There's a couple of ways to look at this problem, so
I'll cover a few scenarios.
I won't cover the situation where one can buy a freehold property. Cos if one has money, then this isn't a problem. The issue most of us will have is that we aren't really rich enough and are pretty stuck in the middle.
The simplest scenario is a situation like me and my wife.
We are a young couple. And we bought the HDB directly from HDB. We bought it at a discounted rate and after 5 years we are able to sell it.
Although we aren't really planning on having kids. The idea that the HDB will expire worthless doesn't sit well with me. So no matter what, I will try to preserve the "asset" if possible.
This would mean that after 15-20 years, we will likely have to move.
Why not move earlier? You may ask...
The thing is, we will only be able to sell our HDB after 5 years. We can also only buy an HDB from the market after 5 years.
Optimally, we should buy a 5 year old resale HDB and live in it for 10 years.
And sell it off when it is around 15 year old and repeat.
So similarly, we should sell our new HDB at 15 years old.
Basically we can only buy a 5 year old HDB, and we need to live in it for 10 years to make the cost of moving worth it.
For many middle aged Singaporeans, they may be starting to think about retirement at 50 years old.
They may be sitting on an HDB which is 30+ years old.
And they are thinking... "Ok now what do I do?"
I'm going to think about it as, we don't want to have the HDB expire worthless.
So the options really come down to having to move.
Value of property is always a function of a few things.
1) Location
2) Lease remaining
3) Size
Even when my parents had an en-bloc, they had to move to the outskirts of SG to extend the lease and had a slight upgrade in size, but they lost a centralized location.
En-bloc doesn't allow the family to really have much additional benefit. They just get a price premium over the market rate.
So if you want to move house but stay in the same location, but you want to extend the lease, then you have to downgrade the size.
If you want to keep the size but extend the lease, then you have to move to a not so prime location.
If you want to "win" in any of the aspects, then you just have to top it up with cash.
So if you want to keep the size and location, but still want to extend the lease, then you need to "top up with cash".
There's pretty much no way to win in this game. It's just trading around.
Cos the lease is always depreciating.
So if I'm looking at myself, I'm currently staying in Queenstown, maybe in the next decade I might move to Punggol to extend my lease.
But by doing so, I lose the convenience of the centralized location. And I will further lose out on transactions costs.
And that's the end of the story. There's no way to win this game. All the lease hold properties are depreciating.
Even if you buy a freehold property, there's also no way to trade upwards.
If you want a better location, then be prepared to give up your freehold status.
That's pretty much the problem with properties for self stay. You can't really try to time the market. The only way is to sell and rent, then buy again IF the market goes down. But how many people are willing to do this?
So that's it... It's a messed up game. If you only have 1 property and you are staying in it. It's not an investment.
You're basically stuck with it.
Cos you will stay in it, if you want to trade it off, you will have to give up something to get something else.
The only way to escape the 99 year time bomb is really to buy freehold. BUT in Singapore, I wonder if that's possible in the long run. Cos eventually, freehold properties will also go en-bloc and you'll just have to move out and trade into another place. Furthermore, developers will just sell newly developed place as 99 year leases.
So if we look at this in the super long run, assuming the property gets handed over to the next generation, the property will keep trading smaller and smaller, further and further away from a centralized location. Cos there's no way to beat a depreciating "asset".
As I'm writing this list, it inspired my next post on...
So what IS an asset??? What is value?
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