“Dwell in the rarity of an urban utopia.”
A nice tagline indeed. I have been looking at Geylang area for a while and a new launch just next to the MRT spark my interest. So after dropping off my cheque to indicate my interest, I started to do some serious number crunching.
The first question on my mind is affordability. Am I buying within my means?
I have already work out that I can afford the 5%+15% down payment as well as secure a loan. My concern here is if I am able to afford the monthly expenses. I am pretty sure that the mortgage loan is not the only monthly expense. Hearing words like “as long as your rent can cover your mortgage” is too simplistic.
After consulting with some friends, this is what I came up with.
A few notes.
- I am looking at a 1 bedroom at a high estimate of $700K.
- I am buying solely for investment purposes i.e. rental yield/capital gain.
- I am assuming a worst case scenario.
Mortgage at 3.5%: No one can be sure how long the low rates will hold but I am very certain it will rise eventually. Banks safe guard themselves by using 3.5% when calculating how much to loan to you so I do not see a reason why I should not.
Maintenance $300: Seems awfully high for a 1 bedroom unit. A 2 bedroom up to a 4 bedroom cost $360.
Utilities: A guesstimate that even if left vacant there will still be some form of utility bills.
Property Tax: Although $2k is more realistic based on current rates, I want to do a stress test if I can afford to pay more tax.
Renovation and furnishing: This is usually a onetime purchase, but since it is also part of my cost, I decided to break it up into a monthly expense. I used the information from Singapore Furniture Rental and together with other furnishings like curtains, lightings, electrical appliances, I come out with $400/month.
Internet: Usually signed as a one or two year contract. Hence even if there are no tenants I will not want to pay a penalty to cancel it.
Insurance: I got this quote from my AIA agent.
Adding all it all up, I got a whopping $3,716 or $3.8K! If I rent it out at $2K, I still have to fork out $1.8K a month. What ever happen to the concept of using other people money to pay for your property?
Second is the ability to hold during a market downturn.
A property investment is for the long term and the last thing I want is to be forced to sell when the market is bad. I would think 3 months of emergency cash (property only) is the bared minimum. This work out to $11.4K.
Finally price. Am I buying at the right price?
At $700K 420sqft, it works out to $1,667 psf. This is on par with the nearby freehold properties which has just TOP. Granted that Tre Residences has a better location and facilities, but I am buying at market rate. Our finance minister Tharman just mentioned two weeks ago that there is still some distance in achieving meaningful correction. He also mentioned in July that Property may fall but crash unlikely. I believed it is not in the interest of the government for property to crash. Hence barring unforeseen circumstances, I will safely put a correction of 5 – 10%.
Interesting enough, I attended PropNex seminar on Tuesday evening and Mr. Ismail used the same Tre Residences as a example of a good property purchase. He used a 1 bed room with a purchase price of $600K ($1,428 psf). At an interest rate of 1.5% over 25 years, the loan will be $2K a month. The rental is about $2K as well so you can cover the mortgage. He estimate that in 25 years, the property will have risen to $1.2M (based on 3% inflation). You will thus have made a 100% profit. Some mind blowing figures!
I agree with Ismail that at $600K, it would be a steal but I do not think that will happen. From what I understand, a more realistic number will be $655,500 ($1,561 psf) after 5% early bird discount. I worked out my sums but I am still not buying it. A comfortable amount for me will be $630K ($1,500 psf).
I am hearing that the there is strong interest in 1 and 2 bed room units and chances of getting a queue number is slim but I am not worried because even if I am successful, I do not think the developer will slash the price to $630K.
Is this an opportunity lost? I do not think so. Everyone is talking that it is a buyer’s market but it is also a tenant’s market. Property prices are strongly linked to rental yield. With a lower yield, property price will come down. Also, a mammoth 1000 unit development nearby is launching soon and coupled with completion of new units in the following months, more opportunities will open up.