Home ownership is more expensive than you think
5:08 PM
More people are jumping into the property investment bandwagon as property
investment can be quite a rewarding and satisfying investment, provided you do it
right. Do however bear in mind that property investment does not come cheap. You
should look into the best refinance home loan if you are planning to buy properties for
investment purpose to prevent getting into a financial crisis. Furthermore, buying a
property requires more than what you will expect. You often hear people complaining
about the huge expenses they spent after buying a house. With so many factors to
consider before buying a property in Singapore, this article will tell you how home
ownership is more expensive thn you think.
First of all, the cost of owning a home is more than its selling price. Think about the
costs that you have to bear after paying the huge amount for down payment :
- Renovation cost
After getting the keys to your home, the first thing that comes to your mind will be
home renovation. And home renovation might cost more than what you expect, even
if it is only a basic simple renovation. There are lots of renovation items that will cost
you a lot after you itemize them, such as the lighting fixtures, curtains, air
conditioners units, bathroom accessories, electrical works, window grills, cement
screeding, painting, haulage fee and more micellaneous fee that will add up to a huge
amount after you are done with the renovation. Sure you are allowed to take those
articles with title “renovating your home with less than $30,000” for reference, but do
read article like this with a pinch of salt as most of them do not include furnishing costs such as the beautiful furniturethat you see from the article. In addition, simple
fixutre such as the lighting is not included in their renovation costs as well.
Therefore, do set aside of $50,000 at least for the renovation of your entire home, or
at least $70,000 if you plan to follow the renovation from the articles that you have
read online.
- Interest cost
Let us assume a case scenario. Let us say if someone buys a HDB flat at $400,000 and
has paid a 10% down payment, which is equivalent to $40,000. After paying the down
payment, the buyer will still need a loan of $360,000. Assuming the buyer is taking a
20 years loan with a loan interest rate at 2.6% per annum, the total cost of the home is
more than just $400,000. The table below will show you how it works out to more
than $400,000.
Based on the table above, a HDB flat with $400,000 selling price would cost you
approximately $500,000 after you include the bank interest cost, but not including the
renovation cost.
- Opportunity cost
Bear in mind that the moment you buy a house or a condominium in Bukit Batok, you
are actually letting go some good opportunity that might be even better than owning a
home. This is one of the few options that people will ever consider when they
purchase a property in Singapore. Most Singaporeans have failed to realize that the
huge amount of money they spent in buying a property could have been used to
generate returns if they were to invest in other investing channels.
Based on the scenario mentioned above, let us say if the home buyer uses the
renovation cost of $50,000 and down payment of $40,000 in the Singapore Savings
Bond, a risk free asset, with a 2.5% return per annum. Assuming the home buyer uses the $90.000 for the investment with 2.5% annual return, the home buyer would have a
total of $147,475 after 20 years including the compounding interest. In addition, if the
home buyer uses the additional $1,925 that is meant for monthly loan repayment on
the the same investment with 2.5 annual return, the home buyer will then have a
whooping $598,626 after 20 years. That being said, if the home buyer spends the
money on investment instead of purchasing a property, he will then have a total of
$598,626 after 20 years.
Do bear in mind that you the cost of buying a house is not only $400,000 as there is also renovation cost to take into account. Therefore, it would be a total of $552,000 and that would be the actual cost of buying a house, not including maintenance fee. That being said, the home buyer should not be too happy when he is able to sell the house for $600,000. Think of the opportunity cost that he has missed out on when buying a house. A total of $746,101 could have been his if it was not because of buying a house. Of course, if the home buyer bought the house for investment purpose, meaning to say, renting it out, that will then be a valid reason in arguing that it will have a higher return as compared to investing in risk free assets.
In conclusion, owning a property is still considered a great financial decision, especially to young working adults in Singapore. However, do bear in mind that owning a house is actually more expensive than what most people expect.
Do bear in mind that you the cost of buying a house is not only $400,000 as there is also renovation cost to take into account. Therefore, it would be a total of $552,000 and that would be the actual cost of buying a house, not including maintenance fee. That being said, the home buyer should not be too happy when he is able to sell the house for $600,000. Think of the opportunity cost that he has missed out on when buying a house. A total of $746,101 could have been his if it was not because of buying a house. Of course, if the home buyer bought the house for investment purpose, meaning to say, renting it out, that will then be a valid reason in arguing that it will have a higher return as compared to investing in risk free assets.
In conclusion, owning a property is still considered a great financial decision, especially to young working adults in Singapore. However, do bear in mind that owning a house is actually more expensive than what most people expect.
Love,
2 Comments
betul juga.. beli baru atau subsale mana lagi untung kalau subsale kena pilih yg owner dah siap renovate dan repair semua baru berbaloi kan
ReplyDeleteBila nak beli rumah memang boleh sakit kepala dan rabak poket kalau tak dikira betul-betul. Mujur sekarang masih ada rumah kos rendah, rumah PRIMA, rumah Selangorku dan macam-macam kemudahan yang Kerajaan cuba sediakan untuk membantu rakyat memiliki paling kurang sebuah rumah
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