In every ten years or so, a major event occurs to rock the financial world. This Covid-19 crisis is one such event, and we can take this chance to find opportunities we didn't have before.
Ways to Profit From Real Estate Investments In A Crisis
Are you a HDB Flat Owner?
Even though there was a HDB stimulus of enhanced housing grants a few months back, prices of HDB will likely to see correction as livelihoods of many people are affected.
Many HDB owners are asset rich but cash poor.
If you do not have enough cash or CPF, you will not be able to upgrade to a private home if prices were to plummet in the current crisis.
For example, if you were wanting to buy a $1m resale condominium (which is very rare in today's market because of its low quantum), you will need to pay 55% of the property value (excluding BSD & ABSD of almost 15%) in cash if you're still holding on to your HDB flat.
That would amount to $700,000 in cash and/or CPF.
This $700,000 is in addition to the Basic Retirement Sum of $90,500 in your CPF OA account before you're eligible to use the rest, if you're using CPF for this purchase.
If you do not sell your HDB within 6 months, you will risk not getting your 12% ABSD refunded.
Here's introducing HDB Upgrader strategy for crisis times:
SELL AND RENT FIRST TO BUY AT STEEPER DISCOUNTS LATER
Read on first before you think it can't work!
With prolonged global lockdowns, job losses and reduced incomes, and incoming foreigners becoming lesser, it is an almost certainty that rentals will fall.
Therefore, renting will become cheaper than owning.
You can use the liquidity from your HDB property to buy a private property or acquire a property bigger than your current one!
Let me further explain:
For illustration purposes, your HDB is worth $600,000. If the market corrects by 10%, your home value will drop by $60,000.
If you sell now, you can avoid incurring this theoretical "future loss".
If you rent a similar home in today's market, it will cost you $2000-$2200 per month. That will amount to $26k a year of which $60,000 will more than cover for two years of rent.
If concurrently, what we forecast will happen to HDB prices, what more of private home prices?
If a $1M private home corrects by 10% that will mean a savings of $100,000.
Doing a calculation:
$100,000 (savings in Private Home Purchase) + $60,000 (loss avoided) minus $52,000 (in rent for two years) = $100K of nett gain!
SECOND SCENARIO: WHAT IF HDB PRICES STAY FLAT WHILE PRIVATE PROPERTY CORRECTS BY 20%?
Step 1: Sell your HDB property to cash out and hold on to the cash and CPF to wait and buy a private property
Step 2: Rent a similar home for a year with an option to extend for another year. PM Lee has mentioned that COVID-19 Crisis will last at least till the end of the year and I believe he has been well advised.
Step 3: Don't hold your breath. Keep looking at properties and make offers until your price target is met and commit to the purchase before the coming recovery.
Step 4: When the crisis is over, the property market will experience a surge in pent up demands.
A guesstimate is that the property market will take less than two years to return back to previous levels.
Step 5: Enjoy the paper gains! You can take an equity loan on the property and buy an investment property or downgrade to a HDB property and keep the gains as cash.
I am a Private Property Owner, can I still apply these methods?
Yes! Definitely! In fact, you have more options at your disposal.
Crisis Investing Strategy:
For Example, you own a property worth $1.5M and your dream "upgraded" home costs $3M property. If the market corrects by 20%...
Step 1: The instance the market corrects, buy the "dream" property at a discount of $600K.
Step 2: Sell your property (If you haven't already & rented for the time being) at $1.2M or a $300K loss.
Step 3: When the market eventually recovers to its previous levels, you would enjoy a nett equity gain of $300K ($600K-$300K).
If you choose to sell first, avoid the market loss, rent for the time being before committing at bargain basement prices, that would be the best method.
This is an alternative you wish to consider: Keeping your current property, you can do a part-sale to free up either spouse's name for the 2nd property to save on Additional Buyer's Stamp Duties (ABSD).
*Larger quantum properties or locations nearer to central district usually experience a larger correction.
Too good to be true?
Let's take a look at what happened to the properties in different regions during the Asian Financial Crisis and the Global Financial Crisis.
How much did properties correct in each of the event? Will Covid-19 have a bigger impact?
If you really think about it, focus on the positives instead of the worse case kind of scenarios, there is a once in a lifetime kind of opportunity to be seized here. I hope you get to be a winner in this great wealth re-distribution!
Need better clarity on what to do next?
A PWP consultation includes:
- An in-depth financial affordability assessment
- Highly relevant investment insights
- A clear and customised investment road map for your real estate investment journey ahead.
About the Author, Susanna Wong:
Susanna has been in real estate since 2006. She has transacted many private properties including GCBs (Good Class Bungalows) and Sentosa landed properties and of course HDBs. She is married with two lovely girls, Sophie, 6 and Sage, 1. Her husband, Roger and her share an obsession for MMORPGs and scrabble. They met on OKCupid (dating app) while challenging each other on Words with Friends (iphone App game). She loves watching binge watching Netflix in her free time (very rare with two children!) with a tub of Ben and Jerry's.
