Consider buying an EC for investment to sell once it is privatised. Lets say for instance, you bought a nice swanky 3 bedroom unit in Yishun for $800,000 which is the price range for most EC, let's not talk about $ psf because the numbers are generally misleading.
misleading how?
simple, you cannot sell half of your unit right?
Back to topic, for $800k, most people will hold out for about 5-10 years before. I've seen some people say 5-10 years, it gets confusing but it does not matter. Let us say 5 year (to make it more advantageous to those who say it is profitable.)
On year 5, you sell the unit for $1,000,000. Ka-ching! It is a profit of $200,000 or 25%. But is it real profit?
But hold your
It is something like this:
Bought: $800k
Year 1: $836k
Year 2: $874k
Year 3: $913k
Year 4: $954k
Year 5: $997k (or close to a million)
Lets put in the amount of money you have to fork out before you talk about selling it or realising it for profit.
When you buy a EC, you can only take bank loan, being the friendly neighbourhood banks, they will offer you a 3 year fix rate loan for 30 years or rather, but lets put the interest rates at 2% fixed for 30 years which is an extremely attractive and un-do-able interest rate, to skew things in favour of buying an EC, lets keep the interest rates low.
This is the loan repayment for a $800k flat at 2%, by year 5, you will have paid $5300+ for interest only which is very low.
so far, the costs for 5 years of EC ownership is: $805300
what about properties agent's commission? 1% commission for selling at $1 mil is $10,000.
Now, your cost is about $815300k.
We can go further to add renovation costs, maintenance costs, utilities and many more to up the costs for owning an EC for 5 years before selling. If the interest rates is 2.5% fixed 3 years and increased to 3% for year 4 and year 5, you have to pay about $1500 more just for interest alone.
If we were to factor in a low inflation of about 2-3% annually, the unit is actually losing money rather than earning when you sell it for a million.
It doesn't matter if you do not see it the way I see things, but given a very positive scenario, we are barely making a profit from buying an EC, so I hope more buyers will just take into account of these following factors that property agents do not mention when trying to market you an EC unit.
So far I have never seen any property agent able to confirm true profits of EC using maths. Then again, I have not met much property agents.
Yet on the other hand, at it's high point, BTOs bought in Punggol were selling for 3 times its purchased price, even if held for 10 years, it is more than 10% annually. If it sold for twice it's purchased price, holding for 10 years, the rate of return is more than 7% not to mention HDB loans are at 2.6%. If that is not good debt, I don't know what is.
In closing
As always, it is a good mental exercise to do some maths every now and then when it involves a large sum of money. Especially your own money!
Things aren't what they always seemed to be, do not take people's word for it.
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