We make $400k per year and live in a HDB flat - should we upgrade to a landed now or buy 2 condos and upgrade later?
PHOTO: Stackedhomes
PUBLISHED ONMarch 11, 2023 3:27 AM
Dear Stacked Homes
My wife and I are avid readers of your site. We appreciate your candour and good advice (and writing!). We're in a bit of a predicament and would appreciate some advice.
Background: we are in our early 30s with two young children and a helper. We earn in the low $400,000s and currently stay in a HDB flat. We are in the process of selling off our flat and would have approximately $1.2m to $1.4m in cash and CPF-OA thereafter.
Problem: We are looking to upgrade to a terrace house near any of the following MRT stations: Upper Thomson, Bright Hill, Marymount, Bishan, or Lor Chuan. Reasons for this are proximity to schools and family. Factoring in future income growth, we believe we can comfortably afford something in the $3.6m range, but most decent condition terraces are now priced upwards of $4m.
What is important to us is convenience (e.g. good nearby transport network and amenities), minimal renovation or A/A required (meaning no single storey dilapidated shacks since we don't have the capital for a rebuild), and some appreciation potential (i.e. no tiny land plots like many properties near Shunfu Market).
In the near term (two-four years), we don't mind not living in the landed property since we don't need all that space now, but are concerned about being priced out if current appreciation rates continue.
Question: Do we stretch ourselves and buy a $4m landed property now, or would it be better to buy a different property (e.g. a single large condo in a central location like Newton/Novena) or even two separate smaller new/resale condos (and possibly leasing both out and renting a third property to stay in) and sell the condo(s) off in three-five years time to buy the landed property then?
Or put another way, would these appreciate more than the terrace houses we are looking at, allowing us to better afford it at that time?
Hope you can feature this on your advice column. Look forward to hearing your thoughts. Thanks!
Hi there,
Thanks for writing in and we're happy to hear that you've enjoyed the content so far!
Having more than $1M in CPF and cash in your early 30s is undoubtedly an impressive achievement that places you in a favourable position. Nevertheless, we acknowledge that the decision-making process is still just as challenging due to the high-interest rate environment and the continually increasing land costs.
While we do not have a comprehensive understanding of your long-term goals, you have listed the different pathways you're considering in the short term. Therefore, we will adopt a numbers-driven approach to demonstrate how the different pathways could pan out over a brief period of three to five years.
Here's the challenge though. Three to five years is a short time, and also it's really hard to predict what it may look like over the course of five years - especially if you have strict plans on changing it up in five years. As you'll see later in the numbers below, your entry and exit time can make a huge difference. Essentially, this is trying to time the market, which no one can guarantee.
Nevertheless, here's what we will look into:
Potential profits of the three pathways in three-five year's time
How much more will it cost to buy a landed home in five year's time
What are the annualised returns for landed vs non-landed homes?
Here’s what the annualised returns over 10-year periods look like for the respective periods below:
| Period | Landed annualised | Non-landed annualised | Difference |
| 1975 – 1985 | 13.53 per cent | 9.50 per cent | -4.03 per cent |
| 1976 – 1986 | 13.98 per cent | 8.71 per cent | -5.27 per cent |
| 1977 – 1987 | 15.68 per cent | 10.57 per cent | -5.11 per cent |
| 1978 – 1988 | 15.71 per cent | 11.01 per cent | -4.70 per cent |
| 1979 – 1989 | 13.44 per cent | 9.57 per cent | -3.87 per cent |
| 1980 – 1990 | 7.63 per cent | 3.03 per cent | -4.59 per cent |
| 1981 – 1991 | 6.18 per cent | 1.78 per cent | -4.41 per cent |
| 1982 – 1992 | 5.98 per cent | 3.58 per cent | -2.40 per cent |
| 1983 – 1993 | 9.06 per cent | 5.63 per cent | -3.43 per cent |
| 1984 – 1994 | 14.26 per cent | 10.80 per cent | -3.46 per cent |
| 1985 – 1995 | 17.00 per cent | 13.98 per cent | -3.02 per cent |
| 1986 – 1996 | 16.10 per cent | 16.19 per cent | 0.09 per cent |
| 1987 – 1997 | 13.61per cent | 12.60 per cent | -1.01 per cent |
| 1988 – 1998 | 7.91 per cent | 7.55 per cent | -0.37 per cent |
| 1989 – 1999 | 10.20 per cent | 9.21 per cent | -0.99 per cent |
| 1990 – 2000 | 9.56 per cent | 8.46 per cent | -1.10 per cent |
| 1991 – 2001 | 6.11 per cent | 5.66 per cent | -0.45 per cent |
| 1992 – 2002 | 4.52 per cent | 3.74 per cent | -0.78 per cent |
| 1993 – 2003 | -0.17 per cent | 1.55 per cent | 1.72 per cent |
| 1994 – 2004 | -4.07 per cent | -1.32 per cent | 2.75 per cent |
| 1995 – 2005 | -4.46 per cent | -2.21 per cent | 2.25 per cent |
| 1996 – 2006 | -3.60 per cent | -2.34 per cent | 1.26 per cent |
| 1997 – 2007 | -0.36 per cent | 1.92 per cent | 2.27 per cent |
| 1998 – 2008 | 4.22 per cent | 5.16 per cent | 0.94 per cent |
| 1999 – 2009 | 1.84 per cent | 2.22 per cent | 0.37 per cent |
| 2000 – 2010 | 4.78 per cent | 3.66 per cent | -1.12 per cent |
| 2001 – 2011 | 6.99 per cent | 5.50 per cent | -1.50 per cent |
| 2002 – 2012 | 7.60 per cent | 5.94 per cent | -1.66 per cent |
| 2003 – 2013 | 7.86 per cent | 6.33 per cent | -1.53 per cent |
| 2004 – 2014 | 7.20 per cent | 5.84 per cent | -1.37 per cent |
| 2005 – 2015 | 6.51 per cent | 4.99 per cent | -1.51 per cent |
| 2006 – 2016 | 5.34 per cent | 3.62 per cent | -1.72 per cent |
| 2007 – 2017 | 3.10 per cent | 0.87 per cent | -2.23 per cent |
| 2008 – 2018 | 3.98 per cent | 2.23 per cent | -1.75 per cent |
| 2009 – 2019 | 3.78 per cent | 2.37 per cent | -1.41 per cent |
| 2010 – 2020 | 1.14 per cent | 1.28 per cent | 0.13 per cent |
| 2011 – 2021 | 1.43 per cent | 1.78 per cent | 0.35 per cent |
| 2012 – 2022 | 2.01 per cent | 2.32 per cent | 0.31 per cent |
| 2013 – 2023 | 2.23 per cent | 2.36 per cent | 0.13 per cent |
Generally, landed homes do make more on average compared to non-landed homes. This is true - but this depends a lot on when you make the purchase.Data from 1975 till 2023 shows how varied the annualised returns are in different periods.
For example, buying a landed home in 2008 and selling in 2018 saw annualised returns of 3.98 per cent compared to if you had bought in 2012 and sold in 2022. Even the performance between landed and non-landed depends on when you buy.
Thus, the question of whether you'd "lose out" if you do not buy a landed home now compared to five years later is something nobody can answer. There's just no way to be sure of how prices of landed homes would behave relative to non-landed homes between 2023 and 2028.
Regardless, we'll still have to rely on data to do some sort of projection, so let's use the most recent data points between 2013 - 2023.
Running a simulation
Gains: We looked at the Landed and Non-landed Property Price Index (PPI) between Q1 2013 to Q4 2022 to calculate the annualised returns and used them in assuming capital appreciation over the next five years.
This is 2.23 per cent for Landed and 2.36 per cent for Non-landed private property on a yearly basis. This makes up the "total gains" that you can make when you sell your property.
Costs: For interest expense, we used 4.25 per cent as the annual rate to reflect the existing market condition. Only interest cost is accounted for as cost.
[[nid:620103]]
We also took into account property tax (stamp duty and yearly property tax) and maintenance costs (estimated $250 per month for a landed property, $600 per month for a three-bedroom condo in the central district, $300 per month for a two-bedroom condo in the RCR).
When it comes to owning landed properties, your monthly outgoings may be minimal, limited to only necessary expenses. Ideally, you'd be able to find a landed home that is new-ish, as the likelihood of major maintenance would be low.
However, in the event of major damage, such as plumbing or roofing problems, the entire cost of repairs falls solely on you. Additionally, maintaining the exterior of the property, like repainting the facade, can be a pricey undertaking. This unpredictability in maintenance expenses for landed homes means that you may go months or years without any significant costs, only to be hit with a substantial bill for repairs suddenly.
Therefore, it is prudent to create a dedicated fund for repairs or have sufficient savings set aside to handle emergencies. It is also recommended to conduct annual checks to identify any potential damage before it worsens. This is particularly important to detect pests early, as even a small termite infestation can turn into a costly disaster within a few months.
As these costs are not fixed or predictable, they are not accounted for in our calculations.
Time period: We are using a five-year horizon since you will not need the space in the short term.
Note: Other costs such as legal fees and agency fees were ignored as they are insignificant to the outcome. Renovation costs were not considered as they're very subjective.
Pathway one: Buy a $4M landed property now
| Period | Total cost | Total gains | Profit |
| Starting costs | $179,600 | $0 | -$179,600 |
| Year one | $327,502 | $89,200 | -$238,302 |
| Year two | $473,213 | $180,389 | -$292,824 |
| Year three | $616,637 | $273,612 | -$343,025 |
| Year four | $757,674 | $368,913 | -$388,761 |
| Year five | $896,223 | $466,340 | -$429,883 |
We will assume a 75 per cent loan of $3M and a downpayment of $1M in CPF and cash. The Buyers Stamp Duty for a $4M property is at $179,600. The downpayment and BSD will utilise almost all the $1.2 - $1.4M of CPF and cash you have after selling your HDB.
The largest initial cost you will face is the BSD, which has recently increased for properties exceeding $1.5M. Also, the substantial interest expense on the $3M loan will gradually erode your profits, leading to greater losses over the years.
Pathway two: Buy a large condo unit in a central location now
In 2022, the average PSF for non-landed properties above 1,200 sq ft in Districts 9, 10, and 11 is at $2,435. Assuming you purchase a 1,200 sq ft unit, that will amount to $2.922M.
| Period | Total cost | Total gains | Profit |
| Starting costs | $115,700 | $0 | -$115,700 |
| Year one | $224,096 | $68,959 | -$155,137 |
| Year two | $330,891 | $139,546 | -$191,345 |
| Year 3 three | $436,016 | $211,798 | -$224,217 |
| Year four | $539,397 | $285,756 | -$253,641 |
| Year five | $640,960 | $361,459 | -$279,501 |
We will also assume a 75 per cent loan of $2,191,500 and a downpayment of $730,500 in CPF and cash. The BSD for a $2.922M property is at $115,700.
Similar to owning a landed property, your biggest initial expenditure will be the BSD, and the significant interest expense on your loan will also result in increasing losses over time.
Pathway three: Buy two smaller condo units now to rent out, while renting a place for yourselves
Presuming an even split on the CPF and cash, each party will have $600 - 700K to put towards the downpayment and stamp duties. Individually, you will each be able to afford a property that costs up to $2.4M. This would mean you'll be taking the maximum loan and utilising all your CPF and cash.
In 2022, the average PSF for a non-landed property in the RCR sized between 750 - 1,000 sq ft is at $1,986. Assuming you were to buy a 1,000 sq ft unit, that will amount to $1.986M.
| Period | Total cost | Total gains | Profit |
| Starting costs | $74,262 | $0 | -$74,262 |
| Year one | $149,443 | $106,450 | -$42,993 |
| Year two | $228,897 | $214,005 | -$14,892 |
| Year three | $301,854 | $322,693 | $20,840 |
| Year four | $378,988 | $432,540 | $53,552 |
| Year five | $449,524 | $543,573 | $94,049 |
Here, we are also assuming a 75 per cent loan of $1,489,500 and a downpayment of $496,500. The BSD for a $1.986M property is at $68,900.
Since these two units will be rented out, we have taken into account the rental gains, agent fees (payable once every two years), and also a higher non-owner-occupied property tax rate.
Generally, rental yields in Singapore range from 2 - 4 per cent so we are using an average 3 per cent rental yield for calculation purposes. You could say most rental yields today will be in the upper end of 4 per cent, but let's just take 3 per cent to be conservative.
We can see from the table that from Year three onwards, you're in the green. The profit of $94,049 is for one property. We will presume that both properties are performing similarly so the profits for the two properties will be $188,098.
Let's say you were to rent an apartment in District 20, close to your family and schools for your kids. We have picked out three developments within 1KM of either Ai Tong School or Catholic High which are the two popular schools in the district, in order to determine the average three-bedroom rental cost:
| Project | Average monthly three-bedroom rent |
| Thomson Grand | $5,867 |
| Sky Vue | $5,321 |
| The Gardens at Bishan | $4,757 |
| Average rent based on the three projects | $5,315 |
Adding $300 for utilities to the average monthly rental of $5,315, it will cost $5,615 each month to rent a place. For five years, that will amount to $318,900.
Projected profits after five years if you were to rent out both properties and rent a place for your own stay: -$130,802.
Five year projection for the three different pathways
As before, we're using the annualised growth rates over the last 10 years for this projection which is 2.23 per cent for Landed properties and 2.36 per cent for Non-landed properties.
| Period | Landed | Landed profit | Large condo unit in the CCR | Large condo unit in the CCR profit | Smaller condo in the RCR | Smaller condo in the RCR profit |
| Start | $4,000,000 | – | $2,922,000 | – | $1,986,000 | – |
| Year one | $4,089,200 | $89,200 | $2,990,959 | $68,959 | $2,032,870 | $46,870 |
| Year two | $4,180,389 | $180,389 | $3,061,546 | $139,546 | $2,080,845 | $94,845 |
| Year three | $4,273,612 | $273,612 | $3,133,798 | $211,798 | $2,129,953 | $143,953 |
| Year four | $4,368,913 | $368,913 | $3,207,756 | $285,756 | $2,180,220 | $194,220 |
| Year five | $4,466,340 | $466,340 | $3,283,459 | $361,459 | $2,231,673 | $245,673 |
If you were to purchase the landed property five years down the road, it will cost $466,340 more, which is a considerable sum of money so your concern about being priced out of the market is very real.
The question now is, should you stretch yourselves you buy the $4M landed now or buy a condo (for own stay or rental) and upgrade five years later? Let's take a look at the numbers.
Buy a large condo in the central district, sell after five years, and purchase a landed:
| Period | Profit from large condo unit in the CCR | Cost of landed | BSD for landed | Extra cost to buy landed | Final position |
| Start | -$115,700 | $4,000,000 | -$115,700 | ||
| Year one | -$155,137 | $4,089,200 | $184,952 | $274,152 | -$429,289 |
| Year two | -$191,345 | $4,180,389 | $190,423 | $370,812 | -$562,158 |
| Year three | -$224,217 | $4,273,612 | $196,016 | $469,628 | -$693,845 |
| Year four | -$253,641 | $4,368,913 | $201,734 | $570,647 | -$824,289 |
| Year five | -$279,501 | $4,466,340 | $207,580 | $673,920 | -$953,422 |
Due to the substantial BSD and interest costs, you will incur a loss of -$279,501 from the condo in the first five years of owning it. If you were to sell it then, you will have to pay an additional $673,920 (including BSD) in order to purchase the landed property.
This leaves you at a "loss" of -$953,422.
Buy two smaller condos in the RCR to rent out while renting another place for your own stay, sell the two properties after five years, and purchase a landed:
| Period | Profit from small condo in the RCR | x 2 | Cost of rental | Actual profits | Cost of landed | BSD for landed | Extra cost to buy landed | Final position |
| Start | -$74,262 | -$148,524 | -$148,524 | $4,000,000 | -$148,524 | |||
| Year one | -$42,993 | -$85,986 | -67,380.00 | -$153,366 | $4,089,200 | $184,952 | $274,152 | -$427,518 |
| Year two | -$14,892 | -$29,783 | -134,760.00 | -$164,543 | $4,180,389 | $190,423 | $370,812 | -$535,355 |
| Year three | $20,840 | $41,679 | -202,140.00 | -$160,461 | $4,273,612 | $196,016 | $469,628 | -$630,088 |
| Year four | $53,552 | $107,105 | -269,520.00 | -$162,415 | $4,368,913 | $201,734 | $570,647 | -$733,063 |
| Year five | $94,049 | $188,099 | -336,900.00 | -$148,801 | $4,466,340 | $207,580 | $673,920 | -$822,721 |
In this scenario, the rental does help to more quickly break even on the BSD and interest costs but because you're also renting a unit for your own stay, the profits after five years will be at -$148,801. Taking into account the additional $673,920 (including BSD) you'll need to pay in order to purchase the landed property, this leaves you at a "loss" of -$822,721.
Buy the $4M landed property now:
| Period | Cost of holding landed |
| Start | -$179,600 |
| Year one | -$327,502 |
| Year two | -$473,213 |
| Year three | -$616,637 |
| Year four | -$757,674 |
| Year five | -$896,223 |
Based on BSD, the interest cost, maintenance, and property tax, you'd have incurred a cost of $896,223 over five years if you were to purchase the landed now.
Looking at the losses incurred in the first two pathways versus the costs incurred if you were to buy the landed property now, buying two smaller units to rent out and renting another for your own stay actually incurs the least losses.
However, this is provided prices of both properties are moving in tandem with the overall market and are able to generate a rental yield of minimally 3 per cent with no gaps in between where the properties are left vacant.
Another pathway we considered is purchasing two properties, one for own stay and one to rent out, selling after five years, and purchasing the landed property:
Since staying close to your family and schools is important for you, for the own stay property we will look at something in District 20. In 2022, the average PSF for non-landed properties in D20 is $1,619. If you were to purchase a 1,200 sq ft unit, that'll amount to $1,942,800. We will presume a 75 per cent loan and monthly maintenance of $350.
Let's assume the investment property will be the same as in Pathway three, which costs $1.986M with a 3 per cent rental yield.
| Period | Total cost (own stay condo) | Total gains (own stay condo) | Profit (own stay condo) | Profit (investment condo) | Total profits |
| Starting costs | $66,740 | $0 | -$66,740 | -$74,262 | -$141,002 |
| Year one | $135,832 | $45,850 | -$89,982 | -$42,993 | -$132,975 |
| Year two | $203,859 | $92,782 | -$111,077 | -$14,892 | -$125,968 |
| Year three | $270,775 | $140,822 | -$129,953 | $20,840 | -$109,113 |
| Year four | $336,533 | $189,995 | -$146,537 | $53,552 | -$92,985 |
| Year five | $401,081 | $240,329 | -$160,752 | $94,049 | -$66,702 |
If you were to sell both properties after five years and purchase the landed:
| Period | Total profits | Cost of landed | BSD for landed | Extra cost to buy landed | Final position |
| Start | -$141,002 | $4,000,000 | -$141,002 | ||
| Year one | -$132,975 | $4,089,200 | $184,952 | $274,152 | -$407,127 |
| Year two | -$125,968 | $4,180,389 | $190,423 | $370,812 | -$496,780 |
| Year three | -$109,113 | $4,273,612 | $196,016 | $469,628 | -$578,741 |
| Year four | -$92,985 | $4,368,913 | $201,734 | $570,647 | -$663,632 |
| Year five | -$66,702 | $4,466,340 | $207,580 | $673,920 | -$740,622 |
If we were to compare this with Pathway three where you rent out both properties and rent another unit for your own stay, the difference in losses is $82,099 which is not a sum to be sniffed at.
In addition, having to manage one investment unit is much easier than managing two, so this might be a better option to consider. Just as we have mentioned earlier, this is provided prices of both properties are moving in line with the overall market and the investment unit is able to generate a rental yield of minimally 3 per cent with no gaps in between where the property is left vacant.
| Period | Losses from buying two properties (one for own stay, one for investment) | Cost of holding landed | Difference |
| Starting costs | -$141,002 | -$179,600 | -$38,598 |
| Year one | -$407,127 | -$327,502 | $79,624 |
| Year two | -$496,780 | -$473,213 | $23,567 |
| Year three | -$578,741 | -$616,637 | -$37,895 |
| Year four | -$663,632 | -$757,674 | -$94,042 |
| Year five | -$740,622 | -$896,223 | -$155,600 |
If you were to purchase two condo units, sell them after five years, and purchase a landed home, you'll potentially lose $155,600 less as compared to buying the landed property now. This is still a considerable sum, so purely based on these numbers, buying two properties is the best option of the three pathways.
Having said that, there are several factors to weigh up taking that pathway such as rental rates, managing of tenants, renovation costs, costs incurred from the sale and purchase of the units (agent fees, legal fees), and the process of moving twice. Taking these into account, the actual difference between the two pathways may not be as huge as projected.
Conclusion
This five-year analysis provides a better insight into the potential outcomes of the three different pathways, and based on the numbers alone, purchasing two properties (one for own stay and one for investment) and selling them after five years to buy a landed would incur the least amount of losses.
This is because our 10-year annualised returns were slightly higher for non-landed homes, and buying a second property for investment provides some form of rental income that buying a landed home will not provide.
So you could certainly be in a better off position financially if you do identify the two right properties, but that in itself is the challenge.
[[nid:619049]]
Again, because five years is a relatively short period, you do have the risk of trying to time the market, as well as the stress of selling two houses and moving to a landed home. Things may not be so smooth, and trying to juggle the timelines of it all may be more tiresome than you think.
Also, let's not forget that with the limited supply of landed homes, it does mean that hunting for the right one could take time - you will never know when a suitable one would come up for sale. Unless you are looking to buy and rebuild (and that in itself comes with its own headaches), then it might just not be worth the stress.
Therefore, the real question is: are you willing to miss out on five years that you could already be living in a landed home?
Ultimately, we cannot know for sure if landed homes will make more than non-landed homes in the next five years. You could really make more if you picked the right condos, but on the flip side, you could also seriously lose out if you get it wrong.
If this is not a risk you're willing to take, then perhaps buying the landed home today is a safer bet.
After all, landed homes tend to be more stable given their limited supply. The area which you're considering is also highly sought after considering the popular school nearby, providing even greater price defensiveness.
As predictable as it is, this decision really depends on your personal circumstances (how stable is your job, etc), as it has a significant impact on your living situation for the foreseeable future.
It goes without saying that our assumptions are based on historical figures and do not account for market trend shifts (if any).
Our models are pretty basic and may not always accurately reflect reality in the long run, despite appearing reasonable at present. While data and statistics can be dependable tools, ultimately, you must feel comfortable in your decision and understand the reasons behind it.
This article was first published in Stackedhomes.