Hi Nix. I think you need to factor in rental cost. If you don't buy a house, you will have to lease a house and pay rent. If you buy a house outright, you benefit from staying in it rent-free. Of course, if you borrow money to buy a house, your rent is effectively the interest that you pay the bank. The question is whether that interest paid is more or less than the rent you would have had to pay if you had not bought the house in the first place.
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Hi Anne in Oz,
If you noticed, I did not mention a word about renting in the post. In general, renting is bad, bad, bad. With the constant drumming of this from real estate agencies, hardly any one will think renting is good. In Western Australia, renting may not be necessarily bad and I can provide figures to prove it. I can't promise when I have the mood and the right lazy weekend afternoon to get myself doing it though.
The point of the previous post was to minimize the damage high interest rates can and will do to us if we over-leverage. Personally, I think it is dangerous to have a mentality of offsetting our rental rates with interest rates. That is simply another sales pitch constantly indoctrinated into our minds by real estate folks. I mean, they have good intentions to find us a house with a mortgage payment similar to our rental payments but we tend to fall into the trap that you mentioned, over-purchasing to our needs and ended up paying more interests than rental. People also tend to forget as a home owner, all maintenance cost, repair cost, property tax, strata fees (if any), council rates and who knows what other levies in future will be weighed entirely on our shoulders. In a high labour cost environment, repair costs burns. That is the reason why if people think they are paying $350 a week for rent and should get a house paying $350 a week for mortgage repayments will be in for a nasty surprise.
Yes, I do encourage getting out of rental but in the correct way with the correct mindset. I highly recommend reading this work of genius [link]. Every Singaporean should read and think hard about it. This is the kind of mentality that will help the new migrant to Australia of today's environment. Gone were the days where the median price of nice green titled Aussie homes were around the A$200,000 range. Today, we have to react correctly to the new market forces. The impact of getting ourselves a A$450,000 loan is a big difference to getting a A$150,000 loan that earlier migrants would have taken up. That impact may actually hurt us more than staying in a rental setting a bit longer if we do the sums correctly.
I will iterate the importance of assessing the proper situation instead of relying on the old advice of getting the 'standard' 4 x 2 because it is 'easier to sell'. Perhaps there isn't a question for large families. They need space. Even couples need space, we all love space. But we have to bear in mind space costs us money. The extra space that we do not need cost us rental. We pay interest rates to the bank for the space the empty bedrooms that we hardly use, except for storing dusty Hello Kitties, which may very well be better off in the storage shed or bin.
Look at it from a business point of view. Will anyone of us rent a shop front to run a Boost Juice stall where only a kiosk space is all we needed? So why will a couple or small family need a 4 x 2 on a 500 sqm land if they do not have special plans to unitize the space, for eg semi-sustain themselves on intensive fruits/veg/herbs production in their yard? It's really up to individuals. This article is not for those who have the money to burn.
For the piss-poor folks like me, we have to understand and ACCEPT this golden triangle rule as depicted below
If you want a large and new house, you've gotta move to a further location like what my friends Joe and Sam did buying their first home at Byford. If you die die wants a good location but unwilling to go small, you have to accept a old house and do repairs yourselves over time. The house will eventually be uplifted if you have the patience. If you hate old houses but still love location convenience, then you have to accept a new but small place. You can always call it 'cosy' to make yourself feel better, just like my guests will call my current rental place. If you expect a big place, good location and sparkling new good condition home but do not have deep pockets, you are in for a miserable time by sinking yourselves into deep loans. Please lah, ai pi ai qi ai dua liap ni. No such thing in Singapore, so don't expect it to be any different in Australia.
Absolutely agree with you that it's not wise to over leverage. In fact, no debt is best. However, I do think that in the decision-making process of buying vs. not-buying, rental cost has to be factored in. Also non-quantifiable factors such as ease of finding a rental house every couple of years, cost of moving repeatedly, disruption to family etc. For us, we have 5 children and a dog, so trying to secure a rental property is a nightmare. In any case, once the decision is made to buy, I agree with you that one should definitely not buy more than is necessary for one's needs.
ReplyDeleteOther than mortgage, we don't have any debt. I am anxious to pay off the mortgage as quickly as possible. As mentioned to you earlier, the plan was to use CPF money to pay off the mortgage. It now appears that that is going to be difficult because of the restrictions in bringing money over. So unless someone with prior experience can tell us how CPF can be brought over without being taxed, we will have to pay off our mortgage the old-fashioned way and pay it off in as big instalments as we can afford every fortnight. Even if we manage to pay off the mortgage in 6-10 years, we would still end up paying a lot more interest than originally anticipated :-(
There's always two sides to the coin. That Nix is spot on, doesn't make Anne's analysis any less right.
ReplyDeleteJust like mortgage interest rates, your current rental rate is not a given. It really depends on the market. For example, I've heard that Melbourne has an oversupply (do we smell bubble?) of houses, which tips the scale somewhat towards renting. Especially given that the lowered interest rates are also driving up home prices.
However, my preference at this stage leans towards owning my own property. Singapore hang up. I rather deal with a bank than with (potentially) numerous landlords, not to mention moving house more frequently.
Having said that, A and I will do the math and consider all angles very carefully. Usually when we take a good hard look at reality, we manage to put our hang ups one side and minimise their influence on the decision-making process.
Anne, does CPF have to be taxed once it is brought over to Oz? Even if it is, the question would be (obviously assuming you have citizenship in Oz and QUALIFY to renounce SG citizenship and withdraw CPF), would you rather leave your CPF in the good hands of the Singapore Gahmen, or trust yourself to manage your own money.
Most Singaporeans I know don't expect to see their CPF, but are disturbingly resigned to that fact and don't make any fuss. Can anyone say: "Sheeple"?
-S
If I understand my tax accountant correctly, we should have brought the CPF money in within 6 months of moving to Oz so that no tax is payable. For most people, this is difficult because it means having to renounce Singapore citizenship within a few months of leaving Singapore and being stateless since the requisite 4-year residency period for Australian citizenship is not yet satisfied. In any case, this is no longer relevant for us.
DeleteOnce we obtain Australian citizenship and renounce Singapore citizenship and want to move the CPF monies over, the entire amount is taxable at income tax rates. The only exception is for the CPF to be moved to our Australian superannuation fund in which case 15% of the interest earned on the CPF from the time you move to Australia till the time of the CPF fund transfer is payable. For ease of computation, it is therefore important that you get a CPF statement of account showing the amount in your CPF as at the date you move to Australia.
Hope this information is useful. Sorry if I am making this even more confusing than it ought to be.
Hi S (Neurotic Ramblings),
ReplyDeleteThis article refers to UK pension funds, but I think applies equally to Singapore CPF funds. If you transfer within 6 months of moving to Oz, I think there's no problem. However, when we moved to Oz initially, it was on a 457 visa and we did not know if we were staying in Oz or moving back to Singapore. By the time we decided, the 6 months' moratorium on moving CPF monies to Oz was over.
It would appear therefore that we are subject to the AUD150k per annum rule PROVIDED the funds are transferred from CPF to our superannuation. Which doesn't help us with our mortgage :-(
http://www.superguide.com.au/boost-your-superannuation/how-do-i-transfer-a-uk-pension-to-an-australia-super-fund
Hi Anne, the link was very helpful!
DeleteProblem is, unless you are a Singaporean PR moving to Oz, moving your CPF within 6 months of taking up Oz PR is impossible. Only PRs have the luxury of the option to renounce their SPR when they quit SG. :/
I guess the way forward for my wife and I is to just suck it up and pay the relevant taxes. We'd still want to dig out our CPF asap, since we are very serious about making everything permanent.
-S
Oops, sorry for spamming, Nix.
DeleteAnne, CPF can be withdrawn in cash, which can then be transferred into your normal SG bank account, which you can then slowly transfer to Oz. I'm not sure if this gets round the quandary we worry about..
The link you posted seems to be more applicable for doing a CPF to Super transfer. Then yes, outside of 6 months, the Oz Govt would be very happy for their bonus.
Hi again Neurotic Ramblings,
ReplyDeleteThe slow transfer you are referring to technically does not absolve you from tax. It's simply bringing in money under the radar. If ATO catches on, tax on all the monies brought in is payable PLUS interest and penalties. It's not too difficult for ATO to discover these transfers if they audit you because they are entitled to pull up your bank account records. For straight-thinkers like me who have been trained by the Singapore Gahmen to follow rules, I don't know of any creative ways to get around the tax issues. I could do as you suggest, but I'd have sleepless nights wondering if I'm going to get audited by the tax office.
What about using trusts? Is your accountant able to provide some insight on that?
DeleteConvert to gold, coconuts or Hello Kitties. A friend of mine borrowed from a Singapore bank to buy a house in Australia. The money brought in, of course, is not taxed and went straight into the house. The ATO will eventually tax you when you see the house with capital gains anywhere. There is no escape. Don't be paranoid lah. What's the difference in bringing funds from Singapore bank to buy a house and bringing your withdrawn cash from CPF to pay up your mortgage?
DeleteCan you use a foreign bank account to pay for the house here? What if one uses parents bank account to pay for the house and says that it is a gift from them?
ReplyDeleteNix, I think there is no tax on capital gains on your primary place of residence. And hopefully you are right and I am being paranoid :-)
ReplyDeleteFrederick, I will check with tax adviser. Thanks.
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