For Singaporeans to build a financially stable tomorrow, we must almost certainly give a substantial amount of thought and effort given to the concept of Asset Progression for our real estate portfolio. However, understanding the intricacies of Asset Progression can be a daunting chore or somewhat taxing one.
It is a tad more than the moving of one property ownership to the next. And with each move, the asset becomes bigger and more valuable.
Even recently, Business Times published an article: Cooling measures won’t stop wealth creation through owning homes but do combat inequality
How Singapore Real Estate Market Works
According to the Singapore Property Index, 2021, the prices of private homes in the region increased by around 5%. Consequently, experts have termed this increase the sixth increase of the quarter where prices were increased consecutively. This offers a clear glimpse into how expensive the real estate market is.
In the 1960s HDB or Housing Development Board was formed to give Singaporean Affordable housing. Usually, youngsters or newly married couples prefer to order flats or BTOs.
Some also progress to better more expensive options such as EC (executive condominiums), private condos and /or Landed Housing.
For an individual to move from an HDB flat to a private condo or landed property, they must understand the skill of asset progression.
What is Asset Progression?
A concept as old as times, Asset Progression, might feel like a new term, but it’s not. Our forefathers used to do this, and we need to make it a part of our lives in order for a safer tomorrow. The concept of Asset Progression is that you sell any of your classes of assets and then gradually progress to the one higher than that. While this may sound like a constant struggle for climbing the ladder, it is not that.
It provides an efficient way for individuals to upgrade their lifestyle while also helping in offering them a multitude of financial options by the time they grow old. It entails that property owners move towards loaned funds which can assist them in generating higher returns. While this may sound off to traditional individuals who believe in a “take an as little loan as possible” view, it is the safer pick because if done right, individuals can end up with at least two or more properties in their portfolio.
A couple that started their journey for a low costing single HDB flat can then be the proud owner of tons of properties in Singapore, all of which will assist them in generating passive income and capital gain through renting of the space.
People tend to misunderstand Asset Progression because it is a pyramid scheme that gets you to the top. Instead, it is a concept that requires years of strategizing, planning, and spending.
The Journey from a HDB to owning Landed
On average, the journey of any newly married couple in Singapore begins with purchasing a BTO to build to order flat. During the time of purchase, there are also subsidies provided as housing grants to make purchases financially easier.
A couple starting purchasing a HDB is about $4800,000. If the couple holds the property for 5 year, the Minimum Occupation Period or MOP, they will then be allowed to sell their HDB and can cash out whatever capital appreciations their flat may have gotten in that time frame.
Executive Condominiums EC
A good in between HDB and a private condo are ECs. They can cost between $900,000 – $1,300,000. They are basically Condominiums but sold under conditions of HDB. And in 5-10 years, after meeting MOP, can then be sold off in the open market usually at a handsome profit.
As time progresses, we can also assume that the couple would have most probably progressed in their careers and now have better earning capabilities. What’s more, the loan of the HDB may even have been paid off substantially if not completely and therefore taking a new loan up would be no hassle.
The couple’s goal would now be to shift from an executive condo to another option. However, they will also spend some time on their current property before that happens. At a minimum, it is wise to spend around seven to ten years in said property to complete the minimum occupation period.
Some factors to consider when buying an Executive Condominium.
The next stage of Asset Progression is usually a private condo. This is somewhat a status symbol for Singaporean to show that they have ‘arrived’!
Depending on the finances of the couple, they may be able to sell off their current property and access the capital to buy something more significant and get a larger loan for that property.
As in life, Not ALL condos are EQUAL and some are more equal than others. Condo prices can range from a modest $700k to more than $10m depending on the size and areas.
About only 5% of Singaporeans live in a Landed property. Considered the ‘acme’ of living in Singapore, again, the price disparity of these houses can range anywhere from $3m to more than $20m.
Many Singaporeans reach this pinnacle of real estate owning, if not helped by a relative or an unexpected windfall, through careful and astute Asset Progression Investing.
Retiring with Assets
By the time the individuals enter their retirement stage, they have two options. They can either continue the progression and sell their property, take a loan, and purchase the next property, a prate condo, or sell their existing property to purchase two relatively less expensive properties and rent one of them.
The rent collected would then offer them constant passive income. And giving them a wonderful and financially-worry free future.
What to Avoid During Asset Progression?
Asset Progression can be a double edged sword. Mistakes can be made if not careful. Here’s some of the pitfalls.
1. Jumping Headfirst Without Research
The entire gist of asset progression depends on the fact that the property you own and have purchased will appreciate when you decide to move up the ladder. This is where research comes into play. A lack of research from the owner’s end could lead to purchasing a pretty that doesn’t provide much profit when it’s time to sell. It is essential to look at the surrounding owners and gauge the estate market to invest where the capital gain is expected to be high in a couple of years.
2. Bad Timing
Like most investments, timing is everything. Too quick of a decision or too late of an entry has the potential to mess up your entire Asset Progression plan. If you wait too long, you might end up missing the opportunity that was could have been a golden goose to you. Or if did a Fear-Of-Missing-Out move, you might end up with a lemon that will not only cost you money, but also time and opportunities.
Timing is everything and really cannot be understated.
3. Gravitating Towards Expensive Properties
As a part of strategy making, some individuals like to incorporate the concept of “the pricier the pretty, the higher profit there will be.” This is a myth and should be avoided at all costs. A property priced at a high rate does not always equate to a higher profit down the road. Instead of buying the first thing you like, make sure that you invest in a property that keeps your pocket safe while promising higher gains in a couple of years. Make purchase decisions based on what the market wants now and what the market will probably want in a couple of years rather than based on your personal preferences.
4. ‘The Death of a Salesman’
While the popular Broadway musical may not give you the rudiments of Asset Progression, your Asset Progression can be derailed by a Salesperson or Real Estate Agent.
It is more important to listen to an Agent’s analysis backed with data, rather than just personal anecdotes of his/her life’s real Estate journey. The tombstones where Agents, whose only motto in life is to line their own pocket books, at the peril of their clients are way too many.
Always, DO YOUR OWN RESEARCH!!! and ultimately make your own decisions!
Smart Decisions Today Lead to a Wealthier Tomorrow
According to statistics, the rate of homeownership in Singapore is around 91%! Singaporeans love to own their own homes. And there’s nothing to show that this trend will not otherwise continue.
In the past 2 years of the pandemic, home ownership has not only not slowed down, but remained buoyant. Supply in this current climate has also steadily decreased. Boosting the price increases in the past year.
Despite the recent cooling measures, Asset Progression is definitely still very viable. Read Business Times: Cooling Measures won’t stop Wealth Creation through owning homes but do combat inequality.
Asset Progression is an age old proven process of upgrading Real Estate ownership and the quality of living. If done well, it can handsomely reward owners with financial security and freedom!