Thursday, December 09, 2010

Seeing value in an otherwise overpriced resale flat

I think for every Singaporean, the biggest purchase for him/her would be property. As I'm about to start getting mine, I just realize just how big that commitment can be. I'm getting a resale flat in a matured estate, so the valuation of the flat itself is 568k. Of course there'll be a COV, and that is 40k on top of the valuation of the flat. 600+k for a roof above my head and a debt of 30 yrs, with monthly installment of 2k+ per month - that is just how big that purchase would be.

I've been working for 7-8 yrs and had only started saving up seriously for the past 2 year. It's not like I've been idling around. But imagine that my entire cash is wiped out after this and I'll have to start from scratch again. The road ahead would be tougher, because I can imagine it'll be harder to save the same amount as I always do if I had earned the same amount after purchasing the flat. If I'm employed, I think I'll start getting cold feet because if I lose my job, then it'll be hell trying to pay off the monthly installments. I don't know, is this how other Singaporeans feel too? Being indebted for a long period of time and being fearful of being retrenched? At the current rate that the prices of HDB goes, I think it'll be more prevalent. I'm just waiting to hear news of the first HDB going past the 1 million mark.

I think whining about the high property price is one thing, eventually one still have to make it work out fine in the end, in whatever ways you can. There are  3 things that I promise myself that I would do once I get the flat and do it up nicely:

1. Earn a lot more than my current income. I guess I would never be able to reduce my expenses much since there's really nothing much else to cut without feeling shortchanged for the hardwork I put in. Going forward, earning more is the best choice for me. It can hit both my savings target and have the life that I wanted.

2. Save a lot more. 50k/yr? Probably that would have to be raised to 100k/yr eventually. How can that be done? It's crazy but that's what dreams are for! I have a plan, but that would take some time to make it work. Will it work? I guess I won't know until I try it out.

3. Enjoy my home. I love to host gatherings but unfortunately, I do not have a place of my own to host it. I think there's no point getting a great property without sharing it with your buddies/family. Great property + Excellent company = Fantastic home. I intend to have fabulous parties that people will look forward to every year.

My house isn't this, but it looks something like this, haha

The funny thing about spending big amount is that suddenly, you get another perspective in life. After spending 40k on the COV, what's another 6k for the commission? After spending 600k on the flat, what's another 60k for the renovation? Is that a dangerous thought to have? I don't think it is for me, because I tend to keep my wallets closed most of the time. Loosening up is going to be good for me. The epiphany is that cash sitting in the bank is not going to bring anyone any happiness at all, until you spend it. When you spend the money, you are exchanging the value of the cash for something of a higher or equal value (I'm treating the word 'value' loosely, it can mean both intrinsic and extrinsic value). I don't think anyone would part of his cash for something he thinks is of lower value. So, by exchanging my cash for the flat, I'll end up with something of higher value to me.

Just what is that value? Can I quantify it?

Let me try. Firstly, personal space and a home to call my own. Secondly, an investment to propel my business way beyond what I am doing now. Thirdly, as my flat is very close to my sibling and parents (it's just right below them), the permutations for family bonding is endless. Now, is it worth all my life's savings to get it?

A definite and resounding YES.


Derek said...

Hi LP,

How about adding a fourth - property appreciation? Of course if you sell it, you will probably have to purchase a similar expensive property unless you downgrade but hey, imagine seating on a million dollar property in say 15yrs time?


Kyith said...

thats a ridiclous price level brother.


Createwealth8888 said...

How much can a 30 yrs old HDB appreciate in 15 yrs when it becomes 45 yrs? Sometime, has to be realistic.

The value of a property lies on its land and not the building itself. Old building needs lots of repair and maintenance and subject to time-decay effect.

la papillion said...

Hi derek and bro8888,

I don't think I'll sell it :) It's for me to live it till I pass on. If anything, it'll be my base of work from now on.

There's a contingency plan in case when I'm old and I'm in need of money, then I'll downgrade to a smaller flat and monetise my assets partially. But to sell it for capital gains? Nah, not in the foreseeable future :)

la papillion said...


Ya, esp when compared to new flats. Let's hope that the value that I see in it will appreciate to match up to the price that I paid :)

unicorn78 said...

congratulations! i look forward to visiting your new house!

Anonymous said...


Anonymous said...

Hi there,

you're certainly overpaying...

buy smart, man, find a way to apply new from HDB, else wait for next ppty downswing, it'll happen in 3-4 yrs times, when the current jumbo supply (2009-2011) new construction TOP !

Do you know that even for Pinnacle@Duxton, majority pays only between $330k to $400k per unit only - majority booked their purchases in 2004. Those in Phase3(2009) averages only around $522k.

But thanks to joker like you (paying some $600k for old flats with only 60-70yrs of remaining lease), we are already sitting on over $200k potential gains EVEN before we just move in to fullfill our 5-yrs MOP.

If you cannot qualify to buy new from HDB, here's another suggestion, buy old resale with v. good chances of SERs,
eg. AMK Blk 422-425 (its now brand new, coz MUP only some 5 yrs ago, and U can expect SERs within next 10 years coz the land is TOO Under-utilised - coz there's a huge carpark in the centre)
==> current 4 Blks of 13-storey each - can easily be redeveloped into 5 to 6 Blks of 38-storeys

==> and its excellent location , shelterd-wlakways all the way to AMK MRT Station & AMK Hub.

Pay a site visit - to see for yourself.

Every week, people knock on your door asking for rooms to rent.

Jeng said...

Yo Lp,

Glad to hear that you are getting a roof over your head. Dun't worry too much on how much you have paid for the roof over your head. ultimately, you can't gain any profits from the roof. Why? If over the 10 years, you decided to sell your house due to price appreciation, you will soon realised that in order to buy another house, the price would have also appreciated. So end of day, no much "profits" also.
I totally agreed with your mindset of enjoying the value you had paid.

Anyway, another thing for you to ponder. For your HDB housing loan, do make use of your CPF to make payments. Since you are self employed and have no CPF contributions. Do opt for voluntary contribution. Why? CPF contribution is free from tax. If you want to understand more abt it, do contact me to discuss.

la papillion said...

Hi uni78,

haha, will invite you once it's done up. Should be around middle of next year :)

Createwealth8888 said...

Buying a resale HDB flat is like transfering part of your wealth to the buyer as his/her investment gain. Bo pian one and must see open leh.

la papillion said...

Hi anonymous,

I think from the information you posted here, that I should make a killing from the hdb. Since I'm overpaying for my hdb, I'm likely to make a loss when I sell it in the future.

I totally agree with you, that is, if I'm selling it. I'm not going to sell it nor am I going to rent out any rooms, unless I have no choice because of financial difficulties. If that's the case, then whether I'm overpaying for it depends on what I can derive from the purchase of this otherwise expensive flat.

If a piece of machine cost you 600k, but you can make 100k from it every year, are you overpaying for the machine? Of course, the next question is whether the machine can really generate 100k per year for the cost price of 600k. Let's assume we can.

Let's complicate the matter a little. Imagine I borrow money to pay for the machine, paying a yearly installment of 24k per year (2k/mth), but able to generate 100k per year (8.3k/mth), am I overpaying?

I'm treating the flat as a business cost. And it happens that I live in it too. So my only problem now is to bloody make sure the machine can generate the amount that I conservatively estimate it can generate per year.

la papillion said...

Hi Jeng,

Thanks for your well wishes :)

Will find out more from you with regards to the CPF contribution thingy :)

la papillion said...

Hi bro8888,

I think the seller also needs to buy a 4rm flat (he downgraded from 5 rm to 4 rm, same area though). So he also transfer his wealth around.

In the end, who pockets? Hahahaa, who else right?

Anonymous said...


From the post, it is obvious (maybe not so obvious to some) that you find value in the price you pay for the flat. Above all other considerations, this is most important. Some people do not realize that moving from one place to another is time consuming, cost money and is disruptive as well.

As long as you can afford to service the loan and you like the location, what more is there to ask for ? So don’t bother with Mr/Ms Anonymous. I personally think it is more logical to pay for a flat in a place you like than to pay 62k for a COE.


Wealth Journey said...

True True. There is always a difference in buying a home for own stay and one for investment.

Home is where the heart is.

AK71 said...

Hi LP,

You see, you like, you buy! :)

Congratulations! :)

Anonymous said...

$2k monthly instalments for the next 30 years.........

Employers not hiring people who are over 40..........

Am I the only one who is seeing a perfect storm coming for the next generation of Singaporeans?

Well, LP, at least you are a tutor and there is always a need for good tutors. Recession or not. Another good thing is that the FTs have not overtaken the tuition market yet, unlike the other sectors like retail and IT.

Createwealth8888 said...

I believe he is planning something similar to my ex-neighbour:

Private tuition 1-to-1 ---> Home Group tuition ---> HDB Bomb-shelter (or commercial) Tuition centre --> expanding to more tuition centres and become a big boss.

Probably, there is a good reason for him to move away from home group tuition to out-of-home tuition centre. Over long-term, you want to differentiate between home and office.

Wish him luck and success!

Anonymous said...
This comment has been removed by the author.
la papillion said...

Hi Ali,

I've only done once and I'm sick of the process already. I guess I don't like having to move my things here and's very disruptive to my usual routine.

Haha, COE...incredible...

Hi wealth journey,

Haha, I like that :) If the heart is not at home, it's an investment, haha :)

Hi AK,

There's something see, you like, you BORROW then you buy :) Thanks bro!

la papillion said...

Hi anonymous,

I don't represent others. I think there are choices for new flats which are around 50% cheaper for similar floor area...I suppose that would be a lot cheaper and more affordable.

But I guess you're right. If I'm employed and having to service such a huge amt per monthly, I'll be very careful and fearful in my work, esp nearing the 40s.

I hope FT won't ever take over the tuition industry, hoho!

Hi bro8888,

Bingo, hit the jackpot. That is at least a 10 yrs plan...too long to think about it, so I take it a step at a time :)

Hi temperament,

Like your namesake, you have a tempered personality, probably by your life experiences :) Incidentally, the nickname of my wife is jade, haha

Patrick T. said...

People said I was crazy to pay $238k in 2003 for a 4 roomer in Woodlands.

I would probably think people are crazy to pay $380k for my flat today but that is the average transacted price for the last 12 months (post 2008-09 meltdown).

Do I care then and now? Probably not and I can see you are doing the same. We can afford the loans and we're paying for things we find value in.

Of course, if you have a problem with your loans, you can always rent out your rooms and sacrifice one kind of freedom for another. ;)

mark said...

LP - I too got my own flat this year. It is in district 10. COV was high and I can tell u, based on the last sale done in Oct, it is still heading north. The actual value of the property is measured via many ways. End of the day, as I see in your case, it is revenue generating, you get what you want (proximity to family) and more importantly it seems that you really want that place. I paid quite a lot for my flat. The MRT line is gonna open soon and the price will certainly appreciate. It is old and may be subject to SERS in the next decade. One more factor? Because of location location location :P... I do not need a car for it is extremely convenient to commute by public transport. A taxi ride away is also reasonable as it is rather centralized.

I partly agree that 'overpaying' is a bummer. That said I feel many may say so as they feel we spoil the market for them. Or they compare mine with one in say jurong west, which is easily 20-30% lower in cost? We gotta compare apples with apples. That said, value is determined by the buyer.

My primary objective? To avoid the need for a car for as long as possible, yet will not need to take 2 hrs to travel from point A to point B. I had to for a few months as my last job shifted their office to the east. So what did I do? I left that job. :P

Congrats once again!

Patrick T. said...

According to many, I overpaid when I got my flat in 2004.

When I look at the last transacted price (45% over what I paid for), I think they are overpaid. But since I do not foresee selling my flat anytime soon (or ever), this is just an amusing thought.

Of course, if you have problems with loans, you can always forsake one kind of freedom for another. ;)

tangandrew said...

hi LP,

congrats in finally able to get a unit you have been hunting.

only you will be able to appreciate its full value...

... same block as yr parents
... potential to expand yr income
... rare hdb point block
... similar size pte apt is easily >$800k

Mr. Propwise said...

Congratulations on getting your own place LP!

If you're buying for own stay, the most important thing is to find something you (and your family) like and can afford. The value and sense of security of having a roof over your head cannot be measured in just monetary terms.

btw, there are already a couple of HDB (well more accurately HUDC) flats that have transacted above $1 million.

la papillion said...

Hi Mark :)

Wow, seems like you have a need for your house - that it must be close to whatever your working at :) I think it's important to identify those needs and really stick to it. Afterall, it's going to be the biggest purchase you're going to make, better like what you pay for :)

Thanks for sharing with me :)

la papillion said...

Hi patty,

Nah, don't think I wanna rent out, haha ;)

Hi andrew tang,

I really hope so too :) I would make it so, actually, haha!

Hi propwise,

HUDC 1 mil? Yup, heard of it :) But I don't think there's any HDB kind that goes over 1 mil right? I hope not!