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Thread: Why your home is much more expensive than you think

  1. #1
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    Default Why your home is much more expensive than you think

    http://business.asiaone.com/property...sive-you-think

    In Singapore, most people are encouraged to own their own homes, be it an HDB flat or a private property. According to Singstat, home ownership rate among Singapore households is currently about 91 percent, which ranked us among the top 3 countries in the world.

    Generally speaking, home ownership is a good thing from a personal finance standpoint. Having your own home means you avoid having to pay rent to someone else for your accommodations, and do not have to worry about escalating the rental cost. Even if you have to service a monthly mortgage, it is more comforting to know that the repayments go towards helping you build equity in your own home.

    It is no secret among Singaporeans that buying a property in Singapore is expensive. We might not have homes that are as expensive compared to cities like Hong Kong, but you can't deny that homes are expensive, regardless of how anyone might try to spin it.

    There is more cost to a home than just its selling price

    It is normal to judge the cost of a home simply by looking at its selling price. People asked each other about that all the time. "How much did you pay for your home?"

    However, the true cost of owning a home is a lot more than just its selling price. And if you are a potential buyer of your first home, we like to elaborate more on this so that you are not at the receiving end of a rude shock in the future.

    What type of property in Singapore should you buy

    Buying property is a long term investment. When you're thinking of diving into real estate investment, it's better to gather as much information on it as possible. Just like in any part of the world, having a private property is a good decision as there are many benefits. For instance, the property cycle in Singapore over the last years indicates that there is a steady rise in real estate's value. Alternatively, real estate investment can be a source of passive income. You can purchase a property and rent it out.

    Singapore. It's a responsive system, which allows Singaporean citizens to apply for flats at a location of their choice. Once 65-70 per cent of the flats is booked, the construction work begins. After the construction is completed, you will have to wait for some time before you can move in. Design, Build, and Sell Scheme (DBSS) is an incentive of the HDB system. DBSS is public housing scheme developed by private developers. The DBSS scheme offers more comfortable designs and better locations. Executive Condos (ECs) caters to young graduates and professionals who wants a property in between public and private housing. ECs are comparable in design and facilities to private condominiums as they are developed and sold by the private developers.</p> When it comes to investing in real estate, you should ask whether there is easy access to MRT stations, schools, and other essential facilities; the property can be easily resold; and affordability. What are the costs involved in buying a property in Singapore? First, you have to check your stamp duty rate. Based on the market value of the property, you can compute for your Buyer's Stamp Duty (BSD).
    1. Renovation cost

    The first thing to prepare yourself for is to understand that home renovation may end up costing you a lot more than you expect, even if you are thinking of going for just "a simple renovation."

    There are tons of renovation items that are going to cost you. The list is also more extensive than what some of us would expect. These include electrical works, lighting fixtures, air-con units, curtains, bathroom accessories, window grills, painting, cement screeding (go Google it if you don't know what this means) and haulage fee (yes, you got to pay money for someone to dispose of your renovation rubbish). The list goes on.

    What about the numerous articles that you see on Facebook promising beautiful HDB homes that cost less than $30,000 in the renovation? We advise for you to take these articles with a pinch of salt.

    Most of these homes you see on Facebook or websites cost a lot more than advertised because they do not include the furnishing costs of buying all the furniture that you see in the nice photos. Also, the renovation costs usually do not include simple items such as lighting fixtures that are critical, if you want your home to even look remotely close to what you see on the photos

    In our opinion, you should expect to budget at least $50,000 for the entire renovation of a simple HDB home (including furniture and assuming you did not opt for HDB optional component scheme). If you are going for something like what you see on Facebook, be prepared to have about $70,000 ready, regardless of what the article actually promised. It's better to be safe than sorry.

    2. Interest cost

    Unless you have a few hundred thousand already sitting in your bank account doing nothing, you are likely to require a housing loan.

    Interest cost is frequently ignored during property conversations. People like to boost that they bought a property at $400,000 and sold it at $600,000, thus netting for themselves a profit of $200,000, but is that really an accurate way to look at it?

    Let us work out a simple hypothetical scenario.

    Assuming a buyer bought an HDB flat at $400,000 and paid a down payment of 10 percent ($40,000), the buyer would need to take a loan of $360,000. If we assume the buyer takes a 20-year loan at the prevailing HDB loan rate of 2.6 per cent per annum, this is how the actual math would work out.

    Based on our calculation, a $400,000 home would actually cost more than $500,000 once you include in interest cost.

    3. Opportunity cost

    This is a type of cost that very few people ever consider when buying a property. Most of us fail to realise that the money we spend on our home could have easily been used to help us generate returns if used in other investing instruments.

    Going by the numbers we have used above, let us assume a home buyer who spent $50,000 on renovation and $40,000 on downpayment put his money in risk-free assets such as the Singapore Savings Bond at a return of 2.5 per cent per annum instead.

    Here is how the returns pan out after 20 years.

    That is not all. What if we assume the $1,925 spent on the monthly mortgage had been invested also?

    What this number of $598,626 is referring to is the amount we could have received if we invested the $1,925 per month in some risk-free assets, instead of repaying our housing loans.

    What do these numbers tell us?

    When we add the renovation cost to the interest cost, what we get is the actual amount that we spent on our home. The total basic cost adds up to $552,000, excluding any maintenance cost incurred. So a person selling their home for $600,000 should not feel too excited.

    The total opportunity cost adds up to $746,101. This figure represents the amount we could have received had we forgo buying a home and instead used the money on some risk-free assets.

    Of course, an argument can be made that if the buyer had used part of the money to rent a home instead during the period, the actual returns would be a lot lower. That's a fair argument.

    The simple conclusion we like to make is that while owning a home is still a good financial decision for the majority of Singapore households, it is worth remembering that the home we buy is significantly more expensive than what most of us realise.

    - See more at: http://business.asiaone.com/property....0H6khFe0.dpuf
    Last edited by Arcachon; 14-05-16 at 10:55.

  2. #2
    Join Date
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    How about bought for 400K? Rented out for 20 years.

    200K down payment and reno, 24K nett rent per year.

    More relevant for HDBs bought last time and private. New HDBs harder to utilize. The more people complain about it the harder to deploy.
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

  3. #3
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    I alway meet the friend who tells me how much they need to pay the interest for their HDB loan and feel so happy to fully pay their HDB loan until I tell them my story.

    Most are taught in school, home, relative not to go into debt. None of them was told about good debt and bad debt.

    I was told by my parent to buy the smallest HDB, but I chose otherwise.

    I did not even tell them I bought a 2 Bedroom knowing they will not sleep well at night knowing it.

    The government gives each Singaporean two cherries, you don't eat others will.

  4. #4
    Join Date
    May 2012
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    2nd cherry hard to get a good one to eat cos first cherry priority.
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

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