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To rent or to buy: Rule of 15 revisited.

Sunday, May 7, 2017


Reader:
My bf and me are both PR. And the topic of housing is always a big question mark to us.

Both of us is not eligible to buy BTO, unless one of us convert to SC and this option will take longer time (apply SC, BTO...)

We are not married yet, so not eligible to purchase resale HDB flat.

My bf and his brother in law invested in a shoebox apartment in Singapore. So, even if we marry, we are still not able to purchase resale flat untill he dispose the shoebox apartment.

We have discussed buying a private condo under my name. This option is the most expensive, and also create financial stress.

We also thought to leave Singapore so we can have our own house without much hassles.



AK suggested that the reader considers the Rule of 15. For those who don't know what I am talking about, take a break from reading this blog and read this first:

To rent or to buy: Rule of 15.

Now, this rule really isn't a rule. It is more a guide which encourages prudence for anyone who believes that having a healthy positive cash flow is more important than having lots of assets and little or no positive cash flow.

In Singapore, considering the Rule of 15, a BTO HDB flat is the best choice. 

A 4 room HDB flat in CCK could probably fetch about $2,000 in monthly rent and the BTO price tag is probably less than $300K. So, to rent would be silly as the monthly rental would pay for the flat in 12 years or so.

Buying a shoebox apartment in prime district 9? A price tag of about $1.2 million would not surprise me. A monthly rental of $3,000 is about right. It would take more than 33 years for the monthly rental to pay for the condo.

Of course, in both scenarios, the assumption is that the properties were fully paid in cash without taking a housing loan. Yes, interest rates are going up and it will add to the cost.

We have to consider that it is also more costly to own a condo than a HDB flat in more ways than one.

To be fair, compared to some other places in the world like Hong Kong, Singapore is still relatively cheap. 

Years ago, Anita Yuen and her husband made the decision not to buy a property in Hong Kong but to rent instead. Why?

In order for them to buy a property in Hong Kong, they must believe in the Rule of 130.


What is the Rule of 130? 

If you have read my blog on the Rule of 15, you would be able to figure it out.

Related post:
Rule of 15.

8 comments:

Ben said...

Hi AK,

I think that it will be more feasible to buy rather than rent. If possible, pay for the flat without taking the loan.

Ben

AK71 said...

Hi Ben,

Without a more thorough understanding of the reader's circumstances, it is hard to say what is feasible and what is not. This is why I let the Rule of 15 do the work. ;)

Shiva said...

Hi guys,

Again an outsider Honkie pops in again. I like the idea of rule 15 which basically laid down the break-even time for a property investment. But I think when coming to an property investment, there are more just than having it break-even.

I would say for an investment on an asset. It is best if it brings in cash inflow and enjoys price appreciation as well. The beauty of property investment is that there is a high leverage which is unavailable easily in other alternatives. When the net gain, ie., rental yield less mortgage interest rate is positive and there is an long uptrend predictable then it is a good investment, especially when inflation is expected to rise.

This is my cents.

AK71 said...

Home prices in Hong Kong could fall by nearly half over the next 10 years as a rapidly ageing population coupled with rising supply of new flats will dent demand, according to a report by Deutsche Bank.

“We expect vacancy to surge to 9 per cent, from 4 per cent now, and average selling price to slide 48 per cent by 2026 from current level,” wrote property analyst Jason Ching.
As the population ages, fewer households will be able to stretch their mortgages to the maximum tenure of 30 years, the report said.

“We expect only 11.5 per cent of total households will be able to afford an average private housing unit by 2019 from the current level of 16.9 per cent. Moreover, by factoring in upcoming rate hikes, we expect overall affordability to worsen and average selling price to decline by 48 per cent over 2017-26 to restore the supply and demand equilibrium.”

Is Hong Kong’s property market heading for its biggest crash since 1997?

Deutsche Bank’s forecast come after Hong Kong’s top financial officials issued their strongest warning yet to home buyers about escalating risk in residential prices.

Financial Secretary Paul Chan Mo-po said on Monday that “the risk in the property market is very high [and] sentiment in the property market is very exuberant”.

Source:
http://www.scmp.com/property/hong-kong-china/article/2097546/hong-kong-home-prices-seen-falling-half-10-years-says

Spur said...

Waaah ... if property prices have to drop 50%, I prefer it to happen over 3 years instead of 10 years. Just take the pain like in AFC or Iceland / Ireland in GFC & then can move on and recover.

Better than becoming another walking dead Japan from 1991-2010.

AK71 said...

Hi Spur,

I hope that it doesn't happen because I know many people would suffer big time if it does. I won't be safe either because the economy would probably be in the dumps and all investments would be affected negatively but I know people who are overstretched financially and they are the ones who would take a big hit.

Spur said...

Hi AK,

Let's hope the relevant authorities can do the right things to temper down the enthusiasm for property. Why can't things be as simple as the good old days, when all you had to do to get property is rally some followers and conquer a few patches of land to setup your kingdom?? :P

AK71 said...

Hi Spur,

I don't know about Hong Kong but I feel that Singapore has done enough with the many rounds of cooling measures in the last few years. However, I know there are calls to invest in overseas properties instead because of the restrictions here and this cannot be controlled. There will always be people who are more adventurous and I hope they are wearing safety gear. ;)

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