Tuesday, October 22, 2019

We Bought A New Home

After months of intensive research on the residential property sectors, my wife and I have decided to proceed with purchasing our second property here in Singapore.

Just yesterday, we've submitted the cheque, went to the lawyer and signed everything that we needed to settle.

We've never previously thought of the idea that we'd be buying a second home, especially in an expensive country like Singapore where private property was rated the second most expensive in the world according to a report from CBRE (source article here).




Why Buy Now?

But we were bounded by circumstances, in particular the fact that we rented out our bigger units a few months back and had to move in to our in-laws place in the interim. It was never the most ideal situation for the longer term because of many reasons and soon we were on the look out for a place of our own again.

The timing of our elder son primary one registration next year also means that we needed an ideal permanent place (at least 30 months worth of stay) in order to qualify him for the "Within 1km" proximity phase for the primary school that we were aiming for. 

The previously written article that I wrote on the unlocking of the equity portion is a financing option meant to fund this purchase. This is one of the strategic move we've decided to go with in order to avoid the absd rule for the second property. At the end, my wife and I had to split with one each to our name.

Why Not Rent First?

The idea of renting being an ideal situation is when you can get a decent long term contract as a tenant, and then use whatever excess capital fund you have and invest it at a better irr.

Personally, I don't like the idea of renting as a tenant for the longer term because first we know we'll be staying in Singapore for a much longer period and second the rental that we pay goes straight as an expense to us when we could have used that rent to pay down the loan and increase the equity portion over time.

Of course, this wins hands down than paying for an overvalued property which is sending your equity straight to hell.

Why Not HDB?

We've contemplated this option by selling our current unit and then move to a HDB now that we've become Singaporeans and are eligible for it.

Unfortunately, we were not able to find the right match after a few tries with the location plus value that we've overall considered.

New or Resale?

I've probably mentioned this in the last few articles I wrote but there's no way we could find value in most if not all the new private property development that were recently launched.

To put numbers into perspective, the two new integrated development - Woodleigh Residence was being marketed at approximately $1,850 psf while Sengkang Grand Residence was marketed at approximately $1,750 psf.

Pullman Residence @ Newton (former Dunearn Gardens) was launched at $3,000 psf. 

Meyer Mansion was launched at $2,715 psf. 

Avenue South Residence was launched at $1,780 psf.

Even the latest and only EC launched this year for Piermont Grand @ Sumang was marketed at $1,108 psf.

Given how heated the market is for these new development, it is very difficult for us to find good value and to be frank neither can we afford to pay such a hefty price.

We went for a resale development and found a few that was good hidden gems. 

Some of these units provide good value and pretty much fit into everything we were looking for.

What Are The Criterions We Were Looking For?

In my live radio air-show last month, I mentioned these 5 criterions that is important to us when looking for a home so we used the same checklist to find our ideal home.

Do note that these criterions are likely to differ for every individuals depending on the life stage cycle you are in.

1.) Location / District

We don't drive so proximity to public transport access such as MRT and direct buses is obviously going to be important to us.

Close proximity to malls, groceries shopping and nature would also have been big plus points for us.

I do also have a bias preference towards properties that are in "Prime" location, which includes the likes of District 1, 2, 4, 8, 9, 10, 11, 12, 15 by my extended definition.


2.) Investment

While we look into buying this as a home for our own stay, we also wanted to double up as an investment home for any future capital appreciation.

Like in all investment, the key here is not to overpay and the reason we choose not to purchase a new development is because the price in the market at the moment doesn't gel with us.

As part of our investment key checklist for not overpaying, we also wanted to make sure that the rental yield for the property we are buying in this development is above 3%, which I think serves as a pretty good gauge in this current climate of poor rental market.

For purpose of reference, the place we bought came with a tenancy lease with a 3.2% rental yield, which will last until somewhere early next year.



3.) Size / Floor

We wanted a good decent size of living room and bedroom and it's incredibly difficult to find in new developments where rooms are typically very small to cater to.

We also preferred units which have good squarish lay-outs, i.e minimal wastage of spaces, minimal bay windows, etc.

I also have a bias preference towards higher floor, which usually commands higher price.


Example of Good Floor Plan Layout

4.) Facilities / Interior Finishing

Most of the interior finishing and facilities you are getting is likely going to depend on the developer that is building the units.

Bigger names such as CapitaLand or UOL or City Development are likely to provide better facilities and finishing as compared to smaller names.

5.) Proximity to Good Primary School

The proximity to a good (not necessarily top 10) primary school ranks number one on my wife's list.

She has a peculiar preference towards some of the primary schools that we want our kids to go to so our search was narrowed to incorporate this criteria.

From an investment viewpoint, it can also double up as an unique selling point should one day we decide to rent out or sell this unit.




Added Bonus (Not Crucial But Important)

6.) Freehold vs 99 Years Lease

The freehold status is always going to be an added bonus point if we get it though we did not put this as a priority.

In this era of limited land space, it is likely more than not that a collective sales will happen in the future should the property is located at a unique/growing location.

7.) URA Master Plan (For Potential Enbloc in future)

I also like to refer to the latest master plan guide and changes to the land planning space at URA Space.

Some buildings are approved for an upgrade from 2.1 to 3.0 thus increasing the likelihood for an enbloc potential in the future.

Conclusion

We started the lists with about 8 different units after the first round filter.

After we visited all of them, we've managed to filter down to our final 3 units, out of which one became our choice.

I'd put this down as one of our important milestone that we managed to hit this year despite the setback we've had earlier in the year.

Never had we thought we'd be moving to a new home by this time last year but circumstances took us to a path that we didn't think of.

Thanks for reading.


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26 comments:

  1. uncle168:

    you should buy 4-rm hdb resale flat with cpf so when u go bankrupt the bank cannot sell your hdb

    now u cash out house A to pay for house B

    soon u will end up homeless if u can't rent out house A due to the end of the wework economy where startup bleed to death to gain market share that will never see the daylight of profits to pay the interest for your reverse mortgage on house A

    dividend warrior buy 2rm bto use cpf S$100K nia, at least when all his reits collapse with weworks he still has a home

    you should aim to be debt free with a family and buy back your netlink trust which has sky rocketed since you sold instead of trying to time the market

    nobody can time the market consistently

    eventually it would destroy u as a investor becomes a compulsive gambler

    keekeekee

    ReplyDelete
    Replies
    1. Hi Uncle

      Your mouth really stinks leh 🤣 but thanks for the concern.

      Hopefully the words doesn't get to bite you instead yah, stay safe :)

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  2. uncle168:

    was right about m1 (privatisation), best world (fake china sales) and mm2 (financial engineering with no operating cash generated) @ hwz ssi :)

    u happy can oredi

    keekeekee

    ReplyDelete
  3. So what did u actually? N u did a divorce?

    ReplyDelete
  4. 3.2% rental yield is it gross or nett? if it's nett can you share the breakdown cause i'm interested to know.

    ReplyDelete
    Replies
    1. Hi

      It's a gross and sorry the breakdown is rather sensitive so won't be able to share openly the figures here.

      Delete
  5. May I ask which district did u buy?

    ReplyDelete
    Replies
    1. Hi Ken

      You can drop me a private message on this.

      Delete
    2. Hi Brian, dropped u an email last week, but haven received your reply yet:)

      Delete
  6. Good Luck B. hope your boy appreciates the effort :D

    ReplyDelete
  7. Hello B
    Congrats on the purchase, although I must say there is a fair amount of risk you are taking on by using a 2nd mortgage. We have 6 props in SG, and our latter buys were almost 70%-100% cash funded. Anyway, I am sure you know what you are doing, and think of it as a home and not an investment. I have only bought places that I can imagine myself living in.
    All the Best
    Anon Andy

    ReplyDelete
    Replies
    1. Hi Andy

      Thank you for your well wishes.

      I actually took an equity loan earlier so this purchase is fully funded. Well, there are inherent risk in every investment but I think it's a calculated one which I've prepared both mentally and financially. I hope there isn't major flaws with the execution.

      Delete
    2. Hello B
      Good point, and in that case, you only still have one mortgage and are likely cashing in on unrealized profits in part from your first residential prop to help fully fund the 2nd purchase. Not a bad move. But since I am 50 or thereabouts, I would rather take less risk and reduce risk, except for the equity markets, where I am still holding very large positions. But when I was in my 30s - haha I was up to my eye-teeth in debt leveraged funded property purchases. LOL.
      All the Best
      Anon Andy

      Delete
    3. Hi Andy

      At some point, I want to be in your position, taking less risks and then the allocation towards the fixed income and more stable play will come in a higher percentage. If I had the choice I'd probably choose to be like you, but I guess this alternative is a skewed play because of our current circumstances which will definitely change (we can sell the house later) once our kids are more grown up/us getting older.

      Delete
  8. So you did a de-coupling on your current property?

    ReplyDelete
    Replies
    1. Decoupling is a strategy couples can use, think it should result in lesser stamp duty than having to pay for the additional absd.

      For us, we didn't have to decouple because we bought using only one name in the first place.

      Delete
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    ReplyDelete
  10. The floor plan even looks in regards of Feng Shui Rules very good to me. I have noticed in the newer developments that the layout is so bad which causes a lot of issues for the household members. Just tow things from my 30 second observation from the floor plan:
    1. No missing sectors = good
    2. Bed position,kitchen location (Stove) also good
    3. Keep the "WC" door at the front door closed all the times
    4. I would have a look at the star energies for each sector to enhance your wealth, health, and study (kids) energies

    Long time reader, all the best :-)
    https:www.fengshuibalanz.com/fengshuitips

    ReplyDelete
  11. Hello! Samantha here, I dropped u an email last Monday. Would like to know more about the property you've purchased as I would like to do the same myself. :) Hope to hear from you soon!

    ReplyDelete
  12. Good strategy bro. with the low interest rate, it is time to get a private property and flip it in a few years.

    ReplyDelete
  13. Thanks for the great write-up. I enjoyed reading it. I have some questions on the article and hope you can shed some light on it.
    a. You mentioned "rental that we pay goes straight as an expense to us when we could have used that rent to pay down the loan and increase the equity portion over time." i have learnt from other blogs that the rent is not necessary an expense especially in this market of low rental. Let me give an example, a $1m condo asking for a $2,500 rent, annual rent is $30,000 which works out to 3% yield. If you didnt fork out the $1m but invest to get 3% returns, you will receive 30k annually and this means you stay at the rental flat for free. Your $1m is still intact!. In addition, by not owning the property, you save on maintenance fees and property tax. Would you agree with this argument?
    b. you mentioned about your rental yield of 3.2% for the new flat, I read somewhere that this is the gross rent. After deducting maintenance, property tax, income tax, agent fees and also potential periods of vacancy, would the rental yield drop significantly?
    c. "Some buildings are approved for an upgrade from 2.1 to 3.0 thus increasing the likelihood for an enbloc potential in the future". Can you share some examples of this, i have likewise been trying to find these potential sites but have not been able to find. An expert told me that in reality URA has not increased the plot ratio of any property for a long time (like more than 30 years). URA only increase the plot ratio of land that belongs to the govt, and any private land that will increase the plot ratio will be after enbloc and application to URA, and developer has to pay extra for the plot ratio increase. And this is usually on sites that are near MRT or key nodes. If URA changes plot ratio of an existing property, then these owners will suddenly get a big windfall and surely this could lead to a lot of unhappiness. There are past enbloc properties that some say are due to the increase in plot ratios, and these seem to be very old properties of more than 40 years. I am really unsure of this, so if you could share some examples of existing properties that have increased plot ratio by URA in the recent past, that would really be great.

    ReplyDelete
    Replies
    1. Hi Anonymous

      If you could drop me a private email I would gladly share those information you asked. Just don't feel like replying in this public forum space for some personal information.

      Delete

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