How To Build Retirement Through Property : Debunking common Misconceptions

Is your property helping you grow your wealth? Or Is it just keeping you comfortable?

For many Singaporeans, owning a property is often seen as a milestone - a place to live, raise a family and eventually retire in. But what if your property could also be a powerful tool to build wealth and grow your retirement capital - if you use it strategically.

This article will guide you through the misconceptions that may hold you back. The strategies that can help you upgrade smartly, and examples of homeowners who have successfully grown their wealth through strategic property moves.

If you have wondered whether you are making the most out of your property - or if upgrading is worth the risk , this article is for you.

Several myths deter homeowners from making strategic property moves:

• "Your First Property Has to Be a HDB"

• "I Will Upgrade When The Time Is Right"

• "I Need Huge Savings To Upgrade"

• "Your First Property Has to Be a HDB" - Why Private Property Could Be a Smarter Start

Many first-time buyers default to purchasing a HDB flat because it feels safe and affordable. Government grants, lower loan requirements and the idea of starting small make HDBs an appealing option. After all, who would not want to take advantage of schemes like CPF Housing Grant or the Enhanced Housing Grant ? For many it seems like the perfect stepping stone into the property market.

But here's the truth : starting with a private property ( if you can afford it ) can help you build wealth faster.

Let me share Alex's story here.

When Alex and his wife were house hunting, they had 2 options :

• A 4-room HDB Flat in Choa Chu Kang for $368,000

• A 3- bedroom EC at Wandervale for $819,000.

At first, the HDB seemed like a safer bet - lower monthly payments, more government subsidies, and less financial strain. However, after calculating his affordability, Alex realized that the EC offered better long term appreciation potential. Even though the upfront costs were higher, the potential return outweighed the initial investment.

Fast forward 10 years :

• The HDB appreciated 55% reaching about $570,000

• The EC appreciated 94% 1.6million.

That's over $500,000 more in capital gain - just by starting with a property with better appreciation potential.

Why does this happen?

Private properties and ECs often appreciate faster than HDBs because they offer better locations and facilities and attract a wider pool of buyers driving up demand and value over time.

ECs have a unique advantage -

they are bought at a subsidized rate but become semi-private after 5-year Minimum Occupation Period (MOP) and fully privatized after 10 years, often leading to significant appreciation.

HDB flats, while stable -

often result in lower returns due to their lower entry price, meaning the capital gains are generally smaller than higher-value private properties.

Key Takeaway :

Do not limit yourself to a HDB if you have the financial means. Starting with private property or an Executive Condo ( EC) can fast track your path to upgrading and wealth building. While HDBs provide a great foundation for many, exploring private property options could open doors to faster capital appreciation and more significant financial growth in the long run.

• " I will Upgrade When The Time is Right"-

Why Waiting Could Cost You More

Many people think " I will wait for the perfect time to upgrade " . It sounds reasonable - after all, property market fluctuates, and no one wants to buy when prices are high. But waiting for the "right time" often means missed chances and paying more later.

The reality is there is hardly ever a " perfect" time. Property markets are cyclical and shaped by interest rates, government policies and global economic trend. Even seasoned investors find it nearly impossible to time the market perfectly.

Here is why waiting can actually cost you more in the long run :

Property prices trend upwards overtime :

Singapore's property market has shown consistent long-term growth. Even during downturns, prices tend to recover and surpass previous peaks. The longer you wait, the more expensive your ideal upgrade could become.

Loan tenures shrink as you age :

Banks in Singapore typically allow home loans up to age 65. Waiting means a shorter loan tenure , which leads to higher monthly repayments and reduces your borrowing capacity.

Example :

Shawn considered upgrading in 2017 but hesitated, thinking he would wait for market to dip. Back then, the condo he had his eyes on was priced at 1.2million. Today, it is selling for $1.8million. Upgrading has become more expensive . Not just due to higher prices, but also because he now qualifies for a lower loan quantum from the bank.

The Cost of Waiting:

Inflation: Property prices often outpace inflation, meaning that money sitting idle in saving loses purchasing power over time.

Opportunity Cost: While you wait, others who have upgraded are already enjoying capital appreciation and potential rental income.

Key Takeaway:

Time in the market beats timing the market. Acting sooner often leads to better opportunities and lower long-term costs. Do not let fear of imperfect timing keep you from building wealth through property upgrading.

• "I Need Huge Savings To Upgrade" - How leverage Can Help You Upgrade Sooner

One of the most common misconceptions about upgrading property is the belief that you need massive savings before making a move. Many homeowners think they need to fully pay off their existing mortgage or accumulate hundreds of thousands of dollars in savings before considering upgrading. But here is the reality: most people who successfully upgrade do so by leveraging their existing assets. not by saving a fortune.

The Power of Leverage

Leverage involves using borrowed funds to increase potential returns on investment. In property, it means combining your existing home equity, CPF savings and a mortgage loan to finance an upgrade.

Here's how it works :

• Unlock equity from your current property:

As your property value appreciates, the difference between the outstanding loan and the current market value becomes usable equity. This equity can be tapped into when you sell your current property and use the cash proceeds for the next purchase.

• Use CPF savings and bank loans:

For most property purchases, you can use up to 20% of your CPF Ordinary Account (OA) for the down payment., alongside a bank loan that covers 75% of the property price. You will only need to fork out 5% cash , which in many cases, can be covered by the current property proceeds when you sell.

• Maximize returns through property appreciation:

By controlling a high-value asset with a relatively small cash outlay, you can benefit from property price appreciation over time. This amplifies your returns.

Example :

Consider a couple who owned a 4-room HDB flat purchased at $470,000. After 7 years, their flat appreciated to $630,000. They sold the flat and unlock $250,000 in equity after settling the outstanding loan and CPF refunds.

With this equity, they bought a $1.3 million condo using :

• $65,000 (5%) in cash from the sales proceeds

• $260,000 (20%) from the CPF and sales proceeds

• $975,000 (75%) through bank loan

5 years later, the condo appreciated to $1.7million, giving them an additional $400,000 in equity,. Their initial outlay of $65,000 turned into a significant gain, resulting in an impressive 515% return on investment (ROI). This highlights the power of leverage - turning a relatively small upfront cash amount into substantial equity growth over time.

Why Leverage Works

• Controlled risk : You are using other people's money ( the bank's ) and your CPF savings to control a valuable asset.

• Amplified returns : Even modest property appreciation can lead to significant gains when leveraging.

You do not need hundreds of thousands in cash to upgrade. By leveraging your existing assets, CPF savings and bank financing, you can upgrade and build wealth faster. Do not let the myth of needing huge savings hold you back from making smarter property moves.

Key Takeaway:

You do not need hundreds of thousands in cash to upgrade. You can upgrade and build wealth faster by leveraging your existing assets, CPF savings and bank financing.

The True Purpose of Upgrading:

The key to understanding the power of upgrading lies in seeing property not just as a home but as a financial tool. When used strategically, upgrading can help you unlock wealth, generate passive income and strengthen your financial future.

Many people think that upgrading their property is simply about moving into a bigger, more luxurious home - a better view, more space or nicer amenities. While these perks are appealing, upgrading is more than just enhancing living conditions. It is a strategic move to grow your wealth.

To Wrap Up:

Building retirement capital through property is not just a dream. It is a completely achievable goal with the right strategy. By understanding the market, leveraging your assets and making timely upgrades - or even taking the first step into property ownership, you can set yourself up for a strong financial future that supports your retirement goals.

The best time to start is now. The sooner you make your property work harder for you, the faster you will reach your financial milestones.

If this article sparks some ideas or questions about your property journey, I am here to help. Let's discuss your options, explore potential upgrades and craft a strategy tailored to your goals.