2022 Edition – Guide to Asset Progression for Financial Freedom

Why opt to get Asset Progression?

A major query for the Singaporean audience is why should they invest in an asset progression plan? The counterargument that could come up is that you have energy funds available, you have a good house that you’re satisfied with and paying for through your Central Provident Fund (CPF), or you are smart with your money, and you don’t need any such plans.

However, no matter how smart and responsible you are with your funds, an asset progression plan removes the concept of uncertainty and brings a level of stability in future planning. All individuals who are paying off their house loans using their CPF are actually dipping their fingers in their retirement plans.

Furthermore, while using CPF for property purchase seems like a feasible deal, it is everything but that when considered in the long run. Using CPF means that people must pay back the amount gathered when they intend to sell off their property. To put it, accrued interest is all the money in the interest portion that could be saved had you not used it.

Moreover, the third and most important point is that no matter how smart and reasonable one is with their finances, it is still not sufficient for retirement funding. That’s because a large portion of one’s wealth is derived from the sale of their primary residence. The old strategy was to purchase a large home, remain in it for 40 years, and downsize. The strategy hasn’t worked in a long time. From 1975 to 2019, house prices rose from 8.90 Index Points to 152.2 Index Points. The rise totals up to around 1600%!

Asset Progression for Singaporean Audience

Both for the Singaporean audience and individuals living outside of Singapore, the concept of asset progression is pretty attractive since it comes with a huge number of pros. Buyers out of Singapore have attracted ed since the region offers political stability, low crime rate, exceptional education system, and good value of properties.

With the stale property prove appreciation levels, various buyers from Singapore and those from outside of the region have been able to generate passive rental income and gain profits and en-bloc sales.

Traditional Asset Journey

To understand asset progression better for Singapore, here is a look at the typical buyer journey. Initially, buyers start by getting married. A traditional couple in Singapore would start by purchasing an HDB flat. This is either a resale Singapore real estate property or a brand new one.

As time progresses, it is possible that down a couple of years, the pair might decide to sell their HDF flat and opt for something more sophisticated such as their private property. It is also possible that those who can afford it might hold on to their HDB and get private property. For many people, this is where the journey comes to an end.

However, there’s ore. At the stage of the highest changes in their career, property owners decide to upgrade their wealth and assets. While doing this, the most common mistake is buying a relative price property hoping that it will be an update; this doesn’t always work.

The last stage is that of retirement. However, when they reach this stage, buyers tend to sell their current real estate properties in Singapore and go back to an HDB flat perfect for their tun retirement fund.

How Accrued Interest Can Pile Up

Understanding the implications of accused interest is crucial to figuring out asset progression’s importance. For instance, let’s begin with an example of $300,000. The total down payment of 10% for this property would equal $30,000, while the stamp duty and mortgage duty would be $9,000 and $500, respectively. With an additional legal fee of $2500, the total CPF used just for the initial payment would amount to $42,000.

This would eventually result in a huge chunk taken in the CPF accounts. Out of the huge chunk, a majority would be just allocated to accrued interest. A property that was supposed to sell for a maximum of $30,000 will cost you double or even triple its actual price.

Common Myths about Property Progression

While property progression is a sound way of securing your future and retirement plan, many people tend to get scared of the concept because of some myths. Some of the most common myths are:

1.   HDB Flats are a Sign of Investment

Buying an HDB flat means that you have an investment on the side, and its value will keep increasing as time passes. This is not correct at all! There is a major hike, approx. Around 12% in the prices of HDB flats. The government has put various measures in place to deal with the scenario, which eventually led to lower demand and lower prices.

2.   Asset Progression Needs Tons of Money

To get into asset progression, one needs to have a lot of money to invest. This is incorrect as well. One must have around 8% to 10% of the buying price to begin their journey if you don’t own a property, but if you do, you don’t even need that. There are tons of funding plans that can assist you throughout. Buyers often overestimate their real financial and CPF requirements.

3.   Price Equates Profit

The pricier the property, the higher the profit. This is once again completely false. While it might feel like you are upgrading by buying an expensive property, it doesn’t always equate to more profit. Keep in mind that no correlation exists between the profit size and the price of the property. What’s more, a majority of times, it’s even challenging to profit from pricier properties instead of affordable ones. This is because the number of buyers available for affordable properties is always higher.

4.   Not Taking Time in Consideration

Any real estate agent will tell you that the most important thing is to act quickly. Your whole wealth growth strategy might be ruined if you make a hasty choice or enter at the wrong time. You may lose a wonderful opportunity if you procrastinate too long. For Singaporean buyers, the loan-to-value ratio is an important consideration. Because of limited market entrance, the maximum quantity of loans you are eligible for may also decrease.

Use your CPF Strategically

When you have decided not to waste away your CPF on purchasing real estate, you can start by investing it in different regions that can boost your portfolio. The easiest options include buying stocks, buying property, or transferring the amount to CPF Special Account.

Make sure that you spend an ample amount of time researching your options before you make a decision. The first step in any asset progression journey is staying informed. Gauge Singapore landed property price trends, conduct a thorough analysis of your financial situation, and manage the risk in the most efficient way possible.

Reach us if you’d like some help with your own real estate port folio.  We’d love to help!