Let me share with you one of the early cases I encountered in my real estate career.
In 2011, I got to know this 39-year old professional working in an educational institution.
She was contemplating between staying in a HDB flat or a small private condo near the city area.
She started her search in the beginning of 2010, going round viewing properties every week and talking to friends on options.
Basically to find out what is the “best” plan. This lasted for almost 2 years until she eventually bought in end 2011.
As she was single, a 1-bedroom unit would actually suffice.
So she narrowed down her choices to:
- a resale HDB near her parent’s place in Bukit Panjang
- a boutique private condo development called RV Edge in River Valley
She had viewed the unit in RV Edge and was seriously considering buying it.
She eventually made the decision to go for the HDB flat. Her reasons – the lower quantum and bigger size.
There was no consideration about investment gains or future returns. Also her flat was only 7 years old then.
She also felt that since her flat was only 7 years old then, it would still give her some capital appreciation at the time of sale.
Her reasoning – “It’s for my own stay so investment returns are not necessary.”
The main goal was a quiet and nice place to stay.
She also wanted a lower mortgage liability. Who doesn’t?
Fast forward to 2018
She has fulfilled the 5-year MOP period and was actually reviewing the prices of her Senja Road flat.
Currently, she is now stuck. If she chooses to sell the flat – it will be a negative cash sale.
The simple reason?
The HDB flat operates like a lease and as time goes, its retention value can go lower.
What about her alternate choice – RV Edge?
In 2011, she was just as keen to buy a unit at RV Edge.
She was almost going to place a cheque for a unit on Level 4 in this small boutique development.
The price of this 1-bedder unit was $714K in 2010. If she were to sell it now, she could get $835K.
$121K profit versus an approximate average loss of $40K.
Let’s compare to a private condo development called Maysprings. It is an aged condominium located at Bukit Panjang – so she would still be near her parents.
Even buying an old condo – there would still be marginal gains.
Assuming if she bought in 2011 at $740K and where the capital appreciation would be increasing at a very gradual pace.
She would still be able to sell at least $770K in 2018 or 2019.
Do take note – we are actually comparing the boom days in 2011 – when prices were considered crazy high and led to a lot of cooling measures in 2013.
And right now in 2019 – where the demand has softened.
From this illustration, it is evident that even an old-aged condo like Maysprings is still able to retain and increase its value marginally.
In hard choices – we tend to prefer the safest option
It is always 20/20 vision whenever we look back in hindsight. Everything is so clear.
Let me share with you a story about another client. I was not an agent yet when he made his early property purchases.
But it helps to answer this question:
“Who doesn’t want a lower mortgage liability?”
Now this client of mine – who has a family of 4 – made a decision to buy a 2-bedder unit at City Square Residences.
This was back in 2006 when it was first launched. I was not an agent yet.
Now as someone who has responsibilities – like having a wife and 2 children to support – he made a decision to take up a $670K mortgage liability.
Do not fall into a trap of excusing yourself and say “That was in 2006 and it was only $670K. So cheap!” Hindsight is always clear.
In 2006, a $670K mortgage liability is probably similar to a $1 million mortgage liability in 2019.
And guess what: he still has his old HDB flat which he has bought in 1998 – he has been holding on to it.
So he had not 1… but 2 mortgage liabilities to handle! Imagine that and having a family to feed as well.
I met him last year to review his property portfolio.
He tells me he is planning to retire and is unsure of what to do next.
But what he is sure of is this – he wants to retire with passive income and not work so hard anymore.
By nature – we are hard-wired to avoid risk
For this client of mine who is planning to retire in 5 years’ time – he has plenty of choices!
He can choose to sell the freehold condo at $1.5 million if he wishes and extracts the gains. Those gains can be parked into a private annuity plan and he can get paid for the rest of his life.
He can choose to continue to receive rental income – City Square Residences is highly sought after for tenants. But of course, managing a tenancy has its own set of headaches.
He has also been earning rental income for more than 10 years – so he has actually made more than enough….
He can also choose to sell both his HDB and his condo unit… and buy a brand new unit condo to stay in. He can then ride on a steady property appreciation which he can exit out in a 4 to 5 years time.
Or he can keep his HDB, sell his City Square Residences unit and buy a brand new condo. There are many permutations and possibilities and choices available.
Whatever his choice is – he has come out on top and will be on the positive side.
His mortgage liabilities has actually turned out to be good investments. Who knew? 😉
Choices are hard because of fear of the unknown
I know because I’ve been through it.
Why would a 25-year old expose herself to mortgage liabilities? It is not easy to accept and take on a million dollar bank loan.
The good thing about being a property agent is that I have educated myself and I understand about the need for property investment.
This education was not from a classroom but from
- handling transactions every single day
- walking the ground and meeting owners and tenants
- negotiating with buyers and sellers
- attending seminars and trainings
- networking with other agents who shared their own experiences
So the “unknown” is actually a more “known” environment right now.
The fear is actually still there – our brains are hard-wired to avoid risks – but that’s why we take action in spite of fear.
In this case, it is paying off for my client who now has a myriad of options in front of him.
His funds are not stuck in a property and he even has made significant 6-figure gains – just nice for a retirement nest egg.
In this article, I shared what happens when once decides to take the path not usually taken.
It’s a mistake to think that in hard choices, one alternative really is better than the other.
The truth is we’re too unaware and lacking in knowledge to know which one is better.
And since we don’t know which one is actually a better choice – we decided that we might as well take the least risky option.
The main cause: Simple misconceptions and misunderstandings.
If you are planning to enter into the property market, I invite you to contact me for a no-obligation consultation session.
Let me help you get clarity by clearing any potential misconceptions you might have.
For most people I’ve met, their goal is always narrowed into a very small part of the picture eg a bigger place, near to parents.
Your context and worldview is usually very limited as you are not exposed to the property market.
Through our meeting, I can show you the much bigger picture and other details you might have missed out.
Of course, there is absolutely no obligation for you to follow my advice or take action after our meeting.
Ready to have a chat with me?