New Condo OR Resale HDB? Same Cash Outlay?!!!
In my previous post, I shared that marketing gimmicks by some property agents can cause us to have unrealistic hope, only to dampen our expectations when we discover the real truth.
Most of the HDB owners CANNOT afford to own two properties with a combined gross income of $5,000. To find out more, read here.
Having said that, many HDB owners CAN actually afford to buy a resale HDB at a good location or a new launch condominium at a relatively convenient location.
What most people do not realise is this...
It takes SIMILAR cash outlay and monthly instalment to own a new condominium as compared to owning a resale HDB.
Before you think this is yet another marketing gimmicks, allow us to present to you with facts and figures. As we mentioned before, do NOT get your emotions involved when it comes to property purchase. It must always be supported by facts and figures. Ultimately, property purchase involves one of the, if not, the largest financial figure in your life.
In fact, what we are going to show you does not just apply to HDB owners, it also applies to FIRST-TIME property buyers, as long as the gross income matches the criteria.
Are you ready?
Resale 5-room HDB: *$750,000
New 3-bedder Condo: $1,200,000
*This is an estimation based on 5-room HDB around Serangoon Central, Ang Mo Kio and Bishan areas.
Cash outlay for Resale HDB
Mortgage Servicing Ratio (MSR) = $3,004
Total Gross Income Required = $10,013
5% cash downpayment = $37,500
*Renovation cost = $70,000 to $80,000
Total cash outlay = $107,500 to $117,500
*Most resale HDB flats require thorough renovation. The hacking, re-wiring and plastering cost alot higher.
Supposed that you choose to take a HDB loan, you will have zero cash downpayment. The total cash outlay will instead, be $70,000 to $80,000.
Note: It is NOT advisable to take HDB loan, which charges at a higher interest rate (than banks) of 2.6% per annum. To find out more on why it is not advisable, you can read this earlier post that we wrote.
Cash outlay for New Condo
Total Debt Servicing Ratio (TDSR) = $4,311
Total Gross Income Required = $7,185 (MUCH LOWER than resale HDB!)
5% cash downpayment = $60,000
*Renovation cost = $10,000 to $20,000
Total cash outlay = $70,000 to $80,000
*Most new condos only require minor/simple renovation as most of the fixtures & finishings are already completed by the developers.
From comparison with the figures, you can see that the cash outlay for a resale HDB flat is the SAME as that of a new condominium. If you were to take a bank loan for resale HDB flat, the cash outlay is EVEN HIGHER than buying a new condominium!
Now, let's compare the monthly instalment.
MI for Resale HDB
Maximum loan tenure = 25 years
Maximum HDB loan = $675,000
Monthly instalment = $3,062 (HDB interest at 2.6% per annum)
MI for New Condo
Maximum loan tenure = *30 years
Maximum Bank loan = $960,000
Monthly instalment = $3,453 (taking bank loan interest at 1.8% per annum, which is the present rate)
Re-pricing/Refinancing = $3,082 to $3,148
*The loan tenure can further be stretched to 35 years, up to the age of 75 years old. This will be done via re-pricing or re-financing.
Comparing the figures, you can see that the monthly instalment for a resale HDB is almost SIMILAR to that of a new condominium! The difference is only $20 to $86 per month!
Question: Why should I own a condominium instead of a resale HDB, since they have similar cash outlay and monthly instalment?
If you would like to stay in the resale HDB for the rest of your life, it is absolutely fine to purchase a resale HDB. There isn't much difference between the two.
However, should you intend to sell in future, which property would give you a higher capital appreciation aka profits?
Which property would stand a higher chance of appreciating $200,000 to $300,000 in 5 to 7 years' time?
The Resale HDB OR the New Condo???
The new selling price for the resale HDB will have to be $950,000-$1,050,000! Is this really possible?
If you haven't read about the history of HDB prices, you may want to read here.
On further note, the downpayment of a property always goes into the total principal amount, which comes back to you when you sell the property.
For example, if you have used $60,000 cash for the new 3-bedder condo, this $60,000 goes into the principal amount. When you sell the condo in future, the principle comes back to you fully.
However, the renovation cost of a property does NOT go into the total principal amount. If you have used $70,000 to $80,000 cash for the renovation of the resale HDB, this is an amount LOST immediately. It will not come back to you when you sell the resale HDB in future.
Do you realise the opportunity cost that you would lose, if you decide to go for a resale HDB and sell it in future?
Before you make any property purchase, it is vital for you and your partner to do a proper financial calculation and detailed analysis. Do NOT make a hasty decision.
It is our desire that this blog entry empowers you as a property buyer before you plan towards any purchase. Hope it helps!
For more information on asset progression and risks calculation, as well as to receive a free assessment on wealth creation and financial multiplication, click here.