you know, oh,
Speaker 2: you know, when my kids grow older, they can eventually,
Speaker 2: I will eventually give them the property,
Speaker 2: have them transfer under the name if they want to
Speaker 2: sell it. But sometimes sad cases, I've seen them quite
Speaker 2: a few where the main sole breadwinner passes on. Right,
Speaker 2: the property gets down to, for example, like the spouse
Speaker 2: in this instance, for example, but the spouse is not
Speaker 2: working and there's a mortgage on the property, there is
Speaker 2: no insurance. So the wife is left burden in this
Speaker 2: case with a second property. I mean, of course, you know,
Speaker 2: you can sell it off. But
Speaker 2: in the meantime, if you fail to meet the payment,
Speaker 2: I mean, the mortgage is still running and that you
Speaker 2: don't sell a house overnight. Exactly. So if you want
Speaker 2: to think of inheritance, you've probably got that thing holistically,
Speaker 2: get a will set up and ensure that you have insurance, right?
Speaker 2: So all these things are not like, oh, buying a property,
Speaker 2: real estate, we just talk about real estate. You really
Speaker 2: have to think about the whole picture
Speaker 2: when you're planning for the, you know, if you're living
Speaker 2: a property to your kids. No, that, that's fantastic advice.
Speaker 2: It's very easy to get caught up in the moment of, oh, hey, ok,
Speaker 2: here's my windfall. I'm going to go and invest in
Speaker 2: this second piece of property.
Speaker 2: Let's go buy one and then you don't think about
Speaker 2: the longer term impact of what that's going to be
Speaker 2: like when you pass it on. What kind of property
Speaker 2: specifically should we be looking at for investment versus a
Speaker 2: second home to love and to have a child. I
Speaker 2: think it's really different kind of requirements because if you're
Speaker 2: looking at purchasing a home you need to look at. Oh,
Speaker 2: do I like the view? Do you like my neighbors?
Speaker 2: Do you like the community?
Speaker 2: Yeah. Is the development, you know, like some developments, a
Speaker 2: lot of experts are attracted to certain developments. Oh, and
Speaker 2: I like that feel, you know, is it convenient to
Speaker 2: the bus stops and the M RT stations? But when
Speaker 2: you're buying a property for investment, primarily, you're just looking
Speaker 2: at the numbers as well. Is it easy to rent out?
Speaker 2: How many rentals are there in a year if I
Speaker 2: lose my tenant today? How fast am I able to
Speaker 2: find another tenant for the replacement rate? Is it going
Speaker 2: to be?
Speaker 2: Of course, you know, if you're, if you're near an
Speaker 2: M RT or good because, you know, if you sell it,
Speaker 2: chances are you sell it at a slightly nicer price,
Speaker 2: but the considerations are quite different. You're primarily looking at
Speaker 2: the numbers right to decide whether you would move into
Speaker 2: that particular development or not, whether it's ability to basically
Speaker 2: appreciate in capital. Whereas like I said, if you're buying
Speaker 2: a home, you may just like it, but 10 years
Speaker 2: down the road, you may not make a lot of money. Yeah. Yeah,
Speaker 2: I mean, I think if you're going in with the
Speaker 2: objective of living there,
Speaker 2: then it shouldn't bother you too much Well, Singaporeans, when
Speaker 2: we always ask this question, we are too pragmatic for, oh,
Speaker 2: you buy your own home? Yes. But I also like
Speaker 2: to have it as a good investment. You cannot have
Speaker 2: your cake and eat it all the time. I mean,
Speaker 2: are there properties like that that meet the requirements of
Speaker 2: you calling it a home and also having, having it
Speaker 2: a good investment? I mean, there are some properties like
Speaker 2: that as well.
Speaker 2: But yeah, generally if you're looking like an investment property,
Speaker 2: um chances are, you know, unless the requirements coincide with
Speaker 2: that property then great. But otherwise the requirements are the
Speaker 2: properties you're gonna get are quite different. Sure. Sure. Ok. Right.
Speaker 2: So if the second property is then a piece of
Speaker 2: investment purely versus the second home,
Speaker 2: should we think about an exit plan? You talked about
Speaker 2: this in terms of asset disposal, right? So what should
Speaker 2: this exit plan look like? Yes, it's an important point
Speaker 2: that you just brought up a lot of people purchase
Speaker 2: a property not knowing when to exit, right. They may
Speaker 2: have like a vague plan like, ok, I think, but
Speaker 2: they always say, ok, client, whenever it hits this value,
Speaker 2: I just sell it right? So simple. But thinking we
Speaker 2: have to think deeper than that, we have to come
Speaker 2: up with our cash flow as well because
Speaker 2: now along the way, let's say you buy a property
Speaker 2: and the kind of rental that you're getting is not fantastic.
Speaker 2: And interest rates right now in the market are quite high,
Speaker 2: you have to fork out quite a bit of cash.
Speaker 2: So all these are expenses, right? And if you sell
Speaker 2: the property five years later at a certain price, let's
Speaker 2: say at a 10% gain, 20% gain.
Speaker 2: If you do the math, you may not get a
Speaker 2: lot of returns at the end of the day. Right?
Speaker 2: So it's important to at the get go plan. Ok,
Speaker 2: if I buy this property, have my cash flow ready,
Speaker 2: what kind of expected rental am I going to get? Yes.
Speaker 2: What is my
Speaker 2: maintenance fee? What is my property taxes? Especially property taxes?
Speaker 2: You know, because they're going to basically what your outflow
Speaker 2: is exactly. Consider all your outflows, factor them into part
Speaker 2: of the expenses and then you plan. Ok, if I
Speaker 2: exit after five years, what is a realistic
Speaker 2: amount I can sell my property yet? Based on current trends. So, ok,
Speaker 2: let's do a two or three or maybe 4% appreciation
Speaker 2: per year and we sell it after five years at
Speaker 2: this price. Work the numbers out plan ahead and say, ok,
Speaker 2: if I sell it at this price, what kind of
Speaker 2: returns am I gonna get? A lot of people fail
Speaker 2: to do this? Everyone is just drawn into the hype of. Oh,
Speaker 2: it's a new launch. Sure. Make money. Yeah, exactly. My first,
Speaker 2: my first because
Speaker 2: one is buying I can't get a queue number. I
Speaker 2: better just four more, four more, four more, but not
Speaker 2: all new launches do well. Right. As we've seen in
Speaker 2: the headlines and you may not at the end of
Speaker 2: the day, make money from, from this investment if you
Speaker 2: haven't really done the numbers. No, you're absolutely right. You're
Speaker 2: hitting the nail on the head right there. So we
Speaker 2: talked about decoupling earlier and I loved your explanation of decoupling.
Speaker 2: So now I read that a factor to consider when
Speaker 2: it comes to decoupling.
Speaker 2: And of course, before you go ahead and buy the
Speaker 2: second property is the type of holding or the type
Speaker 2: of tenancy. Ok. Help me understand this. Ok. So we
Speaker 2: call this the manner of holding. Now, basically, let's say
Speaker 2: you're buying a property with your spouse or a friend. Ok.
Speaker 2: So two, at least two parties involved,
Speaker 2: you can buy the property under two different ways. You
Speaker 2: can buy it under joint tenancy or you can buy
Speaker 2: it under this thing called the tenancy in common. Ok?
Speaker 2: So now let's assume me and my wife, we purchase
Speaker 2: a property and we hold it in joint tenancies. So
Speaker 2: joint tenancy just means we own equal shares. Now, the
Speaker 2: deeper meaning behind the joint tenancy is if I pass
Speaker 2: away my shares automatically go to my wife, right? She
Speaker 2: inherits the property. It's a rule of survivorship.
Speaker 2: Now, there is another way of holding it, which is
Speaker 2: in tenancy in common and tenancy in common allows us
Speaker 2: to alter the percentage that we hold in the property.
Speaker 2: Can it still be 50 50? Of course, it can,
Speaker 2: so I can hold the property in a tenancy in common. 50%
Speaker 2: with my wife and 50% myself. And what happens if
Speaker 2: I pass away if I pass away my stress get
Speaker 2: distributed according to my will, it, it doesn't automatically go
Speaker 2: to right now. That's one thing.
Speaker 2: The second thing that usually people talk about when it
Speaker 2: comes to manner of holding more commonly heard as 99
Speaker 2: 1 this term. What is this entire 99 demystify this
Speaker 2: for me, please? Ok. So here it goes,
Speaker 2: I own the property with my wife in equal shares.
Speaker 2: The property is worth a million dollars today. Now I
Speaker 2: want to perform a decoupling where I buy my wife's
Speaker 2: share so that my wife can buy another property and
Speaker 2: being the first property that she doesn't have to pay
Speaker 2: for an additional buyer. That that's my intent. So now
Speaker 2: I buy over my wife's share. My wife owns 50%
Speaker 2: of the share. So that's 500 K, right? I have
Speaker 2: to pay for buyers stamp duty on 500 K. Ok.
Speaker 2: So
Speaker 2: what's the other scenario if I own the property in 99%?
Speaker 2: And my wife owns 1% I buy over my wife's share. 1%
Speaker 2: of a million dollars is $10,000. Much more affordable than 500,000.
Speaker 2: When I buy that $10,000 I'll pay buyer stamp duty
Speaker 2: on $10,000 which is $100. That's genius as compared to
Speaker 2: paying
Speaker 2: bias MDT on that 500 K, which is like 9006.
Speaker 2: So I save some money in that buyers M duty. Right.
Speaker 2: So that's the reason why you go about and like
Speaker 2: everyone is telling you, hey, 99 1, 99 1, it's
Speaker 2: efficient in that manner because you save a lot on
Speaker 2: bias M duty. Right?
Speaker 2: But there are some downsides to it. I was thinking about, they,
Speaker 2: they often don't consider now, let's assume this. My wife
Speaker 2: owns 1% of the property and she has used CPF
Speaker 2: on the property as well. Let's assume that she has
Speaker 2: used $250,000 of CPF. When she sells her share to me,
Speaker 2: she has to refund that $250,000 back to CPF. Right.
Speaker 2: How is she going to do that? She has to
Speaker 2: come up with cash from her pocket, put it back
Speaker 2: into CPF. And when the moment comes, when the couple
Speaker 2: realizes that, ok, I'm safe on buyer stamp duty, but
Speaker 2: now I have to forgo $250,000 and put it back
Speaker 2: into the CPF. Where am I going to get the
Speaker 2: money from? Forgot to think about. Exactly. Exactly. So if
Speaker 2: you don't have the means or sometimes people say I
Speaker 2: do have that 250 K,
Speaker 2: but it's supposed to be used for the deposit on
Speaker 2: my new property. And now if I put it back
Speaker 2: in the CPF, where do I get the cash? Two
Speaker 2: steps forward, one step back. Exactly. So it has to
Speaker 2: be considered and it's not always the case that the
Speaker 2: couple would go for a 99% 1% ownership. It might
Speaker 2: be varying like 70 30 there are some reasons behind that.
Speaker 2: But yeah, just to break down simply what this manner
Speaker 2: of holding is about and how it's actually utilized. Hm,
Speaker 2: I think that's exactly it. And then there's so many
Speaker 2: strategies to think about this. When you're doing the 99
Speaker 2: 1 70 30 you calculate what you have in hand
Speaker 2: and what you're going to get in the future. But
Speaker 2: the most important thing is how you're going to finance
Speaker 2: it right at the get go without overstretching yourself. Really?
Speaker 2: Because like we've been talking about, you know, it's great
Speaker 2: to think about the future to think about. Ok, this
Speaker 2: is what I'm going to get out of it.
Speaker 2: But what's the, now, what can you afford now? Because
Speaker 2: that's going to be able to stretch you into the
Speaker 2: decades as you get older. It's a very common thing
Speaker 2: that you brought up. Andrea, that people. Really? Yeah, they
Speaker 2: think of the now. Ok. Oh, I have money now.
Speaker 2: Let's do this and let's hold it in 99 1
Speaker 2: in the hopes of getting a second property. But they
Speaker 2: don't think of like down the road eligibility. If I'm
Speaker 2: going to buy over my wife's share, can my wife afford?
Speaker 2: Based on eligibility? The new property?
Speaker 2: Oh, we haven't thought about it yet. Let's not make
Speaker 2: that painful mistake and all the other mistakes that you noted. So,
Speaker 2: buying a property in Singapore, it sounds complicated. Right. But
Speaker 2: if the time is right, if you time it right,
Speaker 2: and you've done your calculations. Well, as Clive has pointed
Speaker 2: out that asset could serve you and your family well,
Speaker 2: in the long run, thanks, once again, Clive for walking
Speaker 2: us
Speaker 2: the consideration and it was great to have you on
Speaker 2: the show. Thanks for having me and thank you to you,
Speaker 2: our listener. If you've enjoyed this episode of Money Talks,
Speaker 2: there is always more content for you to enjoy. Just
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Speaker 2: Talks is Jacqueline Chan, Joanne Chan Tiffany, Ang Christina Roberta,
Speaker 2: Wind Jess and I'm Andrea. He.