The cheque’s in the mail. In another 10 days, the condo will be mine.
The new condo is almost all that is on my mind this week, with the occasional distraction provided byTinyTowerson the IPad (damn addictive).
And of course, there has to be an article about property investment timing in the papers this morning, the one day in the entire week that I read the newspapers.
I don’t know if I have made this purchase at the right time, but going through the factors again and again in my mind, I don’t think I have made any major boo-boos.
My motivation to buy came from the large amounts of cash I was holding and the dismal return rates for cash investments. Throwing the 300K into stocks and bonds seemed risky for current market situations. I figured a reasonably priced property should garner me reasonable returns without the volatility of the equities market.
The condo is located in an up and coming, mostly private residential area, and is an older development sitting on a huge piece of land. I am paying 800 psf for a freehold property where 99-leaseholds in the same neighbourhood have reached 1,200 and even 1,400 psf levels. Of course, part of the reason for the low psf price is also due to fact that I got a huge unit, at almost 1,900 sq ft. But I am reasonably confident that there is potential for reasonable capital gains while the possible downside is still manageable. There is also talk of collective sale potential, but that is a bonus that I am not counting on.
While capital gains are of course highly anticipated, the most important part of the equation is that the mortgage will be serviced by the rental of the HDB flat we are currently staying in. This equates to a return of between 2-3% p.a for my downpayment, which is good enough for me, considering the money was originally sitting in a bank earning a miserable 0.4%. Even if the property does not gain substantially in value, I consider myself to have done alright just considering the gain in equity alone. Miserable returns by some standards probably, but good enough for me. At least I can sleep peacefully at night. Well, mostly, at any rate.
My only worry is increasing interest rates down the road, since I am on a floating rate mortgage. Based on my calculations, a 0.1% increase in interest rates equals a $100 increase on the monthly instalment. The good thing is that I am not on a mortgage lock, so I am free to refinance without penalty at any time. I figure I have at least one to two years before interest rates start rising, by when I would assess again if I need to refinance to a fixed rate.
My only regret? Not going for the SOR based mortgage initially, as it was more volatile compared to SIBOR. But it has been proven again the old adage that greater gains coming with greater risk. SOR rates dived to historical lows thanks to good ol’America; my colleague who had a SOR based mortgage is laughing all the way to the bank, literally. I can’t even try to refinance now, because most banks have withdrawn the SOR based packages already. Sigh!