The recent news about the affordability of HDB homes got me thinking about the time when I too was newly married and looking to get my first home. It was a pivotal time in my life as the choice of home would determine the path I took towards financial freedom.

Like many others before my time, I had gone through different periods of the housing bust and boom times. Even as my parents benefitted from upgrading, my elder sibling had to wait close to 2 years for his HDB flat and that was considered good during times when average waiting time for new HDB flat was about 3-5 years. This resulted in many couples married by only staying together 3-5 years after they have had registered their marriage with the Registar of Marriages.

I was fortunate in that my home search was sometime in 2000 when the market was still slowly recovering from the excesses of the Asian financial crisis and the dot-com bubble was starting to unravel. Thus, I managed to get my home at a reasonable price.

What your home means to you

Your home is truly something that provides a roof over your head, is a place to retreat from the stresses and strains of life but can also become your retirement asset. This is because a large chunk of our retirement funds, in the form of Central Provident Fund ordinary account balances, are used to pay for our home.

As a result, if you think your CPF monies is your source of retirement funding, then you may need to rethink this idea because if you’ve used your CPF ordinary account to pay for your mortgage, then your home has become part of your retirement funding.

The implications of this is that your home while providing you with a place to stay, may have to be sold if you end up like many Singapore residents who are asset-rich but cash poor when they wish to retire. This means that in order to generate enough cash for living expenses, they would have to downgrade or to somehow monetise the value of their home to provide for their retirement years.

If you put it into this perspective, your home then loses some of its lustre as you really cannot make use of it to be financially free unless you can find another place to stay that is rent-free.

Clearing your housing loan to  your home to be an “asset”

In my journey towards financial freedom, I’ve made and achieved my target of clearing my housing loan before I hit 40 years of age. I managed to hit this target partly due to a high savings rate, relatively frugal lifestyle in my earlier pre-marriage years and to defer major living expenses such as the purchase of a car until I’ve settled the important priority of clearing my home loan.

This has allowed me to complete phase I of establishing my own home. Now, my CPF contributions are truly towards retirement as every dollar goes into my CPF is to fund ordinary account, special and medisave accounts.

Phase II is then to scout for an investment property to provide for an asset that would appreciate over time and to provide some cash flows and returns in the meantime. This would take some time as the property market is in a frenzy right now and many people are urging caution as we are arguably in the start of another round of asset bubble in the property sector.

Even my seasoned property investment friend has warned me that his lawyers are telling him now is not the time to buy as a significant proportion of transactions are driven by speculative activity.

My mother provided the best investment advice that I’ve received relating to buying your home. You would need to buy your first home because it is the place you will stay and call home. It cannot really be used as an investment because you would have to solve the problem of finding somewhere to stay. Thus, only after you’ve owned your first home that the second residential property can be considered an investment to yield returns and possibly capital gains over time.

Thus, if you want to see your home as your ticket to financial freedom, you would have to only begin with the second one. The only way other way is to buy a big home that you can afford, sell it off and downgrade to realise the gain. But that would mean having to adjust your lifestyle and living conditions depending on the size and location of the smaller place you wish to downgrade to.

At the end of the day, each one of us has to decide whether our residential property is a place to call home or is a means towards financial freedom.

Be well and prosper.

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