Real Estate Thoughts

I'm happy someone finally hits the calculator and realise what kind of trouble we'll land ourselves in if we go straight right for the 'standard' 4 x 2. There is no such thing as standard. When someone told me I had to spend 3 months of my salary on a proposal ring so that my wife will be happy ever after, I showed my middle finger. In life, if we do not learn we show our middle fingers at the right time, we'll end up with dusty Hello Kitties and very little money, that is all.

Properties in Australia have gone up two-folds in the past ten years. I've iterated like a broken record that another two-fold from the current price is going to take a long, long, time. Yet everyone I met seem to tell me the price of properties can only 'go north' (whatever that shit means) and it is therefore, safe to buy properties in Australia.

Well, I can't say the people are entirely wrong. If you can dump a truckload of cash into it, why not? You'll get a decent capital appreciation for it by the time you sell up sometime in future. But if you borrow, and borrow lots of money to finance that 'standard house', good luck. That's not how the game should be played in an environment like Australia where banks charge very high interest rates. My wise newly migrated friend in Melbourne is a smart woman and wasted no time to tap the calculator real hard to force it to reveal the money traps all round. [tool]

The 'standard' 4 x 2 house in Perth these days cost about half a million bucks to build. Say if we are prudent enough to hold a cash stash of A$100,000, we will still be required to borrow a whooping A$400,000 to build that house. If we were to borrow A$400,000 for 25 years with the interest rate of 7%, the total interest payable will be $448,136. The interest that we pay is double of what we borrow. It means this house will cost someone of this borrowing profile A$848,136 in total. Even if we shave the interest rates by 2%, the house will still cost about A$700,000 in total. I think all of us understand this simple calculation how interest works against us. So what if we don't even have A$100,000 to begin with?

If we sell this house for A$900,000 25 years later, many of us will assumed we made a profit of A$500,000. That's a cool half a million profit. Wrong, because A$848,136 actually came from our own pockets. So our real profit is really A$42,000 which is 4% of our total cash investment. That works out to be 0.16% per year on average across the 25 years span. Quite pathetic but that, we delude ourselves by calling it capital appreciation. Now, what if we cannot sell that house for A$900,000 25 years later? Really bao jiak meh?

It's a different story if the buyer has a truckload of cash of A$400,000 and only needs to borrow A$100,000 to build that 'standard' house. He will be paying a total interest of A$112,034 with everything else equivalent. Some of you may point out you don't need 25 years to pay a loan of A$100,000 that's let's keep things the same for comparison purposes. The total outlay for this house will be A$612,034, a far cry from A$848,000. If this chap heng heng sells his house for A$900,000, there will be a real capital gain of A$288,000. Having said that, that gain works out to be only 1.88% per year on average. Real estate, a good investment? Bullshit. Not always the case.

In a high interest environment, the rules of the game totally change. We come from Singapore and we are used to the old rules. It was almost a sure-win, buying a house with maximum loan and low interest rates and selling the house for a high capital gain in a once-in-a-lifetime unique situation when the country is undergoing its economic golden age. The same strategy will never work in future, not even in Singapore, when our population reaches the projected number. In a high interest environment like Australia which has also seen the passing of the real estate golden age, it's suicidal to take on high loans to live the 'standard' way.

There is only a few options to consider.

1) Buy a 'non standard' house, or even rural, if you have to have space.

2) Get the loan at a very much lower interest rate to the local rates and never forget rule 1)

3) Rent out every single bloody room or shed or kennel you can to pay up the loan in as fast as you will wash poison off your hands. That defeats the purpose of comfortably living by yourselves, with all the landlord/tenant issues so you may be better off sticking to rule 1)

If you are cash rich, there isn't a problem anywhere you go. You can do anything you want, the rules always favour you. If you are piss-poor like me, don't get into the trap. There is always a day in future when the full moon will rise, shining brightly than all the stars in the sky combined.

Think hard and be patient.


  1. Well done!

    For all the plaudits that Singapore youngsters get at the International Mathematical Olympiads, they don't seem to be able to do easy calculations like yours when they reach adulthood and join the workforce.

    Probably because such problem sums are not found in 10 year series.

  2. Nix,

    People who think out of the box and are willing to compromise, can get good lobangs only because the rest of the world wants to go in a certain direction.

    The day everyone wakes up and realises that they should not try to have their cake and eat it, is the day the sensible and thrifty fellas like us are screwed.

    It's like commuting. If possible, don't swim with the pack. I stay in the west of SG and used to work in the east. Of course got morning traffic, but it's way worse in the opposite direction. Yet, home prices in the east are so much higher.

    Granted, air quality in the 'far' west of SG is poorer, but shift northwest a bit to CCK, Bt Batok, Pt Panjang, prices are less ridiculous (vs Clementi for e.g.) and the air is better, pan-island commute is also better. This applies even for those not driving, and commuting to CBD.



    1. "If possible, don't swim with the pack."


      Just because all the fishes are swimming in the same direction, it doesn't mean they know where they are going.


      says it all. brilliance

  3. 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.

  4. We bought a house with the idea that we could pay it off once we got our CPF money out from Singapore in a few years. The problem we've just realised is that CPF cannot simply be brought in - we've been told that it will be considered income and taxed accordingly. The way around it is to bring it into our superannuation. A transfer from retirement fund to an australian superfund is allowed, subject to a maximum of AUD150k per year. It is permitted to lump the first 3 years' worth of transfer and transfer AUD450k upfront into your superannuation fund.

    The problem with that is that the money is now stuck in the superannuation the same way it was stuck in CPF and cannot be used to pay off the mortgage. Now we have to think of some other way to pay off the mortgage. How have past Singaporean migrants brought in their CPF money? I would be very grateful if someone could share with us their past experience. Thanks.

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    1. That is bringing the money in "under the radar" of the Australian Tax Office. I understand that the money brought in is considered income and is taxable at income tax rates. So if caught by the ATO, there will be penalties payable on top of the tax that should originally have been paid.

      Once it is legally brought into the country and put into children's account, then yes, the interest earned is not taxable.

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