What is Upgrading?
Defining the typical term ‘Upgrading’ can be difficult. The general assumption falls onto the larger families as they need or will need an upgrade. However, upgrading is something every homeowner has thought of. Just that the unfamiliarity of how to make the upgrading profitable makes them take a step back from doing so. Upgrading can be categorised into various types and below are a few examples:
Depending on what your needs and expectations are, the upgrades can be made. For example, couples who started off with a 3-Room HDB flat can decide on going for a bigger 5-Room flat when they decide on expanding their family. However, in recent times, irrespective of their needs, upgraders are seen to defy all the stereotypes, and their reasons for wanting an upgrade are diversified. Such as an older couple who are currently living in an HDB is prominently choosing to upgrade their property by buying a million-dollar condominium.
Hence, there is no such thing as a typical upgrading or an upgrader. However, one needs to understand whether the upgrade can meet their needs in line with the extra cost that they will incur. This takes us to understand the importance of ‘upgrading’.
Importance of Upgrading
To be honest, moving to a bigger and better home is a dream come true. Upgrading can take various forms like moving from an HDB to a Condo or a Condo to a landed property. Whatsoever the reason may be, upgrading usually happens when people tend to move up the property ladder, building their asset value. Other than building your fortune, which is very much obvious, there are few other important factors to be noted:
#1 Stress-free Retirement
Even the thought of retirement can be daunting to many. Afterall, when you are investing into a property upgrade systematically, high chances you will have a comfortable and stress-free retirement.
#2 Better lifestyle
“It is good to have a stagnant and uncomfortable lifestyle”, said no one. Everyone aims for a better and comfortable lifestyle. With upgrading, obviously you are moving a step ahead in your life in terms of asset, fortune and lifestyle. Why not chase for it when you can and lead a better life for generations to come.
#3 Protection from uncertainty
During the trying times, such as now with the Covid outbreak, there is no certainty for your future. Job market is highly volatile, and businesses are shutting down while on the other hand the property markets are skyrocketing. When you have had an opportunity to invest and upgrade in a better property, you would have been in safe hands and eliminate the uncertainty. Hence it is proved that upgrading can be a lifesaver in terms of uncertainties and so better late than never.
#4 Reducing the chances of post retirement working
As one can see, there are huge population of retirees still looking for opportunities to work when they are supposed to relax. This is due to the lack of knowledge in making better investment decisions or the fear of making an upgrade. While this can be a reasonable issue, one must make efforts to understand the market to make a successful upgrade and have a relaxed yet stable income post retirement.
#5 Leave a legacy for next generation
Leaving a legacy is not an alien term anymore, it is highly possible in Singapore too! Even if it means only your next generation can reap them, It is in one’s decisions to make or break a legacy. Be the one who embarks on making your own legacy by making informed decisions by taking the help of professionals like us in making a successful property upgrade.
Common fear of Upgrading:
Upgrading has its tangible financial benefits in a positive property market. However, people always fear the worst. The fear of not being able to take an informed decision leading to misfortunes is the worst nightmare anyone could wish for. Some of the common fear people might hold on to are:
· Taking up a new bank loan.
· Paying up a higher monthly instalment than they could afford for.
· The stress out of this whole process.
· Thinking that there is only a small amount of savings left which might not be helpful for upgrading.
These are things that any individual should be wary of. Still, if one can break through these barriers and look out for developing a comprehensive financial plan in order to work on their cost benefits, the upgrade is likely possible at the very earliest.
For example: Look at the below case:
If you do not choose to upgrade, then you would probably retire with a maximum of 50k which is nothing sort of a revenue for your life’s worth. With upgrading, your home’s value will appreciate over time leading to a considerable amount of revenue while you are deciding to go for selling the property to pitch in for another upgrade.
The CPF Accrued Interest Game
Moving on, we enter the CPF Accrued Interest Game that the individuals find most frightening, or worst, not wary off. Do not fret. We are here to break it down to you.
An accrued interest in general is the amount that you would have earned if you have not used your CPF savings to buy a house. This is a compounded interest which is calculated on the principal amount that you have withdrawn on a monthly basis for the housing loan. The most crucial thing one should note is, if you decide on using your CPF for purchasing a property then during the time of selling that particular property, you are required to repay the accrued interest back to the CPF Ordinary Account (OA).
Isn’t this just straightforward? Not at all. What people do not understand is that over years the accrued interest could snowball into a huge amount from your initial principal. To understand this scenario, let’s see an example.
Mr. Ben decided to buy an HDB for $500k and he completes his loans after 25years. At the end he has to payback $950k to the CPF OA account. His accrued interests got snowballed as shown in the figure below:
Working out these calculations, you could probably understand how this all works. After getting to know how accrued interest works for Mr.Ben, he should probably ask the following questions and consider answering them.
· In such a case, is there a possibility in the future that an HDB can cost more than $1million?
· If the above situation is possible, will his children be able to afford a $1million HDB?
· Even if his children can afford, will the current rules and regulations on the property market change for better?
· Afterall, even if he can sell his HDB for $1million, will there be any profit left for him after the payment of accrued interest?
What could possibly be his answers? The truth is, there are no explicit answers.
With no definitive answers one could only imagine the worse.
Effects of upgrading
During such trying times, the choice of Property Upgrade comes to your rescue. We are not talking about some instant pill that could make things turn overnight. We help you gain a detailed overview on how the effects of upgrading your property would work for your advantage.
If you are someone who are looking to compare the effects of upgrading your property or not, then check the below figure:
In case you start your upgrading curve at the age of 35, after three consecutive upgrades every 10 years, at the age of 65 you can finally downgrade to a simple 3-Room HDB Flat to spend your post retirement days relaxed and comfortable with $2.7million as the revenue from all your upgrades.
Isn’t this the fairy-tale ending we all dream off? Wouldn’t you want to enjoy your post retirement time with your family hassle-free? This is very much possible with the help of ‘Upgrading’ your property.
The Final verdict
Whether you have a growing family, or you are just looking for making your life easier, it is essential to ask the right questions and choose an informed decision. Thinking of ‘Upgrading’, it is a form of investment that would ensure a perfect retirement plan. Choosing to go for an upgrade with your property, you must weigh various things. If you are egging on having a safe retirement plan with just your CPF and savings, it might fall short, letting you to continue working on.
Therefore, after detailed analysis, one should weigh their options better and go for an upgrade that would help them and their children have a comfortable life without having to worry. If upgrading is ultimately your goal for providing your family with a stress-free living, it is a risk worth taking.