Slaving to stay in a condominium. (Sanity check in the comments section. Please read.)

"House poor is no fun."
UPDATE (JUNE 2018):

A reader sent this to me:

Reader says...
Monthly income of $3500 can own a condo 😱

AK says...
Slave for life lor... House poor. Cham like that.

Salesman only wants to sell... 

We buy already is our problem liao. 😛

When we buy anything with borrowed money from banks, we don't actually own it until the loan is fully paid up. 

We might have control but we don't have ownership. 

This is why most people don't receive the original title deed to their homes until their golden years. 😉





UPDATE (DECEMBER 2016):

Why are you borrowing?

Borrowing money for important things like buying a home may be unavoidable. But getting into debt is also a major responsibility. Too much debt can easily get us in trouble.

Avoid the debt trap by controlling how much you borrow. Even if you qualify for a bigger loan, ask yourself whether you really need the item you are buying and whether you can really afford the debt repayments (on top of all your existing debts and expenses). Consider buying it another day, perhaps after saving up for some or all of it first. Interest charges and the extra you pay in instalment plans over time can add up to a lot more than you think.

Source: http://www.moneysense.gov.sg/Understanding-Financial-Products/Credit-and-Loans/Is-Debt-Right-for-You.aspx

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In my memory, there were two people I knew whose families squeezed out all the money they could just to buy and stay in condominiums. 

One person was a schoolmate in junior college and another was a colleague during my stint in National Service.

I remember both as being extremely frugal and I always wondered why being people who stayed in condominiums were they so poor. 





Of course, those were days when I was a financial ignoramus.

Now, although I think that frugality is a virtue, it is a virtue when we are so without being forced to be so. 

If we had a choice and we chose to be frugal, good. 

However, if we are frugal because we don't have a choice, that is misery on earth!






I remember when I talked to both of them, they gave me almost identical answers. 

Yes, I was a nosey kid. 

Their families had to make hefty monthly repayments to the banks. 

So, they had to be very careful with their money.

Although I have suggested that investing in properties could give us a leg up in our wealth building efforts, I believe that buying properties without any margin of safety is foolhardy.





Basically, if we had to take the maximum of 80% LTV allowed in order to buy a property and if the monthly repayment was an amount that would lead to a very frugal lifestyle which was not by choice as a result, we should not buy the property. 

It could be within our means by conventional definition but this is one example of how we should not succumb to conventions.





Buying properties in Singapore has been seen as the way to riches. 

To many ordinary Singaporeans, buying a condominium for self-stay seems to be a natural first step.

I will share these thoughts:

1. Like I said, if we have no choice but to be frugal in life, that is utter misery! If to stay in a condominium, we are forced to live like paupers, the price is too high.





2. We have to remember that our homes do not generate cashflow. So, a home is not really an investment. It is consumption. 

So, just like anything we consume in life, make sure we do not spend beyond our means. 

In fact, we should not just spend within our means. We should spend well within our means.


Of course, our homes might have the unique property (pun unintended) of being able to appreciate in price over time which makes them unique in the world of consumption but it does not detract from the fact that our homes are not investments but consumption.





3. Borrowing to the max with no reserves means there is no margin of safety.

Probably, a $3,000+ monthly repayment on a 30 years loan of $800,000 is manageable for a couple who is making some $8,000 in combined gross monthly income. 

Now, we have lots of cheap money sloshing around, after all.


What happens when the party stops? 

What if interest rates go up just 1% which means almost a doubling from current levels? 

What if the economy goes into recession and home values decline? 

What if the couple were to be retrenched?





I won't talk about whether it is a good time or bad time to buy a condominium in this blog post. 

I will, however, say that we must be very careful or we could end up slaving just to stay in a condominium. 

Surely, this is more so for new condominium buyers who intend to be owner-occupiers today.





Related posts:
1. Good debt is always good?
2. Affordability of housing in Singapore.
3. More cooling measures on the way?

China Minzhong: Breakout or fake out?

There was a bit of excitement in the price action of China Minzhong towards the end of the day. It broke the long term resistance provided by the declining 100w MA to touch a high of $1.05.

Daily chart.

However, volume was lower than the day before and without higher volume, share price closed at $1.025 or just one bid under the long term resistance. A long legged white spinning top was formed in the process, suggesting that bulls and bears are evenly matched.

Weekly chart.

With three more sessions to go this week, we could see a new high in China Minzhong's share price if volume expands while it continues to push higher.

That volume was lower suggests that many are waiting on the sides to see who would win the tug of war.

A convincing break above resistance would invite a mad rush from the bulls. An obvious decline would invite a mad rush from the bears.

Which camp do you think I am in?

Related post:
China Minzhong: Partial divestment at $1.01.