As our life situation changes, it may no longer be feasible to live in a large property. For some retirees, for instance, a multi-storey landed property, or 1,400+ square foot condo, may be too troublesome to upkeep. In other cases, they may feel it’s time to enjoy their retirement, and right-size their home so they can go on world cruises or fulfill other lifelong aspirations.
However, rightsizing is a process that must be handled with care and forethought. It may not be easy for older home buyers to get a loan, for example, so more care must be taken regarding the cash proceeds.
Also, as the next home is often the place where the home buyer will retire in, it’s important to ensure that it suits their needs and lifestyle choices. In this article, I will look at the most important considerations before rightsizing, to make it a smooth process:
- Rightsizing is not necessarily downgrading
- Work out how much you can afford for your next home first
- Calculate the cash proceeds with care
- Check your new maintenance costs
- Address the location concerns
- Older home buyers should consider mobility issues
- Identify what has to move with you
- Tone down your acquisitions a year or two beforehand
1. Rightsizing is not necessarily downgrading
Contrary to popular belief, rightsizing doesn’t always mean moving into the cheapest, short-lease flexi-flat. That sometimes happens as a result of financial necessity; but these days rightsizing can even mean moving from a flat to a condo.
For example, consider a single retiree who owns a five-room flat, whose children have also moved out. The property is now too large and empty for him.
Given he can get $450,000 to $500,000 on average for a resale five-room flat, he may be able to afford smaller condo units; prices for condos such as The Penrose start from $788,000, and The M Condo starts from $900,000+.
The smaller floor space is easier to maintain, and he also gets some conveniences from having having a pool, sauna, BBQ pit to relax with friends, etc.
(It’s also really nice to be in a central location, if he’s looking after the grandchildren).
So if the financial situation is right – and the concern is simply that the property is too big – do think beyond rightsizing into an HDB flat. Small condo units can be a viable option too.
2. Work out how much you can afford for your next home first
How much should your new, smaller home cost when you’re rightsizing?
This is not a simple question to answer, as it varies for each individual. As I mentioned above, it’s even possible for the new unit to cost more despite being smaller (e.g. if moving from a bigger flat to a smaller condo).
In general however, the rightsizing should:
- Provide sufficient leftover funds to pay off any debts or financial liabilities
- Provide a boost to retirement funds, to hit a certain goal – such as a desired Income Replacement Rate
- Not leave you with any home loan repayments that would go beyond your retirement age (especially not 65, for the reasons described below)
As there’s simply no “one size fits all” answer, drop me a message to discuss your intentions and current needs. From there, I’ll be able to advise you on the budget range to consider for your new home.
3. Calculate the cash proceeds with care
Whether you’re rightsizing due to financial necessity, or you’re an older home buyer (e.g. 50 or 60 years old), it’s important to know the likely cash proceeds from selling your existing home.
If you’re going to take a home loan for the new property, note that there are age limits:
If your loan tenure plus your age exceeds the retirement age of 65, the maximum amount you can borrow is reduced; typically to about 55 per cent of the property price.
For example, say you want to rightsize to a $200,000 resale flat; but your age is 50, and you want a loan tenure of 20 years (this takes you past the limit of 65 years). Your down payment would be as high as $90,000.
If you’re intending to rightsize to a condo compact unit, of say $700,000, this would be a down payment of $315,000.
This is assuming you also meet other requirements to qualify for the loan, such as having the sufficient income level*, or are buying a property that isn’t too old.
An alternative is to take a shorter loan tenure, so that you qualify to borrow the full amount (up to 75 per cent of the property value). However, a shorter loan tenure would mean paying more for the loan each month, or making a bigger initial down payment.
Also take into consideration what you need to return to CPF
Remember that any amount withdrawn from CPF to pay for your existing home – such as the stamp duties, down payment, and monthly loan repayments – must be refunded to CPF with the accrued 2.5 per cent annual interest.
Make sure that you still have enough to make the down payment on your new home, once you have refunded the full amount. If using a bank loan, you must be able to pay at least five per cent of the new property in cash.
As the calculations involved can be complex, do drop me a quick note on Facebook if you need help; I can help to forewarn you of any issues meeting the down payment.
*Under the Mortgage Servicing Ratio (MSR) for HDB properties, the monthly home loan repayment cannot exceed 30 per cent of your monthly income.
4. Check your new maintenance costs
If you are rightsizing into an HDB flat, this is usually not an issue (the most expensive conservancy fees are around $90 a month, and are about $31 a month for most two-room flats).
However, condos have a maintenance fee based on the share value of the unit. For most one and two-bedders, this can be as low as $250 per month; but you need to check just in case! In the more upscale luxury units (i.e. Orchard or other parts of the CBD), even a two-bedder can have maintenance fees reaching $400 per month.
Remember to factor in these monthly costs, before you pick your unit of choice.
5. Address the location concerns
In most cases, the home that you rightsize into will be your forever home. As such, do ensure that the surrounding amenities are right for you. Some of the factors to look for are:
- Healthcare or eldercare facilities, if you are rightsizing as a senior (at present, The Ola EC is noted for being right across from Sengkang General Hospital, and for having special telehealth booths for remote consultation)
- Proximity to children or grandchildren
- Accessibility issues; remember the cost of using Grab or GoJek every day will eat into the savings of a smaller property
- The cost of living in the neighbourhood. There’s no point in having lots of eateries and shops nearby, if all of them are high-end and unsuitable for day to day eating and shopping
6. Older home buyers should consider mobility issues
If you’re planning to live out your twilight years in the property, don’t take your mobility for granted.
For example, rightsizing into an old walk-up unit may seem like a real bargain; but you need to consider if you want to walk up four or five flights of steps 20 years from now. Likewise, a high floor unit may provide more quietness and privacy – but it’s also less convenient than a ground floor unit, where there’s no need to worry about the lift (this can make a difference if you are in a wheelchair or using a cane).
If you have the financial means, you can also consider rightsizing into more exclusive condos like Meyer Mansion, which has private elevators. The lift will then lead directly to your home, which saves the extra step of having to move from the lift lobby; this is more comfortable if you’re using a walker or wheelchair.
7. Identify what has to move with you
It is important to consider what you want to take with you when you move to your new home. As your new home will be smaller, there are certain bulky items that may not be able to make the trip.
For example, if you currently live on a landed property, remember that you probably can’t bring your larger potted plants from the garden to an HDB corridor. If your home has accumulated valuable furnishings over the years – such as antique roll-top desks or altar tables – you will have to consider the space requirement when choosing your new home.
I would suggest creating an inventory of large “must-bring” items. You should consider these when looking at the floor plans of your new, smaller unit.
You may require certain renovations – such as the removal of some partition walls, or the installation of vertical storage spaces – to get some of these items to fit.
As I have a background in construction and interior design, I can also help you in this regard. Drop me a message, and I can view the floor plans to see if your new unit can be renovated to accommodate larger items.
8. Tone down your acquisitions a year or two beforehand
If you are certain you’re about to downsize, take preemptive steps. I suggest home owners start to clear out some of their belongings leading to the move, via Carousell, giving things to relatives, and so forth. This is often preferable to just dumping the items (for which you may need to pay disposal costs).
You should also tone down the amount of items that you buy, in the year or two preceding your move. The more items you accumulate, the more inconvenient it will be when you move to your smaller home (and it’s usually painful to throw out things that you only bought one or two years prior).
Rightsizing is one way to reap the benefits of smart property investment
One way to benefit from property assets is to aim for wealth progression. For example, young home buyers may start with a BTO or resale flat; but they can aim to slowly progress to an EC or condo, or even a second property or landed property if things go well.
When they retire and the children move out, they can then rightsize, and sell their appreciated property assets to boost their retirement. This slow and steady method has been used by Singaporean property investors for decades, and it’s a strategy that has stood the test of time.
To find out more about wealth progression through property investment, follow me on RonChong.net.