Sunday, 4 June 2023

Rich in Singapore Providing Their Children an (Unfair) Headstart and How Can the Less Well Off Keep Up

Stackedhomes provided an interesting analysis on the sale of the Reserve Residence.

For context, the cheapest homes for the Reserve Residence are priced at $1.2-$1.4 million with approximately 20% of homes placed in this price range. However based on data: "22 per cent of (70% sold) were to buyers of profile aged 30 years and below". Stackedhomes added: "This suggests that the younger have financial support from elsewhere, most likely parents"

Rich Parents Help Their Child Get Ahead in Life

While there are a few financial and lifestyle comic/blogs advocating for the inflow of the rich (likely written as sponsored content for certain agencies), what happens is that such flows create a spiralling upward effect on property prices. Rich parents have stepped in to help their young kids to own private homes before prices appreciate further. This is based on what is observed for the Residence sales.

While the middle class can wallow in pity about how unfair Singapore is where the rich act to make themselves richer and the government allows for such inequality to persist without policy intervention, I think it is an opportune time to remind others how we can keep up with the Joneses. 

Hopefully the rich are busy indulging in their indulgent activities and not read this. At this juncture, it might be good for me to caveat this article is not sponsored or politically motivated in any means.

Keeping Up with The Joneses- CPF SA

1.  The CPF Special Account (CPF SA) helps the middle class accumulate wealth for retirement efficiently. The CPF SA currently provides 4.01% interest, which is higher than bank fixed deposit rates. In addition, if you accumulate a large enough SA amount, you can withdraw it at age 65 beyond the retirement minumum sum amount. Hence you can use CPF SA as your main retirement funding. To act on it, top up into your CPF SA early, maxing out the annual contribution limit. What's more, the government even offers tax rebates for top ups. Do read here for more information.

2.  Avoid insurance agents! Use NS Term (avaliable for all Singaporeans and Spouses) + CPF SA. Singapore has a national insurance scheme that is better than any insurance plan agents in Singapore are selling. You do not need those insurance agents on the street to help you retire early (in fact such agents tend to make your retirement situation worse). Read here on how you can DIY your own insurance plan that is superior to most insurance plans sold.

Parting Thoughts

While CPF especially the CPF SA is an amazing tool for us to build our retirement; thus enabling us to devote the rest (most of) our energy to servicing a high housing loan or care for our families needs, I feel the government still has to step in to intervene.

As rich parents are partially financing houses under their child's name, the current government has to review its housing policies. Pherhaps one way is for an individual who has bought a private home, they will no longer be eligible to apply under the BTO scheme. 

After all, since they can afford a private home in their 20s or early 30s, why should they have the opportunity to apply for BTO later in life as they have demonstrated the finanical means. 

Secondly, the government should consider increasing the tax rate for annual value of homes that are $40,000 and above for both owner occupied and non owner occupied. The property taxes in Singapore is one of the lowest in the world. And it presents an opportunity to increase tax coffers.

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