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Wednesday, 16 May 2018

Retirement Planning: Is getting a Second HDB flat a Good Investment (by divorcing)?



This post is triggered from Ms Leianne Tan post on
"
Married couple in S’pore agree to divorce to buy another HDB flat to rent out"
This post will not be a fair comparison but it will give an idea whether a second hdb flat is sound for the above scenario.

There will be no in depth calculation and some fees are not included in this post for simplicity.


Mr 54 years old (54yo), cannot withdraw his CPF money by next year because it does not meet the Minimum Sum, or Retirement Sum.

Ms wife, lets said 4 years younger, at 50yrs old (50y0), could not withdraw any CPF money in a few years’ time, since she also does not meet the minimum sum. We have to assume she is a housewife with no income for simplicity.

The divorced party, Mr 54yo, who has the child living with him, will be able to retain the 5 room flat.

If the loan taken is 25years and paid fully, we can assume the 5rm flat is purchased at 29yrs old.

The article mentioned Mr 54yo paid more then $800k with full or partial of his CPF  (that is why the article seems like a click bait then a real case), he would have bought a resale flat instead of a BTO flat at round $650K and paid a total of $850k for all fees and interest included (estimated with a 80% loan with HDB interest rate of 2.6%).

In this case, we give the 5rm flat the benefit of the doubt that it was sold after 5yrs minimum occupation period (MOP)  so by now, the lease of the HDB left is around 99yr-5yrMOP,-25yrs(loan) =  69yrs.

Question 1:
Is it better for Mr 54yo to sell the HDB flat instead or renting it out?

Let's be logical here.

a)Would Mr 54yo wanna to sell at a loss or a value below $850k and use the proceed to buy a downgraded HDB flat?

b) Would any buyers wanna to buy a 69yrs old flat for $850k which lead to a estimated total amount of $930k paid within 25yrs and with a HDB loan of 2.6%. 
If not paid in full by the buyers.

My humble opinion is Mr 54yo really have no choice but to live with a 3.5% rental yield according to the monthly rental of $2500 (in the article) until the greater fools theory happens to him.

Question 2:
Won't getting a second HDB flat means starting over with new debt and might lead to more losses?

The answer is Yes and No depending on what price of the HDB flat is purchased.

According to the past non mature estate for 3rm flat (assuming there is a child from above)

http://esales.hdb.gov.sg/hdbvsf/eampu12p.nsf/0/17NOVSBF_page_1918/$file/about0.html

The price with grants can go as low as $76k for Sembawang 3rm flat.

The downside and upside is no loan is eligible for this lower amount. Cash is still King in some ways.

Assuming, Ms wife does have $90K in her CPF for all payment above, Mr 54yo annual rental income of $30k would break even the Sembwang flat cost in 3 years time.

After 3 years, they would have the rental yield as an extra/passive income for their retirement.

I drank a bit of wine so I will stop here.

Hope this post can clear some air and there is really no right or wrong answer to this.

As long as the decision made, does not do bad to anyone, then all is good.

Another Good Deed Done!




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