It was year 2005, we were still counting our losses and trying to figure out how much was left in our CPF account after the loss. The fortunate thing is we didn't have to top up the "CPF losses" suffered from the sale but the bad news is, there wasn't much money left anyway. :-) The loss has almost wiped out our CPF accounts and we each have a couple tens of thousands remaining that can be utilized.
There is a silver lining in that we have almost been working for more than 8 years and have been diligently saving up over this period but the combined amount isn't fantastic, probably around $100k. Coupled with the remaining $50,000 in the CPF, we have a capital of $150,000 to start with. Armed with $150,000, we started to look for properties which we can invest in.
In 2005, there is a wonderful wealth creating instrument called the "deferred payment scheme". This scheme was set up during the property doldrums and was withdrawn in Oct 2007.
Basically a deferred payment scheme ("DPS") works like a "call" option. You pay 20% of the purchase price (for the call option) and pays nothing till it TOP, which can be 3-5 years down the road.
Given that we had just suffered a big loss, we were very wary of getting into another debt situation and was certainly in no mood to pay for mortgages. The DPS suits us perfectly. By working backwards, we figure that ($150,000 divide by 20%) we can afford to pay for a $750,000 condo. We then worked out that a 1,200 square foot condo will meet the needs of a small family. In other words, we need to find a condo that can 'fit ' a small family for a budget of $750,000.
I got this chart below from Propwise to show you the various districts in Singapore.
Having learnt our previous lesson that location is very important, we set out to find condominiums in district 9,10,11. Oh boy, we realized that $750,000 really couldn't buy us a decent size unit in these high class districts. The new condos of a 1200 sq ft size were selling for at least $1m. We probably couldn't' afford it. To be honest, I don't think we tried hard enough, we weren't experienced enough and we definitely weren't creative enough. If you think about it, $250,000 x 20% = $50,000. If i can use some short term borrowings from the banks, i can possible fork out the extra $50,000 needed to secure a condo in a better location. We decided to give these districts a miss and moved to the fringe city area, district 8.
With the benefit of hindsight, the decision not to buy a condo in district 9,10,11 back then was definitely not a 'wise' decision because in the any market run up, the 'blue chips' always run first and this was exactly what happened in the subsequent run up. The condos in district 9-11 moved up first in a significant way before it spreads to other districts.
Lesson learnt - Location is important (once again) and prices in prime districts always move first.
There is one trait which a lot of Singaporeans have in common. We all like new things. New condo, new car, etc. but frankly, new things may not be the ones that offer the best value. The reason why i said we didn't try hard enough is because we were looking for new condo launches in these districts that offer defer payment scheme. We were probably 'blinded' by the glitzy brochures, the designer show flats but fundamentally, we like new things.
I have a friend who bought an old apartment in Cairnhill Mansion in 2005 from a bank sale. He paid $1.1m for a 2,000 square foot apartment. If you can see from the prices below, he is already sitting on excellent profits but he is waiting for it to be 'en-bloc' eventually.
Anyway, back in 2005, we didn't have much money and we have zero experiences in real estate, especially private properties. There wasn't anyone to guide us along or give us directions and we only want 'new stuff' and weren't even looking at the older apartments. In addition, probably there weren't many good property websites or blogs back then to guide us.
Lesson learnt - Widen your horizon, don't just focus on new property developments. The older developments may offer better value for your money.
In my next posting, i will share with you what happened when we were searching for a new condo in district 8 and the lessons learnt from that episode. It was an interesting episode because that was our first private property purchase and we had to choose between 2 condos that were newly launched at that time. Ciao and have a good weekend!