Over the last 2 weeks, there were several news stories of the rich and famous buying Good Class Bungalows (GCB). Founder of Secretlab, Ian Ang, was reported to be buying a GCB in Caldecott Hill for S$51M. Grab co-founder Anthony Tan’s family bought a GCB for $40M in Bin Tong Park and Razer CEO Tan Min Liang was also reported to be shopping for a GCB along Bukit Timah Road. Indeed, most commoners like me envy these rich and successful people. Instead, many of us try to settle for the second-best property option within our reach – a condominium, as landed houses of any size are far beyond what the average person can afford.
Condominiums and private housing seem to be a hallmark of progress in life in Singapore. First, you own a HDB flat, then you “upgrade” to a condo and if possible, a landed house thereafter. Several corporate executives whom I have encountered in my entrepreneurial and 1M65 life, have even explicitly mentioned that for them to stay in a HDB flat would mean a downgrade in life and social status.
However, many Singaporeans have overstretched themselves financially into buying a condominium for the wrong reasons. I would like to share my controversial views against 4 common reasons for buying a condominium. I am happy to have your comments, for or against my opinions.
#1 Condominium Is NOT An “Upgrade” From HDB
Yes, when compared to a HDB flat, a condo has many facilities and a posh aesthetic. However, in exchange for a lifestyle “upgrade”, you would suffer a major “downgrade” in your personal finances! The current average price of a HDB flat would be in the region of S$500 per square foot (psf), but a condo would easily be in the range of $1000 to $2000 psf!
Buying a condo would likely mean that a significant amount of your CPF would go towards your mortgage instead of compounding to a massive 1M65 / 4M65 retirement. Most private property owners would not be able to service their loans with their monthly CPF contributions alone and would have to top up with cash. The result is forgoing other luxuries of life that the money could have brought you.
Additionally, of all the wonderful facilities available in a typical condo, most residents will only use a few of them or use them infrequently. So buying a condominium is really a “trade-off”, and not much of an “upgrade” in lifestyle.
#2 99-year Leasehold Condos Decay Faster In Value Similar To HDB Flats
It is arguable that 99-year leasehold condos decay slower than HDB flats, but make no mistake, both of them will have the same outcome in 99 years’ time – their value will eventually be zero! While it is true that you have a slightly higher chance of an en-bloc sale for a privately owned condo, the chances of an en-bloc sale remains very low for a condo. So both HDB and 99-year leasehold condos will decay down to zero eventually. In fact, a 2019 report by NUS found that the price decay of HDB flats is slower than private condominiums when they are aged 30 years and above. While the price decay of 999-year leasehold or freehold ones are much slower than 99-year leasehold ones (on par with HDB), their prices are simply way too high and out of reach for most of us.
#3 “Condo Sure Make Money?” You Gotta Be Kidding…
You can lose money in condo investment in 2 primary ways. First, your selling price is lower than your purchase price. We do see this anecdotally in media reports of property sales that make heavy losses. However, it is not that common as sellers could opt not to sell their house unless there is an emergency. Yet, it is also not uncommon to see current condo prices selling at a steep discount of up to 30% to 40% from their historical highs (please watch the video of my talk as I present three tables of data to depict that).
Second, you can lose money when your selling price, though profitable, fails to cover the accrued interest of your CPF withdrawn. Had you left the CPF in the Ordinary Account, it would have compounded at an annual rate of at least 2.5%. Ask any experienced property agent and they will tell you that many of their clients are hit with a “negative sale” when they sell their condo. When you sell your house, you have to pay back what you have withdrawn from your CPF plus accrued interest. Many sellers found that all their proceeds from the sale would have to be returned to CPF. They would have simply made more money by leaving their CPF savings untouched.
In Singapore, our government has a track record of curbing the escalation of property prices. Since 2009, there have been 10 occasions that our government imposed property cooling measures, particularly on private properties. Quite a dampener indeed.
#4 Leveraged Property Purchases Come With Leveraged Risks And Heavy Debt Burden
It is true that by borrowing money to purchase an asset, you amplify the returns. Conversely, leveraging also amplifies the risk! By being laden with a million-dollar loan, most house owners simply cannot afford to lose their jobs. Landlords cannot risk a prolonged loss of tenants. During the pandemic, I have been approached for advice by several corporate executives, who were hit with job losses, or pay package cuts that they did not expect. They are laden with expensive mortgages that they cannot afford to repay. Many expats were retrenched during the pandemic and left their landlords with empty houses and expensive mortgages to service themselves.
#5 You Have To Choose Between Looking Rich Or Being Rich
Many choose to own a condo as there is a perceived high social-economic status associated with it. However, it comes with an expensive trade-off. So between looking rich and being rich, which one do you want? For me, I am quite willing to forgo the luxury of having a posh condo with a swimming pool and gym downstairs in exchange for other luxuries of life, plus having lots of money in my bank and CPF account that are compounding powerfully. Some could choose to look rich and be rich. Some could only look rich without being rich. I choose to be rich without the need to look rich.
My advice to young investors is to be frugal and humble with your housing aspirations when you are young and stay in a HDB BTO flat. Work very hard, save and invest wisely. You could eventually “look rich and be rich”, owning a private property without stretching yourself financially.
For a more in-depth discussion into this and insights and counterviews from a seasoned property professional, you can watch our video discussion here. We also discussed the controversial comparison of returns between stocks and properties, as well as deep dive into some examples of how you can better pick properties.
Conclusion: Property Has A Place In The Portfolio Of Our Investment
A good investor should have a well-diversified portfolio of assets: some in stocks, CPF, bonds, property, and other assets. With good asset diversification, the downturn in one asset is ideally offset by the upswing of another. Property in Singapore has strong value protection. I encourage property investment to be done in the light of asset diversification. However, I take issue that many Singaporeans harbour a blind faith and fanaticism in private properties, so much so that they are becoming overly stretched in property investment and burden themselves with a lot of debt.
I wish you all the best in your financial journey to being a millionaire.
Loo Cheng Chuan, is the Founder of the 1M65 Movement. He developed the 1M65 & 4M65 CPF investment strategy that is helping many Singaporean couples to become millionaires at retirement. He runs a 1M65 Telegram Group where he regularly coaches passionate 1M65 enthusiasts on good personal finance virtues and financial market analysis. Loo and Kate (his very comical daughter) also have an entertaining 1M65 Youtube video channel
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