Cashflow vs Capital gain

[Yuki]

Are capital gains the most important criteria to look for when acquiring a property?

Or should it be cashflow? Coz if one is to look at cashflow(I.E rental) mainly then the capital gains wouldn't matter so much during boom or bust since no intention to sell just for capital gains.

Having played the cashflow board game before, the emphasis is on building steady streams of cashflow
cashflow.

However I noticed that most people harped on the potential upside. I.E capital gains instead.

Your views?

[Arcachon]

Cashflow and Capital gains should be always in the mind of investor.

Example.

Southbank

Cash flow - positive wrt 2006 price (SGD 535,000).
Capital gain - positive wrt 2006 price, potential of new development at Kallang Area.

Terrasse

Cash flow - negative wrt 2011 price (SGD 1305800), not TOP yet no rental income.
Capital gain - positive wrt 2011 price, potential of new development nearby zero.

[Warren49]

Conventional investment theories prioritise cash flows over capital gains. It is widely seen as a more stable income stream.

For me, i prefer cash flows though it's hard to ignore the temptation of a quick buck every now and then.

[DC33_2008]

Depends on the following:

A. short or long term investors
B. with or without loan
C. Investment or own stay.

[teddybear]

Many people are conflicting themselves....

They talk about investment properties for cash flow but buy 99-year leasehold properties that can only collect rental for 99-years only............. They should do discounted cashflow and see how much they are losing out for buying 99-year leasehold properties for rental income!

Then they say 99-years lease never mind because they will flip to others to carry the babies for them when the "babies" become old and undesirable.... They forgot that buyers are not as stupid as they think and even they flip with lease running down the property price has to fall relative to freehold properties!

Conventional investment theories prioritise cash flows over capital gains. It is widely seen as a more stable income stream.

For me, i prefer cash flows though it's hard to ignore the temptation of a quick buck every now and then.

[Arcachon]

You are right, always remember your property lease balance.

I was given a chance to select Off plan and On plan property in 2011.

After much consideration on the lease I chose Off plan property because the On plan property have use up the number of years thus lost of rental income compare to Off Plan property.

As to when to sell, depend on the chance of capital appreciation and how much money is the World printing.

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If I buy the 2 Bedroom at Bencoolen at 1,180,000 my monthly installment is 4164.08 for 28 years at a rate of 1.25.

If I can't rent out above 4164.08 I have to top up the different every month or worst case the whole amount.

Bencoolen have use up 13 years, if rent out for 13 year at 4,000 mean loss of income for 624,000.

[walkthetiger]

You are right, always remember your property lease balance.



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If I buy the 2 Bedroom at Bencoolen at 1,180,000 my monthly installment is 4164.08 for 28 years at a rate of 1.25.

If I can't rent out above 4164.08 I have to top up the different every month or worst case the whole amount.

Bencoolen have use up 13 years, if rent out for 13 year at 4,000 mean loss of income for 624,000.

13 years old, rental may not be $4000...need to double check.

[Arcachon]

13 years old, rental may not be $4000...need to double check.

That was in 2011.

[Yuki]

Thats a good perspective.

In that case what do you think of the Project Coco palms?
Off the plan property, 5 years to TOP with lease starting from 2008.

Double whammy? Shortened lease and late TOP? It was the best selling project for this year I believe.

You are right, always remember your property lease balance.

I was given a chance to select Off plan and On plan property in 2011.

After much consideration on the lease I chose Off plan property because the On plan property have use up the number of years thus lost of rental income compare to Off Plan property.

As to when to sell, depend on the chance of capital appreciation and how much money is the World printing.

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If I buy the 2 Bedroom at Bencoolen at 1,180,000 my monthly installment is 4164.08 for 28 years at a rate of 1.25.

If I can't rent out above 4164.08 I have to top up the different every month or worst case the whole amount.

Bencoolen have use up 13 years, if rent out for 13 year at 4,000 mean loss of income for 624,000.

[Ringo33]

Many people are conflicting themselves....

They talk about investment properties for cash flow but buy 99-year leasehold properties that can only collect rental for 99-years only............. They should do discounted cashflow and see how much they are losing out for buying 99-year leasehold properties for rental income!

Then they say 99-years lease never mind because they will flip to others to carry the babies for them when the "babies" become old and undesirable.... They forgot that buyers are not as stupid as they think and even they flip with lease running down the property price has to fall relative to freehold properties!

Many people are lying to themselves by thinking that if you own a FH condo today, you will be able to hold and rent it out forever.
In reality, most old FH condo will always end up en bloc for redevelopment because its no longer commercially viable to keep them due to too much wear and tear.

Here are a list of many many example showing why FH is not forever.
http://condomillions.com.sg/pages/enbloc.aspx

[Sandiwara]

Many people are conflicting themselves....

They talk about investment properties for cash flow but buy 99-year leasehold properties that can only collect rental for 99-years only............. They should do discounted cashflow and see how much they are losing out for buying 99-year leasehold properties for rental income!

Then they say 99-years lease never mind because they will flip to others to carry the babies for them when the "babies" become old and undesirable.... They forgot that buyers are not as stupid as they think and even they flip with lease running down the property price has to fall relative to freehold properties!

I bought 37 years old HDB in Woodland on 2009 for 235k. Sold it for 368k on 2012. . Use the money to bought Condo that already 12 years old. Let see in the future then. In real world not everything is always as clear as crystal.

[Yuki]

There is this raging debate on free hold vs lease hold in the other threads. I hereby urge respondents who wishes to debate along that principles to at least state how it affected the cashflow and capital appreciation by giving examples n not just recapitulate the same things again. Thanks for contributing to this thread n do share your thoughts.

[Yuki]

Thanks for sharing the link.

Are there any statistics of capital appreciation or rental of FH condo vs lease hold?

Many people are lying to themselves bythinking that if you own a FH condo today, you will be able to hold and rent it out forever.
In reality, most old FH condo will always end up en bloc for redevelopment because its no longer commercially viable to keep them due to too much wear and tear.

Here are a list of many many example showing why FH is not forever.
http://condomillions.com.sg/pages/enbloc.aspx

[teddybear]

Are you saying that just because of enbloc, so 99-years leasehold properties should have almost same value as Freehold properties?
Wow! That is the first time I hear!

Let's see: 99-years leasehold properties with 50 years lease remaining go enbloc, what is the price of the land that the buyers will buy hah?
Will the buyer pay the 99-years leasehold property owners for 99-years of land value or 50 years of land value only?
Would anybody in Singapore buy residential properties with 50 years lease?
Obvously, the buyer need to top up right! Top up payment pay to who? Obviously to the FREEHOLD land owners! You think the top-up payment goes to the 99-years leasehold properties owners? Already told you that 99-years leasehold properties' owners are just TENANTS to FREEHOLD land owners!
Please see below article as well..........

Now, let's say the FREEHOLD land owners say "NO", I won't accept TOP-UP! I want the 99-years leasehold property owners to own until 99-years and take back the land later (read: one case has already cropped up, please google for the news!!!!)
FREEHOLD land owners are under NO OBLIGATION to renew your 99-years property lease!!!!!!

Let's then contrast with a Freehold properties that are 49 years old going enbloc, obviously buyers have to pay FULL payment to freehold properties owners right? Who get the full sum of enbloc money? 99-years leasehold property owners or Freehold property owners?
NOW, is it clear that 99-years leasehold property owners are at the SHORT end of the stick when it comes to enbloc?

Obviously you are lying and not telling the whole truth about what happened to 99-years leasehold properties when they go enbloc!

Many people are lying to themselves by thinking that if you own a FH condo today, you will be able to hold and rent it out forever.
In reality, most old FH condo will always end up en bloc for redevelopment because its no longer commercially viable to keep them due to too much wear and tear.

Here are a list of many many example showing why FH is not forever.
http://condomillions.com.sg/pages/enbloc.aspx

The 99-year time bomb some Singaporeans are sitting on
April 15, 2014
Once your lease is up, it's really up.

Jonathan Lim

17 out of every 20 Singaporeans you see on the streets are likely to live in HDB flats. These public housing flats have a 99-year lease.

So what is this 99-year time bomb that Singaporeans are sitting on?

Isn’t a 99-year lease simple to understand?

The land is leased and once the lease is up, it has to be returned. Quite simple, is it not?

In fact in January this year, NCMP Gerald Giam clarified HDB’s lease with National Development Minister Khaw Boon Wan. The gist of it as what Minister Khaw said:

“Like all leasehold properties, HDB flats will revert to HDB, the landowner, upon expiry of their leases. HDB will in turn surrender the land to the State.“

Your flat will be taken from you once the lease is up. Is that news to you?

Up until recently, it is fair to say that many Singaporeans may be unaware, or perhaps in denial that their flats would be taken back by the authorities once its lease is up.

A read-through of this Hardwarezone Forum thread reveals that many think that they will not be homeless if their flat’s lease is up.

This phenomenon may be due to the fact that no 99-year lease residential property has yet to be claimed back by the authorities in our collective consciousness; as well as the fact that many HDB estates that are three to four decades old have come under the Selective En bloc Redevelopment Scheme (SERS).

There seems to be an air of confidence that the Government would not leave people in the lurch when lease runs out. There are people who think that the party will go on and the HDB will roll along when the time is appropriate to relocate you and redevelop old estates. There is no guarantee of that.

The problem is that there are very optimistic people buying old flats at premium prices

With property prices rising much faster than the growth in wages in the last three decades, our housing loans have become larger and longer.

The 99-year time bomb hurts a select group of people the most – those that paid a hefty premium for old flats in Queenstown, Tiong Bahru and Bishan, or those who bought old condominiums like the Pearl Bank Apartments.

Their CPF Ordinary Account will be drained for the down-payment and their monthly CPF contribution into the OA will go straight to their home loans for up to 35 years.

Using a hipster young Tiong Bahru couple as an example

For young couples who paid top dollar for old flats such as those in Tiong Bahru, which leases have only 57-years left, they will have to unload their flats sooner rather than later if they want to have sufficient money in their CPF accounts for retirement.

While some optimistic people are willing to pay $700,000 for a Tiong Bahru flat (there is one on sale now on Propertyguru) today, will that optimism carry on 30 years down the road when they try to sell that same flat on the open market? Only this time, the flat has only 27 years left on its lease. Without even talking about property appreciation, would anyone pay $700,000 for that same flat in 2044?

Let’s assume that property prices grow at 4% year-on-year, a $700,000 flat in 2044 with 27-year lease would cost $215,000 in today’s dollar-value. Would you buy a flat today at $215,000 with 27 years left? If you would, that money will be the seller’s retirement plan.

The young Tiong Bahru couple of today will be banking on another young couple in 30 years’ time to buy their flat for $700,000 so that they will have their retirement plan. If that couple can’t find any willing buyers, they would be $700,000 poorer in their CPF accounts having channeled their CPF for loan payments and will have to rely on their cash savings, if they had any.

They could sell their flat at a much, much lower price to entice someone to buy a flat with 27 years left on it.

If you got the drift, you will stay away from old flats, right?

If you bought the argument that no one in their right minds should be paying for premium prices for flats which are 40-year-old, you’d go for BTOs right?

That’s all fine and well – until you have to retire yourself. Much of your CPF has been locked in paying the mortgage on your BTO flat. You will have to sell it if you want to ensure sufficient funds in your CPF.

So the question is – will you be able to sell your 40-year-old flat in the future to fund your retirement?

Are our retirement plans blown to bits by the 99-year time bomb?

Minister Khaw has said that HDB is studying the possibility of the Lease Buyback scheme being made available to people living in 4- and 5-room flats.

That is one way to deal with this problem where the Government bails out HDB flat owners when the market decides that buying an old flat at premium prices is not such a good idea after all.

Another possible solution is the lease can be extended by the Government to ensure that flats can be sold at acceptable prices to fund retirements. Will this happen? We will only find out when the first of the 99-year time bombs start to blow.

Morale of the story

But if you insist on relying on unlocking the cash value of your property as part of your retirement plan, here are some things you have to consider:

There is no guarantee that the Government will extend your lease or put your estate up for SERS;
There is no guarantee that the market will value your property in your favour when your retirement comes;
Cash in hand will always be more liquid than a property;
Until then, perhaps relying solely on your CPF for your retirement is not such a smart thing to do. Start saving for your retirement today and stop living like you’re a rock star.

[Ringo33]

Teddybear, please dont confuse yourself with land owners. As a strata title owners of an estate, you ability to keep the property depends on whether the estate will go enbloc or not. And like many old property, everyone is looking for enbloc because the estate is no longer commercially viable for rental due to high maintenance cost and lack of modern facilities.
Plus investing in property doesnt mean one needs to hold forever, you have the ability to buy and sell and people buy and sell for difference reason.

So unless you can show us the money, all that talk about FH is forever and LH being shortchanged are just fallacies to make you believe that your old FH property located in the wrong side of CCR has got a bright future.

[teddybear]

In UK, I was living in a 150+ years house! 99 years old properties cannot live in it as own residence? What a joke!
People enbloc because there is more money to be made than stay put, and not because the properties cannot be lived in anymore! If there is money to be made from enbloc, and freehold property owners will obviously get MUCH MUCH MUCH MORE money from enbloc than 99-years leasehold, and if you say freehold property owners unable to enbloc means 99-years leasehold property owners will get nothing?

High maintenance costs? I am afraid your costs to renew your land lease for another 99 years is so MUCH MUCH HIGHER than the maintenance costs!

Again, I am warning all of you that there is already precedent where 99-years leasehold properties has been REFUSED RENEWAL OF LAND LEASE !!!!!!!!!!
So, you can stop dreaming about enbloc to cash out of 99-year leasehold properties with profit like someone are lying to you about!

Teddybear, please dont confuse yourself with land owners. As a strata title owners of an estate, you ability to keep the property depends on whether the estate will go enbloc or not. And like many old property, everyone is looking for enbloc because the estate is no longer commercially viable for rental due to high maintenance cost and lack of modern facilities.
Plus investing in property doesnt mean one needs to hold forever, you have the ability to buy and sell and people buy and sell for difference reason.

So unless you can show us the money, all that talk about FH is forever and LH being shortchanged are just fallacies to make you believe that your old FH property located in the wrong side of CCR has got a bright future.

[DC33_2008]

That is why I also keep some FH land. Anyway, Strata titled FH land is still better than LH ones. Otherwise, why don't garment start selling all their FH state land. Singapore will follow China to sell only 60 LH land instead of 99LH land in future. Then you will really know the true value of FH properties.

Teddybear, please dont confuse yourself with land owners. As a strata title owners of an estate, you ability to keep the property depends on whether the estate will go enbloc or not. And like many old property, everyone is looking for enbloc because the estate is no longer commercially viable for rental due to high maintenance cost and lack of modern facilities.
Plus investing in property doesnt mean one needs to hold forever, you have the ability to buy and sell and people buy and sell for difference reason.

So unless you can show us the money, all that talk about FH is forever and LH being shortchanged are just fallacies to make you believe that your old FH property located in the wrong side of CCR has got a bright future.

[Sandiwara]

The cycle should be start from buying time. How much you buy, how much you make. How much the % you make compare to buying price. If both produce profit 200k with buying price 800k (LF) and 1300k (FH). The answer is obvious. Of course that is not always the case. It just one example only.

[Ringo33]

The cycle should be start from buying time. How much you buy, how much you make. How much the % you make compare to buying price. If both produce profit 200k with buying price 800k (LF) and 1300k (FH). The answer is obvious. Of course that is not always the case. It just one example only.

You are right it boils down to buying cycle if you are after capital gain not if it's freehold or leasehold.
As for cash flow it's the location that matters not not fh or LH.

[Ringo33]

In UK, I was living in a 150+ years house! 99 years old properties cannot live in it as own residence? What a joke!
People enbloc because there is more money to be made than stay put, and not because the properties cannot be lived in anymore! If there is money to be made from enbloc, and freehold property owners will obviously get MUCH MUCH MUCH MORE money from enbloc than 99-years leasehold, and if you say freehold property owners unable to enbloc means 99-years leasehold property owners will get nothing?

High maintenance costs? I am afraid your costs to renew your land lease for another 99 years is so MUCH MUCH HIGHER than the maintenance costs!

Again, I am warning all of you that there is already precedent where 99-years leasehold properties has been REFUSED RENEWAL OF LAND LEASE !!!!!!!!!!
So, you can stop dreaming about enbloc to cash out of 99-year leasehold properties with profit like someone are lying to you about!

In Singapore we also have many conservation housing that are over 100 years old, and they are conservation and many have already been rebuild from within. And the reason why investors are willing to spend money to redo them is because of heritage values and can be use for commercial purpose like office and restaurant.

As for a property located in the wrong side of CCR, its just an old apartment blocks and no one is going to throw good money on an aging property that cant generate good cash flow nor does have any conservation value. Its will be like spending money on an aging cow that no longer produce milk. So instead of keeping it, it will be better to slaughter and make room for new calf.

The MUCH MUCH MUCH MORE you are talking about is actually around 15-20% premium. Dleedon (ave $1632psf) and Leedon Residence. (ave $2030psf) are good example for comparison. Interlace and Dleedon are actually 99LH en bloc sites.

[teddybear]

The premium you are talking about will widen more and more, that is for sure!

And strangely, now you tell us conservation housing over 100 years also can use and live in right?! So, if your property is 99-years leasehold, after 99 years your property resideue value is ZERO!

If Freehold strata title land is of little value according to what you say, the 99-years leasehold title land got what residue value? ZERO! I rather get back some value than ZERO value (after taking time-value-of-money into consideration)!

In Singapore we also have many conservation housing that are over 100 years old, and they are conservation and many have already been rebuild from within. And the reason why investors are willing to spend money to redo them is because of heritage values and can be use for commercial purpose like office and restaurant.

As for a property located in the wrong side of CCR, its just an old apartment blocks and no one is going to throw good money on an aging property that cant generate good cash flow nor does have any conservation value. Its will be like spending money on an aging cow that no longer produce milk. So instead of keeping it, it will be better to slaughter and make room for new calf.

The MUCH MUCH MUCH MORE you are talking about is actually around 15-20% premium. Dleedon (ave $1632psf) and Leedon Residence. (ave $2030psf) are good example for comparison. Interlace and Dleedon are actually 99LH en bloc sites.

[thomastansb]

I will look at both but will pay more attention to cash flow because where got such thing call huge potential one? The price already factor in the potential most of the time. Some people mentioned southbank. Well, southbank is good but there are tons of condos making the same profit also. CCR, OCR or RCR. % wise, +/- the same.

For me, I don't earn a lot per month so rental is crucial. But I got a bit of luck because all my loans are 40 years loan so my installment is 1/3 of my rental.

[Ringo33]

The premium you are talking about will widen more and more, that is for sure!

And strangely, now you tell us conservation housing over 100 years also can use and live in right?! So, if your property is 99-years leasehold, after 99 years your property resideue value is ZERO!

If Freehold strata title land is of little value according to what you say, the 99-years leasehold title land got what residue value? ZERO! I rather get back some value than ZERO value (after taking time-value-of-money into consideration)!

Please dont twist my words, I say FH strata-title apartment will not last forever, it will be torn down and rebuild when they are old because its no longer commercially viable for rental. And concerning freehold land is around 20% premium over LH land. S

As for conservation housing, yes, you can buy to stay, rent it out as restaurant, office etc. BUT you will also need to maintain the structure and many are rebuild from within, which is not cheap. Plus you will get ZERO en bloc potential nor any chance of increase of plot ratio.

[CCR]

In Singapore we also have many conservation housing that are over 100 years old, and they are conservation and many have already been rebuild from within. And the reason why investors are willing to spend money to redo them is because of heritage values and can be use for commercial purpose like office and restaurant.

As for a property located in the wrong side of CCR, its just an old apartment blocks and no one is going to throw good money on an aging property that cant generate good cash flow nor does have any conservation value. Its will be like spending money on an aging cow that no longer produce milk. So instead of keeping it, it will be better to slaughter and make room for new calf.

The MUCH MUCH MUCH MORE you are talking about is actually around 15-20% premium. Dleedon (ave $1632psf) and Leedon Residence. (ave $2030psf) are good example for comparison. Interlace and Dleedon are actually 99LH en bloc sites.

Hi Ringo Bro!

What you said is true...
But in 15 years time when the lease for Dleedon is at 80 years (99-15+4 years of construction) vs Leedon Residence still at FH. dont you think the gap will widen to 30%?
and in another 10 years the gap will widen to 40%?

Its logical only right?

If you are a buyer and there are two condos side by side, one if FH the other is 80 years lease left, which one will you choose if only 20% difference?

You must remember that when the buyer buys a 20 year old LH property and he stays there for another 15 years it will have 64 years left only.... By then both condos are really old! and the 3rd buyer comes along... which one will he/she buys if the FH is only20% difference? sure will buy FH right? and as demand for the FH condo goes up and prices goes up then the gap widen to 40%...

[darkseed73]

Not sure why from Cashflow vs Capital gain....it becomes LH vs FH

As if we going to live more then 99 years......anyways I personally believe in balancing the both. If a FH is charging me a premium, I would go for LH which can give me the gain. I seldom find FH which is near MRT or very ideal location. If it's ideal, it will charge u a "premium" which will set you back a few years of profits. There is no absolute in my opinion. Long term wise, yes perhaps FH is great but that benefits your children perhaps, u may not even see the effect while u are alive.

Have a house which provides good cashflow (rental yield) then u can stay in the other which have "capital gain" is the most ideal.

Let's be frank - u can't really make if u own only 1 property.