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Wife wants to sell HDB flat to buy a condo.

Thursday, August 25, 2016

Hi ak,

My wife had been hankering me about buying a condo coz her sisters all have multiple condos. All renting to service loans. I just feel we are late to the properties game and don't want to get caught in a bloodbath.

In order not to pay ABSD, she thinks we should sell our current flat. But the market is so bad now I don't know whether we could sell at all.

Her argument is if we wait for market to worsen,  though we may get the condo cheaper but our flat price would also drop. So there is no best time.
What would you do if you are in similar position?

Hi R,

1. Fact. Rental market is getting softer and softer. Even if prices of condos come down a bit more you could be setting yourself up for disappointment as vacancy rate continues to go up and rental market stays soft.

2. If I could, I would have bought a BTO HDB flat. If I had a HDB flat, I wouldn't sell it, especially not because I want to avoid paying ABSD on a second property if I am going to buy one.

3. When a crash happens, condo prices will drop more than HDB flat prices in absolute dollar terms. 

OK, now comes the difficult part.

If I were in your shoes, my stress level is probably through the roof because I am not the type to throw pragmatism out the window to please my other half.

Good luck. :)

Best wishes,

See Part 2: here.

Related posts:
1. Disastrous property investments.
2. If we are not rich....


Kevin said...

Hi AK and R,

It seems your wife's decision to sell HDB flat and to buy a condo is based on her sisters all owning multiple condos while collecting rent to service loans rather than the current real estate market sentiments.

Current vacancy rates are at 8.9 per cent(16-year high) and rent received might not be enough to service monthly mortgage.

You might be better off buying S-Reits instead.

seefei said...

i once bought a condo and held it for it for 15 years. i bought at $680K and sold it at $800K. For that 15 years, only four years it exceeded its buying price, that was the first two years and last two years. In between the property was a negative asset. That is, its value is lower than our bank loan and we could not sell it.

If discounting the final two years when the property recovered its value, i had to live with a negative asset for more than eight years. In that eight years, we forked out $12,000 for repainting and redoing the kitchen cabinet as it was infected with termite. So, property investment is not smooth sailing all the time. Especially if you are late into the game and miss the early-bird boat.

For that eight years, we cant do any investment as all our money was tied up in that one property. Imagine the opportunity cost lost! Hence, please consider carefully as not all property investment is pau jiak one.

i see history repeating itself. The property had inflated further to $1M and now it has regressed back to $900K. So if the market soften further, she probably ended up where she had started. I dont wish that but who knows...

Buy what you can afford and need. Dont time the market as the cost of wrong timing can be excruciatingly painful.

FFE said...

Hi R,

Tell your wife that it is way better to upgrade when prices fall across the board and downgrade when prices rise.

If you think about it, its essentially buy low, sell high.

1.5M condo drop 20% to 1.2M vrs 0.7M HDB drop 20% 0.56M. So is it better to take up addition loan for 0.8M (diff between 1.5M and 0.7M) or 0.64M (diff between 1.2M and 0.56M). Don't forget the transaction costs are also much cheaper. Stamp duty on 1.5M vs 1.2M property.

Lastly, even if the HDB drops by the same absolute amount as the condo, ie 0.3M. You know what % drop is that? It is 0.3/0.7 x 100% = 42% drop in your resale value. Do you think that's possible? I really doubt so.

So basically, its worth to wait. Your wife is just getting too emotional. Crunch some numbers like what I have done, hopefully that will help your wife.


Yeo Meng Choon said...

Just to share my purchase experience on my present condo. When the financial meltdown started in 2008, I was in a dilemma whether to sell my old condo and get a new condo. Never expected the property market shop up a lot after the US rolled out QE (basically printing money), so I had decided to take a wager to buy my present residential condo in 2010 expecting that the price of condo would still continue to go up so that the difference between the two condos would be narrowed once I sold my old condo in 2012.
Indeed my old condo sold had generated 30% profits while the price of the new condo had been hedged since 2010. Even though the property market has softened ever since 2013, but I am still sitting on paper gains of at least 20%.
To buy or not to buy is based on our vision of the future. Imagine talking about 1 million dollars in 2010 would be unimaginable for those who had bought a similar condo in 2001. There is no right or wrong answer, it relies on our perspective and holding power. Happy investing!

Unknown said...

We should not look upon our homes solely from the point of investment. A home is a place for the family to stay where we get a roof over our head, a place for the family to bond and grow emotional attachments. It should not be an asset that cause you financial strain and anxiety but peace and happiness. You can decorate your home well ( need not be expensive) and yet enjoy the comfort of the home. There are a lot of condo owners who spent $$$ on the homes but stinge on decoration( perhaps it is their choice). These homes are no better than any public housing. Do not compare yourself with the Jonesses, there is no end to it.

victorlsl1 said...

I think he should divorce his wife and get a new one from China or Vietnam. its a form of "upgrade" too!. sorry just being naughty!

summer wind said...

I am a stay-at-home mum in my fifties. My husband and I were landlords for many years before we sold the properties during the peak. Our story begins with the changes in the needs of a young family that led us to buy a resale HDB flat and lease the private property. I also left my full-time job. There are always naysayers in our midst who take pleasure in making remarks such as 'you now live in public housing arh'

It must be difficult for R's wife to deal with the temptation of buying a condo for it is a woman's weakness in general to want to be at par with her "accomplished" family members. At the end of the day, we need to be reminded that it is unwise to join the game at the wrong time and manna is not going to fall from above to help to pay off a mortgage.

May I suggest to R to encourage his wife to read AK's blog. I think more female readers will benefit from the posts in this space.

AK71 said...

Hi Meng Choon,

"To buy or not to buy is based on our vision of the future."

That is speculative but I have nothing against speculation as long as we know we are speculating. More importantly, we must have the resources as a speculator so that we will not be in trouble if our speculation turns out badly. :)

HappyInvestor said...

Can I suggest the reader and his wife consider buying an EC instead if they qualify in terms of income ceiling ? That EC will become semi-private after 5 years as you can sell to Singaporeans or PR and also can be rented out at the end of the 5-year

At the end of 10 years, it's as good as a private condo. But the downside is you have to sell your current HDB within 6 months of TOP. If there are some ECs getting TOP next year and still have unsold units, one could try their luck and your wife will get her condo without breaking the bank.

Anyway, if you sell your HDB and buy a condo, where you gonna stay? Rent?

I recalled asking AK for his thoughts re EC couple of years ago when the Jurong Lake EC was launched. AK said there is a margin of safety in buying EC (big hint!). Jurong EC was launched at average $850 psf (tad higher than the other ECs in Woodlands and North-East) but much lower than the $1300+++psf launch price for Lake Grande and Lake Ville even taking into consideration their proximity to the MRT stations.

Who knows what the property and rental market will be like in a few year's time?
No one knows. Best bet is to buy within your means and not over pay.

Hope this helps to keep reader's wife happy ! A happy wife is a happy life! :P

Aaron said...

Well. The next 2-3 years would probably be a good time to shop. Bad economy, over supply from the condo construction glut from a few years back, etc.

But then again, that would also mean that the HDB you're selling would also have a lower price.

Ray said...

The economy is poor, the Fed is reluctant to raise rates... in such low rates environment, property speculators will continue to be vindicated on their belief that their expenses will be paid for by their rental income and the properties are essentially theirs free (paid for by the rentees).

Until interest rates rises and their expenses overshoot their income, it is hard to argue against them. eventually we who sat out at the sideline fearing meltdowns may turn out to be idiots?

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