Financial Chickens

In my last article, I wrote about the concept of planning early for homeownership for LGBTQ+ individuals. The 20s is all about developing great saving habits and setting the goal of buying a home, while the 30s is to boldly make that first home purchase – be it an HDB flat or a private condominium.

As we enter our middle ages in our 40s or 50s, our home journey differs once again and we’ll need to be prepared to combat mid-life challenges as LGBTQ+ individuals in Singapore.

The scenarios below depict some common situations face by the LGBTQ+ community in their middle ages, and I will share some solutions on dealing with each issue.

In your 40s: Facing mid-life reality and opportunities

Case 1: David, 42 years old, is someone who leads his life as if he is still 30. He remains single after 4 unsuccessful relationships (the longest lasting only 11 months) because he feels that none of them could fit into his social life. David loves to travel and party – bar-hopping and clubbing every weekend along Neil Road is a norm for him.

However, at the age of 42,  David still lives in a rental apartment and had not planned to own property till now. Although his income of S$6,500 as an Advertising Manager qualifies him for a mortgage loan, he does not have enough liquid cash on hand, due to his lifestyle, to cover the initial downpayment for an apartment.

David’s situation is not uncommon in the LGBTQ+ community. While their straight counterparts face milestones such as marriage or having kids, the LGBTQ+ community lacks such life-stage markers. Sadly, the celebration of being young and beautiful is prevalent in the community and many people might get lost in it, and forget about planning for important things like their property,  finances and healthcare.

Fortunately for David’s case, it is not too late. He still has options to buy an HDB flat from the resale market. Although he can qualify for BTO as well,  the long waiting period of 4-5 years for construction is going to set him back further.  David will also be able to apply for an HDB loan and qualify for CPF housing grants for singles – both capped at an income ceiling of S$7,000.

The HDB loan will help minimise his cash upfront as it can cover up to 90% of the property value, with the remaining 10% coming from CPF and/or cash. At his current age of 42, he should have a decent amount of CPF OA balance available to tap into for funding the property.

Case 2: Jennifer just turned 40. She bought herself a resale 3-room HDB flat when she was 35 under the Singapore Single Citizen Scheme. As she is about to complete her 5-year MOP, she is considering a few options:

• She could sell off the current HDB, upgrade to another bigger HDB, or buy a private property
• She can keep the HDB (rent it out) and buy a second property (private) but incur the 12% ABSD
• She can keep the HDB (rent it out) and rent a condo to stay in

Taking the first step to buying her HDB when Jennifer was 35 is definitely a wise move, and she had pathed the way for several options today.

The consideration to upgrading to a bigger place is always appealing after owning the first (and hopefully not last) property. Jennifer’s next decision will depend on her current financial situation, outstanding loan, the value of her current HDB, and what are her mid- to long-term goals.

If Jennifer’s current HDB has earned a good appreciation, she will be able to sell it off and get some cash proceeds for the next upgrade.

Whether she moves to another HDB or private is something she will need to plan carefully. Does she intend to buy and sell again to make another capital gain? Or does she just want to hold for a longer-term? Another HDB will set off another 5-year MOP, so if her intention is to buy and sell again to make capital gains, private property will offer better flexibility.

For many, the 40s marks the peak of their career and income power, which presents a great opportunity for them to jump into the premium property segment that they could only dream of when they were younger. At this age bracket, banks will still be able to offer a good 20-25 years of loan tenure to fund a home purchase. Knowing how to leverage these factors could allow them to make some capital gains via clever property investments.

Another option for Jennifer is to retain her HDB and rent the entire flat out (since she has passed MOP) for rental income. If she manages to fully pay off the HDB, or her bank loan permits her, she could explore buying a second property.

Now, many people may baulk at the thought of paying the 12% ASBD –  and that is the effectiveness of this policy to curb speculative home-buying. However, if Jennifer has a fully paid-up HDB that is giving her rental income and she plans to buy the second property as a long term investment (we are talking about 20 years or more), the effect of the ABSD will even out eventually and she may be sitting on an extra property for her retirement income in the future. Something worth thinking about.

Finally,  another less common option (but I have personally met a few LGBTQ folks doing this) is to rent out the current HDB and rent a private condo to live in. The school of thought for this Jennifer could retain her current HDB for her retirement when she is older.

In the meantime, she can still enjoy condo-style living with nice facilities by renting it. This way, she has less commitment and can move easily. The rental from her HDB partially funds the condo rental, although she will likely have to top up the difference.  The downside is of course the extra expenses in the rental over time and no investment growth in this approach.

Case 3: Justin, 44 and Peter, 41 have been a couple for 5 years. They each own private property and find themselves splitting their time at each others’ place. They are thinking of selling their properties and buying a bigger private property together. Here are the pros and cons.

By their 40s, many LGBTQ+ might have a partner and live in a committed relationship. Like Justin and Peter, the discussion on sharing finances and assets like property will be necessary. Although every couple might have their own ‘private’ arrangements, without legalised gay marriage, many issues can still fall into the grey.

In the case of Justin and Peter, buying a property together as a gay couple in Singapore’s context is basically a co-ownership of property by 2 friends (not married, not family). The immediate benefit is of course the ability to get a loan together to increase the loan quantum, and they will both be able to tap into their CPF to fund the property and make instalment payments in the future. The property title will bear both person’s names, but here is where it requires some attention.

Under property titles, there are 2 types of ownership – joint ownership or tenancy in common, and each has its unique feature.

Under joint ownership, the property is treated as one unit and there is the right of survivorship. In the case of the demise of one party, the remaining owner will take ownership of the property. For tenancy in common, there is a clear division of share of the property (could be 50/50 or any other ratio) and each is entitled to their share of the property. And in the case of the demise of one party, his share will be inherited by his next-of-kin according to the Intestate Succession Act (ISA). The surviving owner might end up in a dispute with the ‘new’ owner over the property.

So as you can see, a gay couple buying property together is not as simple as putting down the downpayment and moving in. If you, like Justin and Peter, are planning to buy a property together, make sure you have a word with an LGBTQ+ affirming realtor and lawyer to run through the options and do up the right paperwork. A good lawyer will also help you to draft up a Will and Lasting Power of Attorney (LPA), and any private agreements to go along with the property purchase. This will ensure that property ownership is smooth sailing in years to come.

In your 50s – Understanding the system and making it work

Crossing from the 40s to 50s is another huge milestone for most people. For many straight people, it would revolve around their family – seeing their children get older, going for national service or entering university. For those in the LGBTQ+ community, their 50s can be very different. Some might focus on putting all their energy into their career or venturing into a new business, or pursuing projects they have passion for. However, regardless of gender, race or sexual orientation, we all have to face the reality of ageing and dealing with health issues that come along. People in the 50s also have to deal with older parents who may further need their care and attention.

Case 4: Margo is 50, and recently sold her 4-room HDB flat. Being single, she doesn’t need so much space and wants to buy a smaller one-bedroom condo in a city-fringe area. However, the sale of her flat is not enough to pay for the condo, so she will need a bank loan but is concerned about the shorter tenure because of her age and its higher monthly mortgage.

Buying a property in your 50s can be challenging. You either need to have a lot of cash to pay upfront or have the income to support a high monthly instalment payment. The reason is that most banks will only grant a loan tenure up to 65 years for the borrower.

So someone buying a property at age 50 will only get 15 years to pay off the loan. For example, for a S$1-million apartment, with a 75% loan at 1.5% interest over 15 years, the monthly instalment is S$4,656 per month. And this is the reason why buying a property when you’re younger is so important because you’re leveraging on the tenure. For the case of Margo, she may have to look into digging more into her cash and CPF savings to reduce the bank loan.

However, there is still one way for her to reduce her mortgage payment – through restructuring or refinancing her loan. To do so, she needs to speak to her mortgage banker to make sure that her current loan has the flexibility to restructure and/or refinance, usually after 1 year. Unlike the first mortgage loan which has a cap of 65 years for the borrower, refinancing allows the borrower to stretch the existing loan till the age of 75, thus reducing the mortgage payment substantially.

Again make sure to speak to a mortgage specialist before taking up the loan to plan the subsequent changes down the road.

Case 5: Jeffrey is 53 and owns a fully paid-up 3-room flat in Bukit Merah. He and his partner Matthew (48) are thinking of buying a private property together but he is aware that there will be 12% ABSD imposed as it will be his second property.

This is a somewhat related situation like Justin and Peter in Case 3, where a couple is thinking of buying a property together. However, in this case, Jeffrey has an existing HDB flat under his name and buying another property with his partner will incur a hefty tax call Additional Buyer Stamp Duty (ABSD). For a Singaporean buying a second property, the ABSD is 12% of the purchase price. That is a strong deterrent for many investing buyers.

For Jeffrey and Matthew, there is a technique that is used by many straight couples whereby they adopt a 99/1 (tenancy in common) strategy when they buy a second property.

It is commonly done but the process requires careful guidance by an experienced lawyer. Without going into details (the methodology could easily be a full article on its own), the 99/1 strategy basically puts 100% share (initially) of the property under the person (Matthew) who owns no property. He sells a 1% share to the second owner (Jeffrey), after making the initial downpayment with the seller.

By doing so, the ASBD can be reduced substantially for the buyers to just 12% of the 1% property value – a very negligible value considering the full value of the property.  It will also allow the couple a co-ownership of the property, get a joint bank loan together and tap into each others CPF savings.

After the successful acquisition of the second property, Jeffrey and Matthew could rent out the HDB flat for rental income and move into the new property.  Again, I want to emphasise the importance of getting the help of a good lawyer for this. They should also talk to the lawyer about drafting a proper will, Lasting Power of Attorney (LPA) and any other private agreements made during this process to ensure a smooth journey in the future.

Case 6: Albert is about to turn 55 in a year’s time. He recently sold his condominium and plans to downsize to an old 3-room flat for himself. He is also concerned about his CPF savings and what he can do when he turns 55 as he heard of the Retirement Account (RA) and the possibility he could withdraw some money out of his CPF.

CPF policies can indeed be very confusing for many people, especially when it comes to retirement, the potential withdrawal and payout at 55 and 65 years old.  But frankly, most of the younger set would not be reading up about it until nearing that age.

However, it is very important for everyone who owns or plans to own a property to know how that will impact your CPF near retirement age. For a start, on your 55th birthday, a Retirement Account will be created for CPF holders, and Savings up to their Full Retirement Sum from their Special Account and Ordinary Account will be transferred to the Retirement Account.

The amount that can be withdrawn depends on the balances in the CPF account, the holder’s birth year, and if there is a property with enough remaining lease. For members born in 1958 and after:

Source: CPF Board.

In the case of Albert who is planning to buy a property, he should look for properties that have at least 40 years of lease left (to at least meet his 95 years) so that when he turns 55, he has more options to draw money out of his CPF.

That said, if Albert intends to buy a property, he will need to apply to CPF and express his intention to reserve his Ordinary Account (OA) savings for housing payments beyond age 55. He may submit a request to CPF Board before the monies are transferred to the Retirement Account (RA). This applies to members who own an existing property, as well as those who have yet to purchase a property. The request should reach the Board at least 3 weeks before the applicant’s 55th birthday.

(Confusing? Bear with me, there’s more)

Thereafter, Albert can continue to use the following to pay for his housing loan:

• Savings which he has applied to reserve in his Ordinary Account before his 55th birthday. This reserved amount will not be transferred to the Retirement Account. Hence, he can continue to use it to pay his housing loan after turning 55 years old.
• Subsequent new CPF contributions to his Ordinary Account (if he continues working and contributing after 55).

For more information about CPF withdrawal at 55 years old, please refer to CPF site.

Case 7: Marilyn is 58 and owns private property of her own for the past 5 years. Recently, she inherited her parents’ HDB flat which they have owned for the past 20 years. Marilyn wonders if she will need to sell off the HDB as she heard that she cannot own an HDB if one has an existing private property.

For many people in their 50s, taking care of older parents and dealing with their demise will be unavoidable. Some may inherit assets and properties passed down from their parents, like in the case of Marilyn.

HDB policies do not allow for someone to hold on to 2 HDB flats, so one will have to be sold after the inheritance. But in the case of private residential property, it is slightly different.

During the National Day Rally on 29 Aug 2010, PM Lee Hsien Loong announced several measures to ensure that public housing will remain within the reach of Singaporeans who are buying their first flat. From 30 Aug 2010, owners of private residential property who bought a non-subsidised flat are required to dispose of their private property within 6 months after purchase of the flat.

Not only that, owners of a non-subsidised flat are required to fulfil a 5-year minimum occupation period (MOP) before they can buy a private residential property. If the non-subsidised flat was purchased before 30 Aug 2010, there is no requirement on MOP to buy a private residential property.

It may sound a little confusing when determining if an inherited HDB is to be sold or not when there is an existing private property in place. To keep it simple to remember, if a private residential property has been acquired after the HDB flat had passed its original MOP, there is no need to dispose of it upon inheriting the HDB.

So in the case of Marilyn,  her parents bought the flat 20 years ago, that is before 30 Aug 2010. So it will not be subjected to MOP rules, which means Marilyn can keep both properties on the condition she meets all eligible criteria and she physically stays in the HDB flat.

For the next article, I will move on to touch on the next life stage – the 60s and beyond for the LGBTQ+ community.

About the Author

William Tan is a licensed realtor with a speciality in servicing the LGBTQ+ community. He is also the co-founder of Prident, a non-profit LGBTQ+ professional collective aimed at helping the community on economic wellbeing issues. William regularly writes and runs webinars to share his knowledge on property investment for LGBTQ+ and has been featured in EdgeProp Singapore, The Edge, Esquire magazine and The Financial Coconut podcast. He has helped many LGBTQ+ clients with their property portfolio – market to sell, buy and rent properties. He also runs an online LGBTQ+ Clinic to answer private questions from the community.

Read more on PRIDENT here.

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