This is the most comprehensive guide to achieving retirement with real estate.
Written for the Singapore market by a Singaporean (me), you’re going to find it very relevant and useful.
The best part?
It’s constantly updated to show you the best property retirement strategies and insights that are working right now (in 2019).
In short: if you live in Singapore, have an interest in real estate investing, and want to secure your retirement, you’ll love this guide.
Let’s get started.
Chapter 1: Singapore Fundamentals
Singapore is known as the green city, a multi-cultural country, one of the safest places in the world, and also a major financial centre in Asia.
Here’s what news reports say about our real estate:
In this chapter, I’ll explain the fundamental statistics which make Singapore an attractive market for Real Estate investments.
1.1 Attractive Valuations
With a land size of only 721.5 square kilometres and a population density of over 8000 people per square kilometre, Singapore is the world’s 3rd densest country (according to a United Nations report).
Even more so than Hong Kong, Singapore’s closest competing financial hub in Asia, who ranks 4th at slightly above 7000 people per square kilometre.
Furthermore, Singapore is in the top 10 richest countries in the world by GDP per capita, current prices. (International Monetary Fund).
A wealthy country, with limited land and a high population density, should typically have high property values.
Here’s what the latest 2019 UBS Global Real Estate Bubble Index had to say:
Singapore’s property remains fair-valued in a climate where the majority of other global cities are in overvalued territory.
This, has a lot to with our governance, as we understand further below.
1.2 Monetary Policy
Singapore’s ruling party, the People’s Action Party helmed by our founding father Lee Kuan Yew has done very well in steering our country from third world to first in our short 50+ year history.
This, despite being one of the smallest countries in the region and devoid of natural resources.
Therefore, the Singapore economy had to depend greatly on external trade.
Hence in order to control inflation, the Singapore dollar has tended to appreciate over time, as part of an Exchange Rate-Based Monetary Policy.
See below numbers for Singapore’s exchange rate vs other countries from 2010 till today.
1 SGD equivalent
|Chinese Yuan Renminbi|
As you can see, simply from the exchange rate, foreigners from India and Indonesia have made more than 50% on their Singapore currency-based Real Estate investments. Chinese, Indonesians, Malaysians and Indians are the top 4 foreign nationalities to purchase Singapore real estate.
And that’s before taking into account capital appreciation!
Many other positive aspects of Singapore also attract foreigners to set up home here.
1.3 Government Intervention in The Housing Market
Another area where the government has had great results is housing.
Kept free, Singapore’s housing prices may have risen to be closer to Hong Kong’s.
In terms of affordability, it takes a skilled service worker about 20 years to afford a 60m2 (650 sqft) flat near the city centre in Hong Kong. While for Singapore, it’s 12 years.
Through the Housing Development Board (HDB), Singapore’s public housing authority, Singaporeans have access to quality and affordable housing.
However, this wasn’t always the case as during the late 2000s to early 2010s there was run up of property prices.
It was a hot button topic during the 2011 general election which led to the PAP government winning only 60.14% of the votes, its lowest since independence, and till today.
Today, Hong Kong is also facing a similar issue, and knowing its seriousness, is taking steps to resolve it.
The Singapore government understands the importance of keeping housing affordable, and therefore have consistently intervened in the market.
See the graph below for the detailed timeline.
It is precisely because of these measures that Singapore’s real estate remain ‘fair-valued’.
One might also say that because of all these ‘interventions’, there is limited upside in the Singapore property market.
But ultimately, Real Estate investing is a big-ticket purchase, and many would prefer to place that amount of money into something that’s real and tangible, where the market is stable, with good long-term prospects.
Even institutional investors fancy real estate.
If you want quick speculative returns, maybe forex is a better choice. Or, bitcoin 😀
Chapter 2: Why Real Estate for Retirement
It’s no secret that real estate is a popular investment asset class.
Over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate.
In this chapter we look at some of the reasons why real estate is the perfect asset for creating retirement wealth.
2.1 You are in Control
From the start to end, and everything in between, you are in control of your real estate investment.
Opposed to equities, bonds or funds where often you are investing as an outsider, receiving delayed news as they are released to the public, real estate lets you invest as an insider.
First, you can choose what property to invest in.
Then, you can choose what kind of tenant to lease your property to.
You can even set the terms and conditions of the lease agreement.
Also, when to cash out of the property, which agent to use…
Just so many things you can control.
2.2 Real Estate is a Bankable Asset
A bankable asset means something that a bank will accept as collateral, and lend you money against.
This gives you leverage.
In Singapore, that currently stands at 3 times of your investment.
Meaning that for a 1 million property, you pay 25%, and the bank lends you up to 75%.
Mortgage debt is one of the cheapest financing available on the market.
And used effectively, helps to generate high returns on real estate.
To illustrate using the above example of a 1 million property, if the property value appreciates by 10%, you would have made a 40% (10/25) gain off your initial investment.
This doesn’t account for taxes or interest expenses, but you get the gist.
It’s unlikely that you would leverage other types of investments with a similar factor rate and quantum.
What’s more, even if you don’t sell it and cash out, the effects of leverage shines through over time.
At the end, when your loan is paid up, all you have is the full equity of the house.
Most of it paid for…
2.3 Using Other People’s Money
Yes, I’m referring to the tenant whom you’re renting out the property to.
In Singapore, yields aren’t high, around 2-3+% nett on average.
Together with a maximum loan of 75% at current interest rates of approx. 2%, cash flow is likely going to be negative.
For Singaporeans or permanent residents with CPF contributions, you have the option of utilizing your CPF for the monthly repayments, and therefore retaining positive cash flow.
A common misconception is that when cash flow is negative, you are not making money.
This is one of the biggest myths in real estate.
Mortgage repayments to the bank consists of 2 components: Interest and Principal.
Interest is the cost of financing, or the bank’s profit.
Principal is your own property’s equity.
As long as other people’s money is enough to cover the interest and pays part of the principal, you are effectively earning money through equity.
2.4 Values Trend Upwards over the Long Term
Another thing property is known as being good for, is a hedge against inflation.
As prices of goods increase, so do living costs, prices of construction materials, worker salaries, maintenance fees etc.
In Singapore real estate, we see this most clearly through land costs via the Government Land Sales (GLS).
When you own real estate, whether condominium apartment units or landed properties, you still own a share of the land.
And if land values keep increasing?
Over the long run, it’s good news for the owners, and a collective sale (en bloc) is also a possibility.
Chapter 3: What You Need for Retirement
Before we dive into the step-by-step property retirement strategies, it’s important to know what you need for retirement.
Why is this important?
Because it helps us set a target figure, of how much income we want our properties to generate for our retirement.
First, let’s definite retirement as ‘the action or fact of leaving one’s job and ceasing to work.’ (Google).
In order to achieve retirement, our income must be able to cover our expenses and lifestyle requirements. Which, will then allow us to leave our jobs and not have to work.
Depending on your lifestyle, this number will differ greatly across individuals.
I know some people who can live very well from just SGD $2,000 per month!
Chapter 4: The Property Retirement Framework
Regardless of your current situation, this chapter will give you the framework for achieving your retirement income goals using real estate.
Through our lives, our interactions with real estate can be categorized into 4 periods.
0 – 25 years old: learning from elders & accumulating wealth
At this stage of growing up, we are schooling and learning.
We are still mostly ignorant about the world, and even if we are financially literate, we would lack the funds for investment.
Also, we likely just started work and don’t have a lot of savings.
The source of our real estate knowledge during this period would primarily come from our own family experiences.
If you grew up in a HDB flat since birth, you would think that having one home to stay for life is the right thing to do.
Whereas if you grew up in a family with multiple properties, you would appreciate the importance of real estate in wealth building.
25 – 55: the asset growth phase
Here, we are in our prime life stage where things are more stable, and incomes are increasing year after year.
Maybe we’re even setting up a family!
During this time, one can afford to be more aggressive in their career choices, and investments.
The need for passive income is less as incomes are strong and predictable.
‘If not now, then when?’ – mindset applies here.
Also, if you are younger than 35, you can leverage more with the same income by maximizing your loan tenure.
Investors’ priority during this period should be capital gains over defensive options.
Then once you have accumulated a property portfolio, you would then be at the next phase.
55—65: consolidation and preservation.
Here, we start to slow down.
Perhaps competition at work has become more intense with the constant influx of younger, hungrier workers, and job stability isn’t like what it used to be.
Mindsets have also shifted and you now prioritize predictability over riskier moves.
Time for a portfolio re-evaluation, to see whether any restructuring of assets are required.
This for the purpose of streamlining and making sure things are still on track to achieving your retirement goals.
It’s also the last chance to add to your portfolio as after this, we enter the last stage of…
It’s the time we have all been looking towards.
Here, we ideally have a portfolio of real estate investments which are fully paid.
There are 2 options.
- Sell everything and downgrade, unlocking a huge sum of money in the process.
- Keep the properties for rental income.
Either way, you should be good for a comfortable retirement ????
Importantly, the years are only for reference.
In this standard structure, 65 is the retirement age.
However, if your target is 50, we can shift the scales and plan accordingly.
The purpose of the framework is simply to guide our decisions to what kind of purchase we should be considering at each period.
Let’s look at an example:
Mr. & Mrs Low, both aged 35, earns the Singapore median income of $4,500 per month, and lives in a 4-room HDB flat worth S$500k on the resale market today.
They bought the flat new from HDB at S$300k via the BTO sales exercise more than 5 years ago.
With their combined income of $9,000, they can take a 30y loan of about $1.2 million.
Correspondingly, based on the current Loan-To-Value of 75%, and the wealth accumulated from earlier years, they can afford approximately $1.6million worth of real estate.
As their family expands, they are considering an upgrade.
Their options are as follows:
- Buy a single 1 1.6 million home to stay.
- Buy a 1 million home to stay, and a 600k property for investment.
Fast forward to 30 years later, and see the difference:
Option 1: The couple owns a fully paid home.
Option 2: The couple owns a fully paid home and a fully paid, income producing investment property.
Both these options have equivalent commitments for down payments and mortgage instalments, with only an additional one-off legal fee for option 2.
Yet, only 1 option gives Mr. and Mrs. Low an income producing property.
It sounds simple and obvious, yet most people are unsure or fearful.
Before we learn how to invest property, we must first understand that your home is a liability.
Chapter 5: How to Find the Right Retirement Properties
There are many types of real estate to choose from.
For the Singapore investor, you have primarily the residential, commercial and industrial segments.
Then, there are also overseas properties.
Each segment has its own unique appeal and characteristics.
In this chapter, I explain the factors to look at when investing in real estate for retirement, in the context of Singapore’s residential segment.
How does investment in real estate for retirement differ from normal property investing?
While all types for real estate investing generates wealth, retirement real estate investing differs from normal property investing in its focus.
Normal property investing may be capital appreciation focused. Where the investor looks at places with the greatest transformation, to increase the chances of capital appreciation and a short-term exit.
Another method is to fix and flip, which is more common in countries with a landed housing majority. Here, the investor hunts specifically for an undervalued property that isn’t well maintained, proceed to fix it up and sells it for a margin.
Instead of capital appreciation, property investing for retirement focuses more on the long term, and on the following factors:
5.1 Rentability, Yield & Location
3 crucial and interrelated factors.
A property’s location will affect its rentability, and correspondingly, its yield.
Strong retirement properties would preferably be located somewhere with strong human traffic flow, and nearby tenant catchments like offices, industrial parks or even schools.
When looking, you’ll notice that the better-located properties with higher yields tend to be 99-year leasehold properties.
In the Singapore context, despite much concern over the decaying leases of 99-year leasehold properties, I strongly believe that they still make perfect retirement assets, even over the long term, and concerns are overblown.
5.2 Uniqueness of Property
Are there stand-out factors which can help your investment property stand the test of time?
Examples can include sporting facilities like badminton/tennis/square courts, swimming pools, function rooms, gyms, and even the development’s architecture.
As your property ages, these unique qualities are essential to continue appealing to future tenants and buyers.
5.3 Potential Capital Upside
In retirement real estate investing, rental is the cake, and capital appreciation is the icing.
As mentioned earlier in the article, Singapore is land scarce, and therefore capital appreciation should be assured over the long term along with population growth.
What you should be concerned about is buying too high.
Is there enough support at your entry price?
Some properties, like those in Sentosa, can take a long time to recover for investors who bought too high.
Despite rental, buying at an excessive price will negate years of rental gains.
So, no matter how perfect the location of how unique the structure is, make sure you don’t buy too high, ok?
Chapter 6: Advanced Tips and Strategies
Finally, let’s round things up with a bonus chapter of advanced stuff that I’ve figured out over the years.
7.1 The Equity Loan
When you have a property free of a mortgage, congrats!
You’ve just unlocked access to one of the cheapest forms of financing – the equity loan.
Note: this works even for properties with an existing mortgage, just that you may not be able to refinance as much.
The formula is:
Equity loan amount = (75% X Property Value) less Current Outstanding Loan less (CPF used + Accrued Interest)
The interest rate for an equity loan follows the prevailing housing loan interest rates.
When personal loans, car loans, business loans are minimally 4-5% and up, it ‘saves’ to be able to leverage off your real estate instead.
However, do note that you’re not supposed to use it for the down payment of another property!
Now, what if you’re stuck with multiple names under a property which you don’t intend to sell?
Then, you’ll incur Additional Buyer’s Stamp Duty (ABSD) on the next purchase.
It currently is 12% for Singapore citizens.
Not recommended for most cases as it increases the required down payment, and takes longer for you to break-even on your investment.
Decoupling is a method to avoid it.
This method allows you to remove 1 party’s name from the existing property.
And no, married couples do not have to go through a divorce.
Through legal methods and a proper arm’s length transaction at the property valuation, the ‘exiting party’ sells his/her share to the other owner, thereby removing his/her name from the property.
You’ll need to refund the CPF used + accrued interest of the exiting party.
And, if there’s an outstanding mortgage, ensure that the remaining party is able to support it.
So great! You now have 1 property in each of your names!
But you’re hungry to carry on investing… yet still don’t want to pay the ABSD.
7.3 Buying through a Trust
This method is usually done by parents for their kids who are below 21 years old and do not have the legal capacity to own a property in their own name yet.
A trust consists of a beneficiary and a trustee.
In the case of buying for your child, the beneficiary is your child, and often, you, as parents are the trustee.
The property is managed by the trustee, and all benefits from the property belongs to the beneficiary.
These include the capital returned (plus profits) from the sale of the property before your child reaches legal age, as well as any rental income.
Parents, you can use this as a form of legacy planning or fund for your children’s education.
The only downside is that full cash payment must be made for the property.
Own multiple already and feeling stagnant?
7.4 Not Every Property Is A Bed of Roses Forever!
The astute investor is always on the lookout for better opportunities.
Sometimes, even if all our decisions were perfect, it does not mean that all outcomes would be perfect.
Nothing is 100%, and it could be possible that your investment property, which did well at first, started to have below-market rental returns, and limited capital gains.
From time to time, it’s important to have reviews of your existing properties.
Are any upgrading works required? Have certain events negatively affected the property?
Don’t be afraid of selling an under-performing property.
Key question to ask yourself is: Is there a better opportunity elsewhere?
Now You Takeover
So that’s it for my guide on retiring with real estate.
I hope you enjoyed reading it.
And now I’d like you to take over.
What did you learn from this guide?
Or do you have any questions?
Either way, leave a comment below right now.