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Should you decouple to buy a condo or landed property?

One of our viewers recently asked us a question we come across quite often in our line of work, and it's a dilemma that deserves more than a quick and definitive response. That's why we've turned it into a video with some nuanced insights:

Now, here's the scenario: They're a couple, both clocking in at 34 years young this year, and they've got a little one in tow. Currently, they're sharing a roof with their parents in the family home, and they've also got a condominium to their name. They’re thinking of decoupling, but are at a crossroads and need to make a decision:


Option (1): Decouple to buy another condominium that could potentially rake in a cool S$50,000 in annual rent.


Option (2): Kiss goodbye to their current condo and set their sights on a landed property.


Both options would swell their property investments to a ballpark figure of S$4.5 to 5 million. Now, you might be thinking, "Why this sudden rush to decide?" Well, at 34, they’re just a year away from a looming decrease in the maximum loan tenure. That’s why.


This is the very reason my wife and I opted for decoupling when we ventured into the world of landed properties many moons ago. But, remember, what worked for us might not be your golden ticket. To real estate experts like Raama, Jackie, and yours truly, your question is a three-parter.


Part 1: Decoupling

Decoupling, as a method to work around ABSD, is no stranger to the savvy property players of Singapore. It's a strategy that sheds light on the assets you can afford as an individual, and offer you the chance to navigate Singapore's highly regulated real estate market with greater flexibility.

When the question of decoupling came up, Jackie couldn't have been more enthusiastic, offering a wholehearted two thumbs-up. Raama, too, shares a favourable view, but notes that the answer varies from one buyer to another.


However, in your unique situation, the stars have aligned. The fact that you have the privilege (and convenience) of residing with your parents provides a delightful advantage. It sets you free to cultivate not one, but two financial prospects while ensuring a roof remains securely over your heads.


Part 2: Should you buy another condo?

Raama argues that this move aligns with your goals if your primary focus is on rental yield. After all, the rental yield of condominiums tends to outshine that of landed properties. But Jackie points out a crucial factor that could determine your success, especially in a market where rental yields are showing signs of tapering: Your choice of condo. This boils down to two criteria.


Location


Assuming you sell your current condo for S$2.5 million, you could likely secure a 3-bedroom unit spanning approximately 800 to 900 square feet in today's market. Armed with this budget, make a strategic decision by selecting a condo in a high-demand location. Areas close to international schools, for instance, are perpetual favorites. In fact, Jackie presently has two potential buyers on the hunt for properties in these sought-after neighborhoods without much luck.

Performance

Once you narrow down your preferred district, invest some time in crunching the numbers. Specifically, examine how the rental income compares to the purchase price. Recently, Jackie facilitated the sale of a condominium unit at Lakeview, and he was astounded by the contrast between what the initial buyers paid and the rent they are currently charging – a staggering S$6,000 per month.


On that note, it's worth mentioning that fixating solely on yield might not be the best approach. Yield, ultimately, hinges on your purchase price, and a high yield doesn't automatically translate to a sound investment. Take, for instance, a particular 60-year-old leasehold project nestled somewhere along Hillview. It boasts an impressive yield but comes with certain restrictions when it comes to securing loans.


As an alternative, Raama recommends adjusting your budget. Instead of allocating the full S$2.5 million to a second condominium, you can consider diversifying a portion of it into investments with attractive yields, such as fixed deposits, especially if you'd prefer to steer clear of any holding period obligations.


Or should you buy a landed property instead?

If your focus leans towards utility rather than rental yield, this could be the right path to tread, especially given your age and eligibility. In today's market, a budget of S$4.5 million should secure you an inter-terrace.


Undoubtedly, landed properties may not boast the highest rental yields in the real estate realm. Even if they happen to be situated in districts with a readily available pool of tenants, you must be ready to invest some effort in refurbishing the house before it becomes lease-ready.


The true value of a landed property lies not so much in rental yield but in its potential for capital appreciation and the unique lifestyle it affords. Individuals delve into this segment driven by personal motivations, whether it's accommodating a multi-generational family or ensuring their children have the convenience of walking to school.


What would Jackie and Raama do?

Much of our advice comes from our lived experiences.


For Jackie, the choice between a landed property and a condo is as clear as day. Landed homes are finite in supply while new condo projects are aplenty. If you don't stake your claim now, brace yourself for higher prices down the line. If it were up to him, he'd embark on this journey yesterday.


Now, Raama made a good point: Maybe you find yourself in this predicament due to your S$4.5 million budget. He proposes lowering your budget for a landed property to S$3 million, depending on your income and the loan amount you are eligible for. This way, you’d be getting the best of both worlds (landed property and condominium). Or, you could venture into alternative real estate investments, like industrial properties, and distribute your eggs across various baskets.

If you’re buying a relatively affordable landed property, it doesn’t even have to be new or built-up. The key is to make your foray into this real estate realm and procure a property in its original state. If you so desire, you can eventually put on your developer's hat and boost its value through renovation, A&A, or even a complete rebuild.


Given your age, there's also the option of land-banking it for the future. We’re just short of saying that you can afford to pick a landed property less critically than you would a condo, and the asset will still roll up its sleeves and work diligently for you. Watch our episode on land-banking here:


What would I do?

Speaking from personal experience, I found myself in the exact same position at 34 years old. I held onto my condo while securing an entry-level landed property. Admittedly, my perspective may be slightly biassed because I've walked this very path and continue to stand on it, but I have no regrets. If your aim is to strengthen your portfolio, having two different assets can only work to your advantage. If you have the financial means to invest but want to do so without decoupling, get in touch with us. We may appear to be ambassadors of landed properties, but the truth is we deal in HDBs, condos, shophouses, and even industrial spaces, and there’s no lack of options below the S$2.5 million benchmark for anyone who might be intrigued. Feel free to reach out to me, Harvey Chia, for a no-obligation conversation at 9199 9141.






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