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.

Mentally and financially prepared for retrenchment.

This is part of an email a reader wrote to me after reading an updated blog post. (They invested in multiple properties and are now retrenched.)



Reader:
"Their experience is getting more common. I am in my late 50s and I see many friends and relatives in my age group being asked to go. I am sure it will be my turn soon as the company has not been doing well. 

"I have been reading your blog since 2010. I have invested in the REITs you suggested, including Saizen. I am not rich like you but I think I can cope if I lose my job today. I found out that many won't be able to cope. CPF and some savings cannot be enough.

"In a way, your blog saved me and I told my sons that they should learn from you too. Their future can be so much brighter than mine because they can start early."





Sometimes, when readers in their 50s or 60s ask me what should they do to be like me, I find it hard to give them an encouraging answer. This is because what I have achieved today took me almost 20 years. So, you can imagine how happy I felt reading the above email.

As long as we still enjoy a meaningful and regular earned income, we probably could and should make an effort to invest to have another stream of income, passive income. Age shouldn't matter.

When we are in our 50s and 60s, if still employed, we are in our final years of employment. If we want to have a chance at getting rich quick, put aside, maybe, $50 each month and buy BIG SWEEP or TOTO. 

Think again before signing up for some courses or schemes with get rich quick promises. If it sounds too good to be true, it might just be.

Also,

Think again before buying some life insurance or complicated financial product. Don't buy just because they are giving you some freebies.




What should we be doing?

Click on the suggestions below for some ideas:

1. Make good use of our CPF account.

2. Take part in CPF Life for lifelong income.

3. Invest in bona fide income producing assets and think of monetising our home.

Notice I put investment last in the list. This is because the CPF is a risk free and volatility free option.

Investments are rarely risk free and definitely not volatility free.

If you are in your 50s or 60s and if this is the first time you are reading my blog, remember, no one cares more about your money than you do. 




In your golden years, you should enjoy life a bit more if you can afford it but don't do anything stupid with money.

At your age, you cannot afford to make big mistakes with money.

What would be considered stupid and big mistakes?

Anything that might force you back into the workforce if it should go wrong even if you must become a cleaner making $1,300 a month.







Always ask yourself what is, realistically, the worst case scenario and if it should manifest itself, would you be able carry on with your life as usual.

Then, you would know what to do.

There are many examples of seniors who are foolish although they say wisdom should come with age.

Our golden years should be financially secure. Don't be foolish and you can make it so even in the face of retrenchment.





Related posts:
1. How many 20 years and $29K do we have?
2. Withdrawn CPF money in excess of MS.
3. Financial strategy for the elderly with spare $.

They chose financial independence over home ownership.

This is somewhat extreme but watch how this Canadian couple chose financial independence over home ownership. 

They are in their 30s and, well, they are retired.








If we qualified for a BTO HDB 5 room flat which costs, maybe, $500,000 today, why do we need to buy a condominium which costs $1.5 million, for example?

If we didn't need so much living space, would a BTO HDB 3 room flat in Choa Chu Kang which costs less than $180,000 be good enough for us?


Now, would you rather have $1 million in income producing assets (e.g. income stocks) or a $1 million home (which doesn't generate income but instead would incur expenses)?






Very often, people over consume when it comes to housing and, not surprisingly, they might also be the people who find financial independence out of reach despite enjoying higher than average earned incomes.

Reader says:
"Today I had a conversation with a colleague. She has a relative who is very unhappy at work due to unfair treatment and feels like quitting. 

"However, this relative's family intends to buy a condo while retaining their HDB. 

"The wife of this relative told him that if they go ahead and buy the condo, he MUST not quit. 

"If he buys a condo, he is stuck between a rock and a hard place, and that is not good for mental well-being."





AK says:
"Often, it is peer pressure.

"Keeping up appearances is more than just financially destructive.

"Do you believe me when I say that when I tell people I downsized from a 2 bedroom apartment to a 1 bedroom apartment, most of the time I would get a negative response?

"Recently, when I told my new banker that I bought a small car, he said the same thing as my dad that he would not buy a small car unless he could not afford a bigger one.

"It is peer pressure but it is also how we deal with it."





----------------------------------------------------

Reader says:
"maybe i have the wrong perception. 

"i thought AK got the funds from property investment.

"thats why you have the funds to invest in stock market."

AK says:
"You might have missed this:
How did AK create a 6 digits annual passive income?"







It doesn't hurt to have some advantages in life but unless severely disadvantaged, all of us can be financially independent.

Related posts:
1. Housing and the CPF.
2. To rent or to buy?
3. The biggest and most expensive.
Purchasing a 3-Room BTO flat:

Don't do silly things and we can retire smart too.

---------------------------------------




A "special feature" (what I would call an advertorial or sponsored blog post if it were to appear in my blog which it won't) by a fund manager in The EDGE:

"Your CPF may prove inadequate upon retirement because of several factors."

The fund manager suggests "that both young and middle aged workers can invest in multi asset funds for diversification benefits." 

Do this and retire smart.

AK didn't do this.

How like that? 

AK in trouble?




Is AK going to run to the fund manager and put some money in multi asset funds? 

AK will kaypoh a bit and respond to the 4 points raised first. 

Point for point:

1. Be prudent in using our CPF-OA money. Remember, our CPF money is primarily for retirement funding. 

Just because it can be used for other purposes does not mean that it should be.

2. If we have excess money in the CPF-OA (i.e. no other use for the money), think about doing OA to SA transfer to earn higher interest of 4% to 5% per annum. 

Think about possibly doing cash top ups to the CPF-SA and enjoy income tax relief (for the first $7K of top up per year).

3. Don't use our CPF money for investments (unless Mr. Market makes us offers we cannot refuse). 

Think of the CPF as the investment grade bond component of our portfolio.

4. Have a good annuity that will pay us for life and the answer is, yes, CPF Life.




Aiyoh, simi answers? 

AK just talking rubbish again, right? I blur.

No one cares more about our money than we do.

Don't do silly things like asking barbers if we need a haircut and we can retire smart too.




Related post:
Building a cornerstone in retirement funding with CPF.
If you haven't watched this before, please do.

Thinking of topping up CPF-SA with $130K.

http://singaporeanstocksinvestor.blogspot.sg/2014/08/how-to-upsize-100k-to-225k-in-20-years_4.html?showComment=1481415040678#c7130698713317820054



Hi Marcus,

Firstly, you are still young! You still have 20 years before you hit 55. Time is still on your side and your own calculation proves it. ;)

What you are thinking of doing (i.e. $130K lump sum contribution to you CPF-SA) is called a Minimum Sum Top Up (MSTU). This is meant to help us meet our retirement adequacy. My understanding is that it (together with interest earned) cannot be withdrawn for any other purpose. At age 55, the money will go to our CPF-RA and we will get a monthly payment for life from age 65.

I would suggest doing a gradual top up to the SA over a number of years. This is because the first $7K of top up each year will allow you to enjoy income tax relief. Unless you do not pay income tax or pay very little income tax, this makes good sense. 

Enjoy many years of income tax relief in this way? Sounds good to me.

So, now, you have ($130K - $7K) $123K left. You might want to put the money in some fixed deposits with promotional interest rates for 12 months. There are many offers available. Go take a look. Next year, take $7K out for MSTU and lock the rest up again in fixed deposits. 

Why fixed deposits? 

You have already decided that this is money you want to use to help fund your retirement. So, I feel that it is best not to take too much risk with it.

Actually, if you believe in having an annuity that will pay you for life from age 65, you could also opt for ERS which is 50% more than FRS. You decide when you are 55. 

Then, let's say the FRS by then is $261K as per your estimate, ERS should be $391K. This will grow to a much larger figure, compounding for 10 years, at age 65. Your monthly annuity payout will be a larger number then.

If your CPF-MA has yet to hit the ceiling, you could consider making a voluntary contribution to it. You could max it out and you, the recipient, will receive income tax relief too. 

Of course, savings in the CPF-MA will also enjoy 4% per annum in interest. In the following year, interest earned would flow into the CPF-SA if your CPF-SA has yet to hit the prevailing FRS. Otherwise, it goes into the CPF-OA.

Your plan is definitely viable and, so, remember, it doesn't matter what others (including AK) might say. Not all of us are comfortable with taking on more risk and I would go along with those who are risk averse to a point. 

To a point? 

As long as your plan is able to meet your financial needs now and in the future, it is should be good enough.

Best wishes,
AK
To read about the BRS, FRS and ERS, go to:
Changes to the CPF.
Related posts:
1. Did CPF Top Ups and denied lump sum payment.
2. Mom stunned by what happened to her CPF-RA money.
3. Worried you won't live to enjoy all your CPF savings?
Our national annuity scheme:

My girlfriend is more than US$100K in debt!

Human beings are rarely solitary. 

Although in modern societies with very high cost of living like ours, fewer people are thinking of getting married unless they want children (but, in Singapore, people who don't want to have children will still get married just to get a BTO HDB flat).

Fewer who are married are staying married but many still need companionship in life.

Realistically, once we have a partner in life, for better or for worse, naturally, things will change. 





Our life is no longer ours alone. 

It is shared. 

This is only fair. 

We gain something. 

We lose something.

When it comes to money, however, I personally feel that couples, unless they are married, should keep their finances separate. 

To pool financial resources together is a BIG step, whether forward or backward will depend on the circumstances each person brings to the relationship.





Money, I think we all agree, is a very sensitive issue. 

It is probably more sensitive than religion. 

Don't agree? 

Would it be easier to ask your date whether she goes to church or what is her personal net worth? 

See?





If we care about financial security and if we are not rich which I assume most of us are not, no matter how strong our attraction, it is probably a good idea to stay away from someone who has growing financial debt. 

The question is how do we find out?

Some of you might remember my female friend, Posh. 

If you don't, see related post at the end of this blog.

I never did find out how much her net worth was and I didn't know if she was heavily in debt and, if so, whether it was growing in size. 

I only knew that if I wanted to be rich, I would have a better chance if I had a frugal partner. 

Posh and frugal didn't exist in the same space.





Now, say, I gave Posh the benefit of the doubt and thought that she had plenty of money and that, despite her lavish spending, she was only spending a small percentage of her income (hey, love is blind or so they say) but found out much later that she was actually in debt and that it was snowballing! 

Then, what?

By then, it could be too late. 

"I didn't notice the crows nesting in the attic of the house before. Love the house, love the crows." 

Of course, I derived this from the Chinese saying "爱屋及乌" but I always get the feeling that the saying is to console ourselves when we discover something bad comes attached to someone or something we love.





I might be putting my head on the chopping block here (and this won't be the first time) but if we are not rich and if we want to be rich, we are probably better off with a frugal partner in life.

If you are willing to get married to someone who has snowballing debt and to help pay off the debt, you are a better person than me. 

Good on you!






Related post:
A story about a lady in my life.

"With as little as 30 (or 20) minutes a day!"

High frequency trading. Try beating this! I blur...

Feeling so warm! This is although I have taken a shower just now. 

Alamak! Why like that? Flu? Cold? Fever?

Aiyoh, none of the above lah.

I climbed some stairs again.

Usually, I would have to shower twice after my stair climbing exercise. Once after a twenty minutes cooling down time and again half an hour before I go to bed.

Sweaty!

I have been eating a bit too much comfort food lately and this being my birthday month doesn't help. 

Friends and family are showing their love in the usual way, if you know what I mean. Burp.

With more buffets on the way for the rest of the month, I must really step it up. Pardon the pun.

Anyway, it isn't the first time I have blogged about the benefits and convenience of stair climbing as an exercise in Singapore.

With 80% of us living in HDB flats, we have easy access to stairs. We are also very lucky that HDB flats have stairs which are well ventilated and not closed in like some I have seen in private housing here.

Go climb some stairs!

If you have not been exercising for a while, stair climbing could be demanding. I have been there. I know. So, don't be too ambitious.

Take a step at a time and see how many floors you could climb before you start huffing and puffing. That's a sign to slow down and, maybe, stop. 

Do this regularly and you will be able to climb many more floors without feeling winded in time to come.

Frequency? 
3 times per week is good.

Number of floors? 
Depends on your fitness level but you should be able to climb many more floors by the end of the 3rd or 4th week.

Advanced technique?
When it becomes easier, try taking two steps at a time. This creates a bigger mechanical disadvantage and is more demanding. It will help to strengthen the legs and butts faster.

With stair climbing, the excuse that we don't have time to go to the gym is a less convincing one because for, most of us, the stairs are there outside our home. 

Seen stuff like this before?

Unlike some trading gurus who tell us how we can become richer trading just 30 minutes a day, we don't even have to climb stairs daily to become stronger. 

3 times a week, 20 minutes to 30 minutes each time. That is all it takes to climb stairs and to become stronger.

Finally, we don't have to worry about Mr. Market's health. We should take care of ours.

Related posts:
1. Climb stairs and be better investors.
2. Passive income and a topless pic.

"If you worry about corrections, you shouldn't own stocks."

We need a home but a condo?

Hi AK,

I have been reading your blog for sometime & found you to be very smart & prudent. Are you able to give me some advice based on my current situation?

 

Employment status:

Unemployed

 

Age:

40

 

Housing:

Condo with $650k outstanding loan (mkt value $1M)

 

CPF OA:

$400k

 

CPF SA:

$100k

 

Dividend stocks:

$50k

 

Cash:

$150k

 

Expenses:

$20k/yr

 

I have been trying to do trading with mix success. Had also been doing part-time job to earn about $1k/mth.

 

Should I try to find another corporate job? ( I really hate it & had been unsuccessful trying for a while)

 

Thanks in advance!

EW

Hi EW,

Aiyoh. I am just another lazy fellow. Prudent enough but not particularly smart.

At 40, I think you would be financially pretty comfortable if not for the housing loan. ;)

If you were to sell your condo and get a resale HDB 3 room flat, you would probably be debt free and free to do whatever you want without having to go back to the corporate world which you hate!

We need a home but we don't need a condo. :)

Best wishes,
AK

Related posts:
1. Sell HDB flat to buy a condo.
2. Parents asking me to buy a condo.

"The big money (Pandan) is not in the buying and selling."

As I work on probably the two most anticipated blog posts of the year in ASSI, I am reminded of an important virtue of any successful investor.


In July this year, I shared a few photos and some thoughts on my Facebook wall. I did that a lot for a while as I didn't feel like blogging. (Aiyah, lazy say lazy lah.)

If you have a mature Pandan plant at home and it has babies, you can do this too. Just make sure not to hurt the mother plant in the process as you might have to snip the baby from the mother at the roots.

In a jar of water, the baby Pandan will take a couple of weeks to grow proper roots. Once that happens, transplant into a small pot of soil.

In September, mine looked like this a month after transplanting:

The older leaves died and a new bunch of leaves emerged.

Today, I decided to move the plant to a bigger pot:

The wish I made in July came true. I got a Pandan plant for free. 

Wait a minute. 

Is it really free?

If we want wealth, for most of us, realistically, we have to work for it.

If we want our wealth to grow, for most of us, realistically, it will need time to do so.

To those who have sent me emails and messages on when I might be sharing my full year results, remember, patience is a virtue. ;)

"The big money is not in the buying and selling … but in the waiting." - Charlie Munger
Have the right conditions and patience.
A money tree for you and me? 
常将有日思无日，莫将无时想有时.  

Build our wealth but take care of our health.

I met up with a friend for dinner recently and he remarked on how I used to blog about my cooking. It has been a while since I last had such a blog, has it not?






Well, although not as often as before, I am still cooking but I am just too lazy to blog about it. What's new, right? AK is a lazy fellow.

Anyway, I was in the mood. So, this was lunch today:

Fried rice and seaweed. I used:

1. Cooked white rice.
2. 3 eggs.
3. 3 tbsp. coconut oil.
4. 4 gm of seaweed.

And I ate the fried rice with seaweed. You can tell I have probably been watching a bit too much K-drama. 

I still think a high fat, low carbohydrate diet is good for me but I am no longer very strict. 

I used to keep my carbohydrate intake to less than 50gm a day. For a while now, I have allowed myself between 50gm to 100gm of carbohydrate a day.

Still, I have rice (which is made up mostly of carbohydrate) only once in a while. Half a bowl of cooked white rice has about 22 grams of carbohydrates. That's plenty. 

Eggs have about 1 gm of carbohydrate each. Per serving of seaweed (2gm) has 0.2 gm of carbohydrate and I had two servings.

We want to build our wealth but we should take care of our health too.




Finally, for readers who want to lose weight, remember, losing weight is 80% diet and 20% exercise. Less carbohydrate is the way to go.

Related post:
A topless pic.

Not giving in can only make us richer.

Although we like to say we have saved money when we buy something at a sale, the truth is if we spent money at a sale, we did not save money, we just spent less money.

Happily, this reader didn't spend less money, he saved some money.

Hi AK,

Thanks to you ! I have just cancelled my 3 orders brought from Amazon's Black Friday. (around 350 USD)

Upon re-reading one of your blogs again, I decided that they are non-essential items and I can live without them. 

But I did not cancel the birthday present for my wife because I still want to have my marriage and it is already shipped (I may have to pay for the return good) hahaha. I know it's an excuse but I cannot expect my wife to understand why she does not have a birthday present because I tried to save some money.

I do a lot of thinking especially retirement early plans, your blogs constantly remind me whenever I lost directions and it feels like a trusted companion walking with me on my journey to my dreams. (its also feel like the journey to the west where there are demons and temptations) You just have to stay focus but it is never easy. 

Working in Singapore is so stressed that you will always feel like taking a deserving good "detox" rest and indulge yourself with materialistic pleasures eg buying a big condo, car, branded clothing, lavish & exotic holiday, eat out at expensive food outlets etc. 

You worked so hard why you cannot enjoy ?! many time we fell into a cycle of bad decisions......

Sometimes I ready hope we have more simple answers and I can see you are doing your best to write them in your blog. 

Please find time to continue writing and thanks a lot for being there when we need some guidance.

Have a good day.

Best Regards

SK

Hi SK,

Thanks so much for the email which I enjoyed.

Black Friday and Cyber Monday are lost on me. I am a marketer's worst nightmare. ;p

You have probably read this blog post:
http://singaporeanstocksinvestor.blogspot.sg/2015/04/wealth-is-attracted-or-repelled-by.html





On our journey towards financial freedom, it is worth remembering to keep our needs simple and our wants few. 

Keeping your wife happy is, by the way, a need. Good job! 

Gambatte,
AK


If we could, we probably should cut ourselves some slack once in a while but, remember, not giving in to our buying impulses can only make us richer. 

A shorter time to reach financial freedom? It's your call.




Related posts:
1. An unbeatable level of certainty.
2. Retirement (Needs and wants.)