Why did my client upgrade from a 4-room flat to a 2-storey Executive Maisonette (EM) in Pasir Ris, and how did he manage to do so?

If you are one of the current HDB owners looking to upgrade to a new property, you probably understand that jumping to a bigger room is no easy feat. Aside from the fear of not having enough money to afford it, the commitment to monthly cash top-ups is a common concern for everyone. 

So, how did we come up with such a big move? What were the considerations, and what did the financial planning look like? Today, we will find out. 

Reasons for Upgrading:

First and foremost, I understand that people have different reasons for moving out; may it be outgrowing their current flat, needing more space, or craving a new or more familiar location, we all deal with different yet equally valid situations that lead us to wanting a new space.

While upgrading to a larger home might seem daunting, there are often more options than you think. Through careful evaluation and strategic planning, finding a home that suits your needs is possible. By discussing the planning process we went through for our client’s biggest move, we aim to unravel the intricacies of evaluating your options so you, too, can be open to your home upgrading possibilities.

Finding the Right Property

To begin, we consider the property type and area the client wants. Since his parents lived in Tempanese, we specifically searched for EM properties in that area, including Pasir Ris. In 2018, EM property listings in PropertyGuru averaged around $500-600,000, a very low price even with renovation costs, considering that in 2012, these types of units start at a price of $600,000.

The client settled on a $605k unit, and we proceeded with calculations to assess its feasibility.

Calculating Client’s Available Cash After Downgrading

The first thing to consider is his available cash after selling his flat in Punggol, which is worth 485k. To compute his total cash proceed, we will deduct the following from the selling price:

• Outstanding loan: $136,000, 
• CPF Refund (Own Account): $122,000 for his account
• CPF Refund (Wife’s Account): $89,000 for his wife’s account.

Note that CPF Refunds are the total amount both he and his wife used up for monthly payments of their current property. According to CPF rules, it is mandatory to be paid back after selling your home, which you can leverage for another home purchase.

This leaves us with a total cash proceeds of $136,000. 

Added to this are the extra savings he and his wife have saved up through their Ordinary Accounts, amounting to $42,000 and $32,000, respectively. 

Calculating The Loan 

Determining the required loan involved calculating the total property price, which included stamp duty—an IRAS fee buyers are required to pay depending on contract and buyer’s status. In our client’s case, a stamp duty of $12,750 brought the total property price to $617,000.

To fund the deposit, he could leverage his available CPF money ($286,000), cash proceeds ($136,000), and a proximity grant ($20,000). Proximity grants are given to buyers purchasing a property close to their parents’ residence or are co-occupying with their parents.

Following HDB rules, he could use only 50% of his cash proceeds. Despite having the option to utilize $68,000, he chose to keep more cash, depositing only $30,000 or 5% of the property price. After deducting these amounts from the flat price (assuming the client used $68,000 cash proceeds), his loan was minimized to $242,000.

Plan Comparison

Comparing the financial plans for his 4-room flat with the upgraded 2-floor EM further highlighted why it’s worth making the switch: 

• Old Flat: Despite the lower loan amount of $136,000, the payment spans to 30 years which the client still has to pay for another 25. By the time the payment is done, he is 60 years old, plus,  his downsizing options are limited to 3 or 2-bedroom.

• New EM : Loan total is larger at  $242,000, yet the payment period is only 15 years, payable just until he is 50. The payment period perfectly coincides just in time to support his children’s tertiary education. Even better, the bigger EM allows more flexibility for downsizing, with choices from  a 5, 4, or 3-room unit.

 

Considering these details, upgrading to an EM just makes sense. With his wife making $3,500 and him making $5,000 per month, their increased income means more CPF contributions, making it easier to cover the monthly payments. 

This is how our client afforded to move to a 2-story Executive Maisonette. Initially, he also did not know what his options were and just considered going to a 5-room without realizing that prices had dropped.

Of course, this is a specific plan tailored for specific people. Everyone’s situation is different. Some might have lower income, a less steady job, or not as much CPF to work with. Understanding your situation is key to figuring out your best options.

For detailed and robust property planning tailored to your home upgrade dreams, message us. Our in-house experts guarantee a smooth journey to your next home. Let’s make your upgrade a reality!