Monday, 19 February 2018

Areas Where We Saved for Our House Purchase

I have never been a fan of property investments, mainly because of the demographic changes that Singapore will face in the next few decades. See A Prediction About Properties 13 Years Ago for more information. Yet because I am planning to get married, I have no choice but to get a property of our own. I could not possibly be telling my girlfriend "let's not get married now, considering property prices are so high. 5 years later would be a better time, and 10 years later would be even better". You can guess what would be the outcome if I said that. So, no choice, we had to look for a property. After considering each other's preferences and aspirations, we decided to look for a condo first, before looking for a HDB flat if no suitable condo came up.

The area we looked at is somewhere in between where both our parents are staying. There are a couple of condos in the area, some are more than 10 years old while others are still being built. To simplify the discussion, we will just discuss 3 condos, let me call them Condo A, which is 10 years old (as at last year when we were house hunting), Condo B, which is 5 years old, and Condo C, which is still being built. The types of units we considered are 2-room, 2+study and 3-room. All 3 condos have these units.

Thankfully, we found a 2-room unit in Condo A that we both liked. It turns out that it is also the lowest-priced condo among all the possible permutations. After we bought the condo, I checked the average price transactions for the past 1 year (Jan 2017 to Jan 2018) for the 3 condos on SRX, a portal for buying, selling and renting properties in Singapore. There is quite a large price differential between the different condos and unit types.

However, before I discuss the price differentials, there are a few things to take note. Firstly, the floor area is not the same for different condos even though they may have the same no. of rooms in the units. Based on the 3 condos being discussed, the newer condo tends to have smaller floor areas. To make the comparison more meaningfully across condos, I compare using floor area of the unit instead of how many rooms the unit has. Secondly, while the floor area of an unit is well-defined based on the information from SRX, the no. of rooms is not so certain. There is some guesswork whether the unit is a 2-room unit or 2+study unit based on the floor area. Thirdly, as Condo C is still being built and sold, there are a lot more transactions than the other 2 condos. Its prices will be more reflective of the rising investor sentiments compared to the other 2 condos. On average, Condo A has 3.1 transactions per month, Condo B has 1.6 transactions, while Condo C has 12.2 transactions.

Below is a summary of the average transaction price (not price per square foot) of the condo units, by no. of rooms and floor area respectively.

Rooms Condo A Condo B Condo C
2 $953 $1,000 $1,027
2+Study $979 $1,039 $1,091
3 $1,182 $1,277 $1,226
4 - $1,546 $1,532
5 - - $1,717

Area Condo A Condo B Condo C
701-800 - - $1,027
801-900 $953 $1,000 $1,091
901-1000 $979 - $1,226
1001-1100 - $1,039 -
1101-1200 $1,182 - $1,532
1201-1300 - $1,277 -
1301-1400 - - $1,717
1401-1500 - $1,546 -

Size Differential

As mentioned, all 3 condos have 2-room, 2+study and 3-room units. In condo A, compared to a 2-room unit, a 2+study unit is $26K more expensive on average while a 3-room unit is $229K more expensive.

Across condos, the price differential generally tends to be larger for new condos, at least for the 3 condos discussed. 

Age Differential

For a unit with a floor area of 801-900 square foot (equivalent to a 2-room unit in Condos A and B, but a 2+study unit in Condo C), compared to Condo A (10 years old), Condo B (5 years old) is $47K more expensive and Condo C (still being built) is $138K more expensive.

Similarly, the larger the floor area, the larger is the price differential across condos. For a unit with floor area of 1101-1200 square foot (equivalent to a 3-room unit in Condo A and 4-room unit in Condo C), the price difference is $350K.

Other Differentials

The above 2 factors are only 2 out of many factors that can affect the prices of the units. Some of these include whether the unit is facing a beautiful water body like river/ lake/ reservoir, height of the unit, etc.

Savings

Within the limits of affordability and loan eligibility, we did not use price as the yardstick. But by choosing an older condo, we saved $47K to $138K for an equivalent unit of 801-900 square foot and by choosing a smaller unit within the same condo, we saved $26K to $229K. In total, we saved anywhere from $26K to $324K, depending on which unit is being compared against.

There is probably another area that we save money on, but it could have been reflected in the higher prices of the condos. I prefer that the condo we buy must be within walking distance of a MRT station. This way, we save on not having to own a car. A car could easily cost $100K, not to mention the running costs. Since a car can only last for 10 years, we will probably need 2 cars to last us until we retire, so that translates to another $200K in future savings at the minimum.

Conclusion

I still believe that properties are not good investments over the long run. But sometimes, you just cannot choose the timing of your purchase. And thankfully, we found a condo that we like and can afford with a loan.

Last but not least, wishing all readers a Happy and Prosperous Chinese New Year!


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