What Is Asset Progression?

Asset Progression means to upgrade your lifestyle and wealth through carefully planned investments in Singapore properties. The objective of asset progression planning is to give you clarity on how to grow your property assets easily and profitably to build up a good retirement fund in his or her golden years through sound investment in properties.

There are different ways to approach property asset progression depending on the life stage you are in and your unique circumstances. Asset progression begins when you decide to upgrade, multiply and restructure your property portfolio.

Reasons Why You Should Consider Asset Progression Planning

1. HDB is not an investment

If you are a HDB flat owner, you should consider asset progression plan.

Looking at the graph below, the HDB Resale Price Index has been falling since 2013, at a rate of 2.1% per annum. The reasons for the decline is due to:

  • introducing a 30% mortgage servicing ratio for buyers of HDB flats
  • making PR couples wait for 3 years before they can buy a HDB flat
  • buyers of HDB flats must dispose of all other properties they own when they buy a HDB flat
  • PR HDB flat owners are not allowed to rent out their flats and must sell the HDB flat if they buy a private property
hdb-resale-price-index

HDB Resale Price Index

With all these measures implemented, the price of HDB resale flats are unlikely to increase.

Furthermore, in 2017, the government has announced that not all old HDB flats will become eligible for SERS.

With the increasing price gap between HDB price index and private property price index, it is getting harder and harder for HDB owners to upgrade to private property, thus it is advisable to start your asset progression planning earlier.

2. Big Project VS Small Project

Many people usually think that investing in a property in a big developement is risky, as you tend to face more competitiors in terms of sale and rental. However, this is not exactly true. By investing in a bigger project is actually much better as there will be more transactions for the project and hence this may help in the capital appreciation of the project.

Let’s take a look at the following 2 projects in District 19 as a comparision to highlight this point.

We can see from the diagrams above that although Riversails’ owners have more competitors due to more units in the project, there are 151 profitable transactions. Whereas there is only 1 profitable transaction for Naung Residence. The most profitable sale transaction for Riversails is $348k, whereas Naung Residence’s owner only manage to make $42k.

Furthermore, we can also see that the average price trends for Naung Residence is declining while Riversails is actually increasing steadily.

Therefore, for homeowners of small development, you will mostly likely find that the price of your property does not appreciate as much as larger development. For this reason, it is advisable to consider coming up with asset progression plan to sell the property that does not price appreciation opportunity and purchase a property that can offer you a better chance of having capital appreciation.

3. Location is the most important

Many a time, we always hear people say location is the most important. You have to buy property near MRT to make money. Buying property is just one of the point to consider when making an investment in property. We shall continue to use the same 2 project for comparision.

Naung Residence is 6 minutes walk from Hougang MRT whereas Riversails is 22 minutes walk away from Hougang or Buangkok MRT. Most people will say that Naung Residence is a better investment as it is near to MRT and town centre, where transport is accessible and there are many amentities like Shopping mall, Supermarket, eateries etc nearby.

Asset Progression - Riversails to MRT

Riversails to MRT


Asset Progression - Naung Residence To MRT

Naung Residence To MRT

As we can see from the price trends for these 2 projects shown above, being near to MRT doesn not necessay mean that the property price will appreciate.

4. Freehold/999-years VS 99-years

We always hear that investing in Freehold or 999-years property is better for capital appreciation. This is also not necessary true.

Riversails is a 99 year leasehold project that TOP in 2016 while Naung Residence is a 999 year leasehold property that TOP in 2015. Both this property are about the same age. But we have illustrated in the above price trends that show that the 99-year project appreciate more than the 999-year project.

5. CPF Accured Interest

When you purchase you property using your CPF, there is accured interest. This is because when you leave your CPF alone in the ordinary account, it actually earns you 2.5% interest. But when you use it to buy a property, you will no longer enjoy the 2.5% interest. Hence, you will start to incur a 2.5% interest on the CPF that you use. This is known as the CPF accrued interest and it is payable (by you) when you sell the property.

When you add up the 2.5% interest that you are not earning and the 2.5% that you are incurring, it effectively cost you 5% interest. Over a long period, the accrued interest could eat up a significant chunk of the cash proceeds when you sell your property. In some cases, seller may end up in a negative sales, where all the profit from the sale of your property has to be return into your CPF account.

Let’s have a look at the effect of CPF accured interest. This table below shows the amount of accrued interest payable at the end of 20 years based on a CPF usage of $300,000 at the CPF interest rate of 2.5%.

End of Year Accrued Interest For That Year Alone Total Interest Payable Since Year 1 Total CPF To Be Returned (Principal + Interest)
1 $7,500.00 $7,500.00 $307,500.00
2 $7,687.50 $15,187.50 $315,187.50
3 $7,879.69 $23,067.19 $323,067.19
4 $8,076.68 $31,143.87 $331,143.87
5 $8,278.60 $39,422.46 $339,422.46
6 $8,485.56 $47,908.03 $347,908.03
7 $8,697.70 $56,605.73 $356,605.73
8 $8,915.14 $65,520.87 $365,520.87
9 $9,138.02 $74,658.89 $374,658.89
10 $9,366.47 $84,025.36 $384,025.36
11 $9,600.63 $93,626.00 $393,626.00
12 $9,840.65 $103,466.65 $403,466.65
13 $10,086.67 $113,553.31 $413,553.31
14 $10,338.83 $123,892.15 $423,892.15
15 $10,597.30 $134,489.45 $434,489.45
16 $10,862.24 $145,351.69 $445,351.69
17 $11,133.79 $156,485.48 $456,485.48
18 $11,412.14 $167,897.62 $467,897.62
19 $11,697.44 $179,595.06 $479,595.06
20 $11,989.88 $191,584.93 $491,584.93

After 20 years, the accrued interest is about $191,500. Therefore, for instance, if the CPF is used for old HDB flat, it is unlikely that the flat’s price can appreciate that much in next 20 years. For this reason, CPF should be used on newer properties that have much higher chance for price appreciation. Hence, if you are a owner of a fully paid old HDB flat, you should seriously considering property asset progression.

In conclusion, asset progression plan is necessary if you want to grow your asset and retire comfortably. You can contact us for a non-obligatory discussion. We will personalize your asset progression plan based on your finance and family situation.

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