Home loses $23,000 yearly to house antiques?

Inspired by several past conversations.

From a financial perspective, should a single buy a one bedroom HDB apartment for $100,000 or a three bedroom HDB apartment for $500,000? 

The former seems less demanding financially. However, in the latter, he could rent out two bedrooms and that could conservatively net him around $15,000 a year. 

The apartment could generate $450,000 in 30 years and, in his golden years, his apartment is almost free of charge.

If we are the sociable type and do not mind dealing with tenants, then, buying the bigger apartment which has the option of income generation makes sense. 

For any income investor, having such a temperament is fortunate.

If we are not the sociable type and if we value privacy highly, the one bedroom apartment is probably sufficient unless we are an antique collector and need more room to house our collection.

If we are not prepared to rent out two bedrooms, then, we are not only losing out on $15,000 a year in rental income but we are also paying 5x more for a home. 

Spread $400,000 over 50 years (assuming that is the length of our remaining life on earth) is $8,000 a year. 

OK, if we have a pretty pricey antique collection to house, maybe paying $23,000 a year is peanuts.

If we want our very own place to call home till the day we say farewell to this world, ask how much space do we need and could the price tag be smaller?

What is the topic of this blog?

Well, it is not about affordability.

Related posts:
1. Housing and CPF.
2. A big loan and CPF not enough.
3. Affordability and value for money.

Financial security in Singapore plain and simple.

Singapore retrenchment: Will Malaysia share the same fate?






Reader:

I found your blog over the past week, and I have been looking your posts when I have the time.  

I don’t want to be a slave to my job when I am in my late 40s or 50s. 

I know that being an average salaried employee, it is quite difficult to ever be financially free.

Some facts about me:

• Working since 2013, earning $5.7k a month
• 
  
• Save about $900/month in cash
• 
  
• Invest $300/month in STI ETF (I read blogs for beginner investors that said STI ETF as a low risk, simple, long term investment that seemed to be ideal for young investors without much capital)

I have just bought a 3 room BTO for my mom and myself. 

Hence, I have emptied out my OA for house payment and spent my cash savings for renovation. 

In a way, I am starting over from scratch again, with $0 in CPF OA and very little in cash savings.

I understand that since my loan interest rate is much higher than the OA interest rate of 2.5%, I should look to repay the loan as soon as possible (assuming I don't re-finance with a bank loan).
(Parts of the email omitted.)

For only $300, you gain instant diversification.

AK:
What you do depends on what you want to achieve but what you do should also depend on the resources available and your ability to stomach volatility and some risk.

Investing through an STI ETF is good for someone who does not have the inclination nor time to research into specific stocks. 

It is a long term strategy that should yield decent results over a 20 to 30 years period. 

This is your exposure to the local stock market.
http://singaporeanstocksinvestor.blogspot.sg/2013/07/tea-with-matthew-seah-posb-invest-saver.html







You can think of the CPF as your exposure to an investment grade sovereign bond. 

In this respect, you might want to use less of your CPF money for housing loan repayment and use more cash instead. 

This will give you better returns than leaving your savings in the bank right away. 

Remember, this is a long term savings tool and you won't be able to access the money till you are 55 and, later, 65.
http://singaporeanstocksinvestor.blogspot.sg/2015/11/retire-with-investment-grade-bond-and.html







Of course, please ensure that you have an emergency fund first. 

How big should it be? Read this:
http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html

Also, you want to be adequately insured because you have to take care of your mom. 

I would suggest buying a term life insurance for yourself.
http://singaporeanstocksinvestor.blogspot.sg/2014/09/term-life-insurance-why-buy-term-how.html







We don't need some magic formula or complicated strategies to be more financially secure in Singapore.

Of course, if you decide to become an active investor or trader, you could make more money but you should know if you have the temperament for this. 

That is all I will say. :)







Related post:
Taking steps towards financial security.

See: PMET took a 30% pay cut but thankful.

Buying properties with short remaining land leases.

Reader:
I was looking to buy a shoebox condo until I read your blog. 

I turned 35 recently and will try to get my own BTO 2 rm HDB flat. 

This will help me achieve financial freedom earlier. :)


However, a friend (same age) just bought a 40 yro HDB flat. 

He didn't think age was important but I told him about the lease decay issue. 

He cannot sell the flat right away because of the MOP. 

Do you have any thoughts on this?




AK:
I will share what I feel are situations when it might make sense to buy properties with relatively short remaining land leases.

1. If we are making it a home with no intention of reselling or leaving a legacy, make sure that the remaining lease is enough to last us till we are 90 years old. 

People are living longer and we are expected to live till almost 90 these days. 




In fact, to be safe, let's make it 95 years old. 

So, if your friend is 35 and bought a resale flat that has 60 years left to the lease, that is not too bad. 

Well, let us hope he doesn't live to be a hundred. 

Alamak. Bad AK! Bad AK!





2. If we are buying a property with a relatively short remaining land lease as an investment, the rental yield should be far higher than a property that has a longer remaining land lease or is sitting on freehold land.

So, if a property has 50 years left to the lease, it should, simplistically, have a rental yield that is way higher than that of a comparable property with a 100 years left to the lease. 

Otherwise, everything else being equal, it would mean offering a significantly lower price for the property with a shorter remaining land lease.





(There is lesser room for error buying a property with a much shorter remaining land lease. A one year vacancy for a property with a 50 year land lease is 2% of its productive life gone while it is 1% for a property with a 99 year land lease.)

Of course, point number 2 should be relevant to someone considering point number 1 as well. 

It will help to ground us in our decision making process and, hopefully, not pay ridiculously high prices for properties.






Guide for Resale Flat Sellers and Buyers.
Related post:
Buy 99 years LH or FH properties?

Which HDB flat to buy?

Reader says:

I have read your posts and have been following you for quite some time. 

Have been reading your posts on purchasing properties and following up on the replies. Really interesting :) 

I would like to seek your advice for choosing a HDB flat. Hope you don’t mind helping me out.





I want to buy a flat that is more accessible and convenient, closer to the central region. 

I plan to sell the unit after 5 years of stay when my financial is ready for an upgrade. 

However the flats in the estate I am interested in are older. 

My agent keeps telling me NE region is newer and have more potential.






I really like the 20 year old resale flat which is closer to town but for the same price, I can get a 5 year old flat in NE Singapore.

I feel that the flat in NE is not so convenient even with the LRT lines and bus service there. 

It is still quite a distance away from central area.

For the amount of money I can afford I know I can’t get both new and centralised HDB flat, 鱼和熊掌不可兼得.. Please teach me how to 取舍..





AK says:

If you are buying a home to stay for the rest of your life, an older flat which has more than 70 years left to the lease is OK.

If you are thinking of selling the flat a few years down the road, an older flat could have issues especially now that more people are aware of what a shorter lease means.

You decide. ;)






Related posts:
1. HDB flat is 37 years old...
2. Buying a 99 years LH property?
3. Buy resale flat or new BTO flat?
Which one would AK choose?

Downsizing flat and upsizing parents' retirement adequacy!

Reader:
Thank you for sharing your financial journey and thoughts on your readers’ queries with us.

My husband and I bought a BTO 4 room HDB flat 4 years ago.

We are thinking of changing our HDB from a 4-room to a 3-room flat some time after the MOP (5 years).




We are thinking of transferring the monthly CPF-OA contributions, excess of our monthly repayments, to SA for the 4% interest.

My father is 63 years old and my mother is 57 years old. 

If I am not wrong, topping up $60K to my father’s RA means he can apply for CPF LIFE. 

The monthly CPF LIFE payouts will be about $360.




AK:
If you have no other use for your CPF-OA savings after the move, transferring the money to the SA is always a good idea if you are thinking about a more secure retirement. 

Let the magic of compounding do its work. Your savings will amount to much more 20 years later.

With more cash in hand, you are planning to top up your parents' CPF accounts? I like that too. 

If you have only $60K to spare, you might want to consider splitting it so that both parents get $30K in their RAs. 

This is because the first $30K will get 6% interest. The next $30K gets 5%. Of course, above $60K, it is 4%.




If you have $120K to spare instead of only $60K, of course, topping up both parents' CPF-RA with $60K each is a good idea. 

Make the government do some work in supporting your parents financially. ;)




Related post:
Mom is stunned by her CPF-RA.

When the lease on my HDB flat ends (UPDATED).

What happens to our CPF money used to buy a HDB flat when the lease ends?

Reader:
can I assume that whatever has been used to pay for the flat will be forfeited and we still need to pay back the accrued interest? 

I have friends who are paranoid over the lease issue cuz they keep on reading the anti hdb and anti CPF articles. 

End up frightening themselves.






AK:
Tell your friends it is the same anywhere in the world. 

Leasehold means there is a limited life. 

Once it is gone, it is gone. 

Money from CPF used in the purchase of such flats at the end of the lease is gone. 

Logically, if the money is gone, how to pay back?


Reader:
My friend just bought a 940k EA resale 30++y flat recently.










Simplistically, if there is 65 years left to the lease, the reader's friend is paying about $15K a year to "lease" the flat.

Of course, if we take into consideration time value of money and interest on a housing loan (or interest he could have made if he had not used his CPF money in the purchase), it would be more than $15K a year.

It is good to know that more people are thinking about this issue but don't over think. 

There is no conspiracy to impoverish anyone.





BTO HDB flats are the most affordable form of housing for Singaporeans and they come with a 99 years lease. 

Even if we were to live to be a hundred, the lease is more than enough.

The worry is when people pay top dollar for much older 99 years leasehold properties.






There is regulation in place to guard against CPF members from buying much older 99 years leasehold properties using their CPF money:

http://singaporeanstocksinvestor.blogspot.sg/2014/07/financing-purchase-of-hdb-flat-new-or.html


If a young couple decide to pay $1 million for a resale flat that has 65 years left to the lease, they have to be aware of the consequences.





We have to pay for the roof over our heads.

There is no free lunch in this world.

If we get something for free, someone else is paying for it.

If we are staying for free with our parents, it is because they paid for the roof.

People who want the CPF money which they used to buy their HDB flat returned to them after the expiry of the 99 years lease are looking for a free lunch.

Wake up.







Related posts:
1. Why I stay in a condo?
2. Resale Sengkang or BTO Bidadari?
3. Stop accrued interest from growing!

NDR 2018:
HDB, HIP, HIP II and VERS.

Upgrading from 4 room flat to executive condominium.

Reader:
Hi AK, I have been scouring your blog and other cpf articles but need your advice.

I currently have about 67k in my cpf OA (I refunded my OA with cash for my hdb installments which I previously paid using OA, thus considered cash payment for my hdb) And 63k in my SA (due to yearly top up).

I am turning 30 this year. I started using cash to continue paying for my hdb installments which is slightly less than $1k a month-4 room hdb.

My question is this. I am thinking of doing additional transfer from OA- SA to make it 100k in my SA. 

What is holding me back is that I plan to buy a executive condo in the next 5 years. Proceeds from my flat can cover more than the downpayment.

Can you talk to yourself to see what would you do?



AK talks to himself:
Eh. If you have enough cash, don't use your CPF-OA money to pay for new place.
If no choice, then, use the CPF-OA money. Don't transfer to SA.



Reader:
I intend to keep a lump sum in OA worth at least 2 years of installments in case of emergency. I calculated if I continue paying cash for my hdb, by the time I get the condo, my OA will still be able to cover 2 years worth of installments.



The reader sounds like a prudent fellow.

Of course, we should remember that our home is a consumption item. If we could lower our cost of housing, we should probably give it some serious consideration.

Related posts:
1. Should I do CPF-OA to SA transfer?
2. Options for CPF-OA with flat on the way.
3. How to stop accrued interest from growing?

HDB flat is 37 years old and son is only 8.

Reader says:
Good morning AK!
I am your avid follower since I attended the Tea with AK session some time back.
Have started my retirement planning since.

My wife n I have this HDB lease concern. Flat is 37 yr old (and my son is only 8). Recently Lawrence Wong brought it up again. My wife want to sell and buy new flat in Seng kang. New lease 99 years so that can give my son and also preserve the value but I don't think it is a good idea. From mature to non mature estate. How ah? Appreciate your advice .

AK says:
It depends on what matters more to you. 🙂
Location or legacy? 😉


http://www.straitstimes.com/singapore/housing/to-buy-an-old-hdb-flat-or-not-that-is-the-question
Of course, this is not a new topic in my blog. Newer readers of ASSI who are interested might want to read the related posts below.

Related posts:
1. Resale flat or BTO in Bidadari?
2. Purchasing HDB flat new or old?
3. Buy 99 years leasehold or freehold?
"As many people have observed, owners of 40-year-old flats may find it harder to offload their homes to new buyers now, as people become more aware of the risks involved in taking on a home with a fading lease. "
Source: The Straits Times

A tale of two HDB flats by Darles Chickens.

Chinese New Year is a time of family bonding, catching up with friends and also gossiping.

What? Gossiping is not a Chinese New Year tradition? Alamak. 

Oh, it is something we do daily? OK lor.

Since this is the Year of the Chicken (What? Not Chicken? Is Rooster? Rooster is not a Chicken meh?), I present to you "A tale of two HDB flats" by Darles Chickens.

Gossip Tale #1

A: Charlie's family sold their 5 room flat. 

B: Aiyoh, why like that? Bad times need money har?

A: They downgraded to a 3 room flat and they no longer have a home loan to worry about. Fully paid.

B: Wah! Quite smart hor?
Gossip Tale #2

X: You know Dickens from our primary school class? I met him recently.

Y: Oh, what happened to him?

X: His family upgraded from 3 room to 5 room flat already, you know?

Y: Wah! Must be doing well!

X: He says now they are stuck with a big loan and he must help to pay.

Y: Why like that?

X: Actually, when they sold their old flat, they could have paid for the new flat in full. Their old flat sold for very good price.

Y: What happened to the money?

X: His parents took a home loan for the new flat and spent the money from selling the old flat.

You think this tale can become classic like Charles Dickens' novel or not?

Alamak! Who threw a shoe at me? Who? Who?

Related post:
How did AK amass so much money?

Buy 99 years leasehold or freehold property in Singapore?

For home buyers in Singapore, most would qualify for a BTO HDB flat. It gives the best value for money. 

Even a resale HDB flat is a good deal compared to the sky high asking prices of private condominiums. 

However, regular readers know that I would caution against buying very old HDB flats.






"It's OK lah. I like the location and there are 60 years left to the lease."

And how long are you going to be staying there for? Is there a possibility that you might want or have to sell it sometime in the future? 

To be prudent, we might want to think a bit further along those lines.







For whatever reason, many people aspire to stay in a private property here even though it would cost at least 3 times more compared to a BTO HDB flat, location for location, size for size. 

And it is not $50,000 for a HDB flat versus $150,000 for a condo hor. 

It is more like $350,000 for a HDB flat versus $1 million for a condo kind of proportion!

Hello! This is Singapore!





Some people pay so much just to stay in private properties that they become slaves to their mortgages. They become house poor. 

House poor is definitely not fun. Why? 

No money left to have fun lor.

Even if people can comfortably afford to stay in private properties, to me, one compelling reason to go private in Singapore is because we want to get a property sitting on freehold land or with a land lease that is significantly longer than 99 years. 







Otherwise, buying a private condo (with a 99 years land lease) here is like paying at least 3 times more for a home just because it comes with some (usually inadequate) facilities which have to be shared with tens or hundreds of other households in the estate. 

(In the case of buying a landed property with a 99 years land lease, don't even have facilities lor. Alamak. Does that sound similar to a HDB flat?)

Oh, did I also mention that the monthly building maintenance fee which condo dwellers have to pay could be 5 times more than what a HDB flat of comparable size would attract?

Silly, isn't it?





So, if you are buying a private property in Singapore, with very few exceptions, it is my opinion that unless the price is truly attractive (think Rule of 15 and value for money), it should be on freehold land or 999 years leasehold land.





-----------------------------------------------------------
For those who do not follow me on Facebook, this was a conversation I had with a few readers on the issue of lease decay:

Jack James:
Does it matter ? Hahahha .

Ooooii ... our Sarawak landed houses are all on 60 years lease la !!

Assi AK:
I not staying in Sarawak wor.

Jack James:
Just to tell you such lease/leasehold/999years/ freehold are really not a big deal .

Assi AK:
If I don't have a choice, then, nothing to say. If I have a choice, I rather have a longer land lease.

Lease decay does not change whether it is landed or not.

It matters if you care about leaving your home as a legacy for future generations.

Jack James:
Trust me , 99years is already a big deal . 

My colleague parents bought 3 rooms flat at Little India area for S$6,500 and now it worths close to S$400,000 .
So long , you have something on hands , it appreciates .
Well , even if you have freehold property , don't dream the next generation would love to stay at the old hundred years old house , they probably cash out and buy new houses . In view of that , buying lease or freehold for next generation ? I am sure they will cash out too . No problem one la lease units.

Assi AK:
What future generations do is up to them.

I am inspired by how my friend's family stay in a FH walk up apartment which their grandfather left behind. He bought a few units in the estate back then. They can collect rent in perpetuity. No issue with lease decay. We have to do what matches our motivation.

Jack James:
Wait until it is 100 years and see who will rent a 100 years old freehold condo .

Assi AK:

Haha... Singapore is not that old yet but going by what I see in the USA, homes which are more than 100 years old find ready tenants too... Just need renovation from time to time but there is no problem with lease decay.

It costs money to renovate an old property but it beats returning the asset to SLA upon expiry of the land lease.

Jack James:
I can see you inject a big fears on lease decay . In any circumstances , you will still reap a big profits in leasehold . Not an issue . Just be SMART to cash out before it is too late .

Seah Chen Yang:
by the time it reach 100 years, you are already long dead to know about it and can do nothing to change it either way. lol. so that is why AK say freehold or not depends on whether you wanna leave it for your next generation and we have no control on what they want to do after we pass even if we say we want to leave it for them to earn rental income for life but they choose to sell for capital gain after we pass.

Assi AK: 

Yup, owners of 99/60 years leasehold properties must bear that in mind. Lease decay is a real issue which many property agents play down because it suits their purpose. Having said that, all investments are good at the right price.

We can only hope that our future generations will be financially prudent and savvy. We can only make what we feel are the best decisions for them when we are still around. Right?

Raymond Chiam:
U.s houses may be old but they are not 10 over storeys like our FH condo. Such tall buildings may become structurely unsound after 40, 50 years. Let alone 100! Definitely need to tear down n rebuild n that's provided neighbours don't all opt for en bloc. So FH unlikely to last more than 2 generations in my opinion

Assi AK "... built to ensure safety in the event that they are overloaded beyond the calculated "design event" and/or to account for mistakes in the building's design or construction... The combination of using a 50-year recurrence for design loading events and safety factors in construction typically results in a design exceedance interval of about 500 years, with special buildings (as mentioned above) having intervals of 1,000 years or more. This means we would expect a typical structure to fail once in every 500 to 1,000 years."
Source:
http://www.independent.co.uk/.../how-long-are-skyscrapers...

How long are skyscrapers built to last?

INDEPENDENT.CO.UK

Assi AK I did a search because I remember a friend telling me that unless it was built in the 70s or early 80s, newer skyscrapers are able to last a long time.

Assi AK It might also be interesting to note that compared to buying land in Singapore, construction cost is relatively inexpensive. Having land or a share of the land in perpetuity (even for redevelopment) is better than returning the land to SLA when the lease expires.

Assi AK If we are worried, we can always stick to buying FH condos in Geylang. They are typically a maximum of 8 storeys high. ;p

Assi AK Anyway, if it comes to a need for redevelopment, it is going to be generations away. All I can do is leave my future generations assets which I hope they will cherish. What happens in the future will be their responsibility. 

A decision to buy FH, 999 years (as good as FH) or 99 years (these days even 60 years or 30 years) leasehold properties is only probably right or wrong in relation to our motivations. 

What we choose to buy should very much depend on what we plan on achieving.

As usual, if you have money oozing out from your nose and ears, you can pretty much buy whatever you want. Don't mind me.

AK is just a frog croaking in a well.







Read:
Buying freehold.
Related post:
60 years leasehold condo in Singapore.