Are you thinking of selling or buying a condominium?

I received two emails from readers, one about selling a condominium and one about buying a condominium. Put them together and it could generate some interesting thoughts. Have a read and maybe you will have a comment to share with us.

Hi AK,

I have been following your blog for about a year now, really enjoy reading all your posts, be it on financial related topics or simply what you had for dinner! I'm glad that you blog quite frequently so there are new posts most of the time. :)

This is my first time writing to you,  sparked off by your latest post on a reader's question on 99 year lh vs freehold properties. I have had this same question at the back of my head for some time now but never really bothered to do much about it. In my case, I own a 99 yr lease hold property ( a 2+1 BR condo) which i'm currently living in. As i bought this property sometime back, the current prices are still higher than my purchase price. However, I have been wondering if there is a need to sell this place to buy a freehold property to live in and when would it be the right time to do this? My property TOP in 2010 so it has been 5 years, i suppose its not considered old at this point. Though my preference is to stay at this current place for its location (not near mrt, just relatively convenient for me to get to work), avoid the hassle which comes with shifting, as well as the high property prices, my worry is not being able to sell the place easily in another 5 years time. Should i be looking to sell this place before it gets too old?

What would your advice be for me?

Thanks,

K

AK says:

Hi K,

Welcome to my blog. :)

If you like your home and have never thought of monetising it, then, just stay put. For me, I am never emotionally attached to where I stay. So, it is relatively easy for me to let go. ;)

You place received its TOP in 2010 but you have to remember that its 99 years lease started its countdown from the date the land was acquired by the developer, not from the date the project received its TOP. So, if it took 3 to 4 years to construct, almost 10 years of the lease are gone.

If look at your home just as another asset which you think could make money for you and I think it might be the case since you worry about not being able to sell it easily a few years later, then, I think you might want to start marketing your condo now. Oversupply situation is going to get much worse. I am sure you know.

Having said this, make sure you have somewhere to move to after selling your condo. In my case, I still had my rooms in my parents' place. If you have to rent a place, then, it might not make a lot of sense.

Best wishes,
AK

Hi AK,

I know your position regarding property as an investment, having followed your posts these 2-3 years.

One recurring thought but have had trouble articulating is this: the current soft property market is really largely a result of government intervention. If the ABSD and TDSR were not in place, what would your guess be for the property market today?

I would think that those crazy heady days of people lining up at showrooms (and also, people asking people to queue there) would continue. Which then leads me to think that we would really be in (big) bubble territory. Now, with upcoming oversupply of flats and condos, and a rising SIBOR, it would really make sense to hold out and probably buy an apartment in 2015/2016.

I'm single, 35, and currently living with my folks. At this time, my inclination is buying a HDB resale flat. I'm not sure if it's still worth it to buy a condo and wait for capital appreciation.

Care to share your thoughts with me please?

Cheers,

M

AK says:

Hi M,

If not for the cooling measures the government put in place, I am very sure that prices of real estate in Singapore would have shot through the roof, pardon the pun. However, to be fair, prices have come down due to the ramp up in supply of both public and private housing too.

I am inclined to believe that prices will decline much more before stabilising and it will be many years before prices start moving up again. When will prices bottom? Although we estimated quite accurately when prices would start declining, it is much harder to say when they might bottom.

Something which we might be able to use as a gauge is the ABSD. The day the government removes the ABSD, then, it could be a signal that prices have bottomed. Just an idea. ;)

Best wishes,
AK

Related posts:
1. When to buy (and sell) a private residential property?
2. Disastrous investments in the property market.

Frasers Centrepoint's Perpetual Bonds.

A reader sent me a note in FB today, asking me what I thought of this:

FRASERS Centrepoint on Monday is selling Singapore dollar perpetual bonds, the first perpetual deal in 2015. A term sheet seen said that the SGD subordinated Perp NC 5 has an initial price guidance in the low 5 per cent. NC 5 means that the perpetual bonds will not be recalled before year 5.

Source: The Business Times.

Well, I would generally avoid long term bonds especially since I believe that interest rates are more likely to go up than not from here on. With perpetual bonds, there isn't any maturity date. So, they are more long term than long term bonds. There isn't a date when the bond matures and when the principal is returned to the bond holder. Having a maturity date when the principal is returned to the bond holder is a feature that makes bonds safer.

Reader:
What do you think about this, as compared to CPF minimum sum?

So, can we compare this with the CPF which locks up some of our money for a very long time? The expected coupon of 5% is similar to what is being paid on our funds in the CPF-SA, isn't it?

Well, it isn't an apple with apple comparison, actually. One is a bond backed by a business entity while the other has a built in annuity and is backed by a AAA rated sovereign bond. Definitely, they are quite different animals.

As always, whether something is good or not depends on where we stand. Generally, I think this is a good thing for Frasers Centrepoint's shareholders as the company diversify their sources of funding and a 5% coupon might appear quite cheap several years from now (and they only have to keep paying the coupon and not worry about paying the principal).

However, for the bond holders, they could find themselves holding the shorter end of the stick and it could become more apparent as time goes by.

Related posts:
1. Perpetual bonds: Good or bad?
2. Nobody cares more about our money than we do.
3. Bonds, REITs and the instant gratification of yield.