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Thread: Can You Afford Your Home? A Simple Affordability Test

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    Default Can You Afford Your Home? A Simple Affordability Test

    https://sg.news.yahoo.com/afford-hom...101534387.html

    By Property Soul (guest contributor)
    Daniel is a single in his mid-thirties. He is staying with his parents now but is considering moving out on his own. He has a savings of $120,000 and is drawing a monthly income of $6,000. He is eyeing a studio unit in a newly-launched private residential project downtown as his bachelor’s pad.
    Joshua and Esther are newly-weds. They have been looking for their ideal home for some time. They want to buy a three-bedroom flat in a condominium near to where Esther’s parents stay. They have a combined salary of $10,000 and savings of $150,000.
    Both parties write in about buying their dream home, and drop the big question at the end:
    “Is our money enough to buy the property?”
    When buying properties, most people only focus on whether they have sufficient funds to settle the downpayment. But they miss the more important aspect of whether they are able to service the housing mortgage in the future.
    The 3-3-5 rule
    There are some general guidelines to check whether a property is affordable to you. For the sake of easy memorization, let’s call it the 3-3-5 rule.
    Rule 1: 30% of property price
    Your initial capital should at least be 30 percent of the property’s asking price, in order to pay for the downpayment, transaction costs and other miscellaneous expenses.
    Rule 2: 1/3 of monthly salary
    Your monthly mortgage payment should not exceed one-third of your monthly salary.
    Rule 3: 5 times of annual income
    The purchase price of the property cannot exceed five times of your annual income.
    Using the 3-3-5 rule, the property purchasing power of my two groups of readers can be summarized in the table below.
    Table 1.1 Calculating property purchasing power using the 3-3-5 rule



    140616 Figure 1
    For Daniel, he can only afford to buy a property priced below $360,000. Since he relies only on a single income to support his property, he has higher risk than the couple. His approach should be more conservative.
    As for Joshua and Esther, their budget cannot go beyond $500,000 because of the limitation in their initial capital. If they want to increase their budget, they should find ways to save more before plunging into the market.
    Why you need to be conservative?
    Sounds tough, doesn’t it?
    But so far for all my property purchases, I have been able to stick to the 3-3-5 rule.
    To buy an investment property, you’d rather be conservative than aggressive. To support your home, you’d better be safe than sorry.
    If you have problems even paying for 30 percent of the property, you can’t really afford it.
    If the value of your target property far exceeds five times of your annual income, you are either buying an overpriced property or buying a property out of your reach financially.
    Many people buy their home without thinking carefully. They are tempted to use the government housing grant or subsidy for first-time buyers.
    You may not aware of the fact that this small amount of subsidy, say, $30,000 or $40,000, can easily be offset by the fall in your property’s value when the bear market comes after your purchase. You are left to pay the outstanding loan from an overpriced property.
    Interest rates can go up. Property prices can go south. Jobs can be lost.
    Do you have the holding power to go through the next property cycle? Would you still be able to service your housing mortgage under all circumstances? Do you have the cash reserve to top up the difference in case your property’s value drops below the market price?
    If you can’t give a definite answer, you are not ready yet.
    By guest contributor Property Soul, a successful property investor, blogger, and author of the newly released No B.S. Guide to Property Investment. Posted courtesy of www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions.

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    The no. of people who can buy private property will be reduced if adhere strictly to this guide.
    Quote Originally Posted by princess_morbucks View Post

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    And many will never get to make money out of 1 of the best investment asset!
    Many will have to slough all their life and cannot even retire until they drop dead!

    Quote Originally Posted by DC33_2008 View Post
    The no. of people who can buy private property will be reduced if adhere strictly to this guide.

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    savings of just $120k / $150k cash is too little to start with

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    Savings of $150k can buy EC first, then upgrade and upgrade again............

    Quote Originally Posted by Komo View Post
    savings of just $120k / $150k cash is too little to start with

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    Let see 3,3,5 apply to me.

    3. Max property price SGD 105,000 / 0.3 = SGD 350,000. Fail

    3. Max monthly mortgage SGD 6,000 / 3 = SGD 2000. Pass

    5. 5 times the annual income SGD 6,000 x 5 x 12 = SGD 360,000. Fail.

    Thank Lord I did not chance upon this rule.

    --------------------------------------------------------

    My rule or the Lord Rule.

    5 room HDB can sell for SGD 390,000 in 2006.

    Cash in hand SGD 100,000 plus.

    Buy SGD 535,000 pay 20% rest loan.

    Sell 5 room HDB upon TOP and pay the different SGD 535,000 - 390,000 = 145,000 - 20%.

    Chiong and buy.

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    Rule 1 is not necessary.
    Rule 2 can be up to 50% for forced savings.
    Rule 3 can be up to 15x for forced savings and because of low income tax in Singapore.
    Well, you pass all my test!

    Quote Originally Posted by Arcachon View Post
    Let see 3,3,5 apply to me.

    3. Max property price SGD 105,000 / 0.3 = SGD 350,000. Fail

    3. Max monthly mortgage SGD 6,000 / 3 = SGD 2000. Pass

    5. 5 times the annual income SGD 6,000 x 5 x 12 = SGD 360,000. Fail.

    Thank Lord I did not chance upon this rule.

    --------------------------------------------------------

    My rule or the Lord Rule.

    5 room HDB can sell for SGD 390,000 in 2006.

    Cash in hand SGD 100,000 plus.

    Buy SGD 535,000 pay 20% rest loan.

    Sell 5 room HDB upon TOP and pay the different SGD 535,000 - 390,000 = 145,000 - 20%.

    Chiong and buy.

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    One more test.

    5 room HDB Valuation SGD 640,000. in Feb 2014. outstanding loan SGD 100,000.

    2 Bedroom Valuation SGD 1,550,000. in 2010. (loan SGD 428,000).

    Annual income 44K.

    Can buy another investment property SGD 1,305,800.

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    If property prices drop overall by 50% then I think you as well as many others will meet the rules and test.

    Realistic rules?
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

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    Quote Originally Posted by Kelonguni View Post
    If property prices drop overall by 50% then I think you as well as many others will meet the rules and test.

    Realistic rules?
    What is the probability of 50% drop?

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    Quote Originally Posted by Arcachon View Post
    What is the probability of 50% drop?
    Need a catastrophe of epic proportions... Chance is lower than 1%.
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

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    Breakeven SGD 780 to SGD 800 psf in 2011.

    Cost of Land SGD 456 psf. (Purchase @ SGD 898.69 psf)

    If drop 50% equal developer pay for everything, wonder got this type of developer in Singapore.

    TERRASSE TERRASSE LANE Condominium 19 OCR 99 yrs lease commencing from 2010 1 1,305,800 1,453 Strata 01 to 05 899 Jun-11

    https://www.dropbox.com/s/j2kkr3xggp...2995322538.PDF
    Last edited by Arcachon; 17-06-14 at 17:00.

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    Rule 3: 5 times of annual income
    The purchase price of the property cannot exceed five times of your annual income.
    Rule 3 is too conservative.
    That means a person earning $500k per annum can only buy a $2.5 mil house?
    Sad la.

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    TS is talking about buying for own stay?

    If buying for investment, its different. Some opportunities worth to leverage 100%. ROI superb.

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    Why Japan's Debt Markets Are Frozen
    5 JUN 17, 2014 3:30 AM EDT
    By William Pesek
    As Japan gets the inflation it's been craving all these years, the bond market is doing something very surprising: nothing.

    Far from panicking over each uptick in the consumer price index, traders are pushing Japanese government bond yields lower. Today's 10-year bond rate is 0.58 percent compared with 0.735 percent at the start of 2014, even though the CPI is rising at a 3.4 percent year-over-year rate. Anyone else confused?

    This disconnect owes much to Haruhiko Kuroda's unprecedented asset-buying spree. By gobbling up an ever-larger number of bonds at auction and in the secondary market, the Bank of Japan governor has essentially paralyzed the market. What's more, this is becoming a global phenomenon as hedge fund managers from New York to London to Singapore bemoan the death of market volatility.

    Few scribes have done a better job exploring this marvel of monetary-policy making better than my Bloomberg View colleague Mark Gilbert in London. He's looked at the feat through the lens of economist Hyman Minsky, who argued that long periods of market stability and harmony can reach tipping points, which then rapidly degenerate into chaos.

    What worries me is that central banks in Frankfurt, Tokyo and Washington now find themselves on a treadmill from which there's no escape. As it accelerates, their bond-buying efforts will have to keep pace. Over time, there's no doubt that the world's biggest central banks are headed toward the widespread monetarization of debt -- effectively nationalizing bond markets and raising troubling questions. Not least of them: How exactly does a central bank withdraw from a market it essentially owns?

    Kuroda is now the biggest player in Japan's $9.6 trillion bond market. As I pointed out last August, Kuroda appears to have one eye on the playbook of Korekiyo Takahashi, whose radical debt-buying policies as finance minister back in the 1930s had the Tokyo establishment calling him their John Maynard Keynes. Former Federal Reserve Chairman Ben Bernanke credited Takahashi with “brilliantly rescuing Japan from the Great Depression through reflationary policies.”

    Yet three problems arise when it becomes hard to know where a central bank's balance sheet ends and the debt market begins. One is the loss of volatility that traders and companies need to buy and sell things. Heavily sedated from the BOJ's monetary tonic, bond-market transacting has all but stopped and price ranges are stuck in their tightest ranges ever. That's also carried over into the stock market, where big price swings are becoming a thing of the past.

    A second problem is losing the vital information that a liquid debt market affords. If Japan's bond bubble does pop one day, as shortsellers like J. Kyle Bass of Hayman Capital Management have long predicted, it could come out of nowhere. The normal warning signals -- yield spikes and spreads between debt instruments -- are being deadened as we speak.

    The third is finding an exit strategy. If Japan's experience with quantitative easing these last dozen years tells us anything, it's that restoring normalcy is devilishly hard. Debt markets become addicted to central-bank stimulants and weaning them off is easier said than done. Just yesterday, International Monetary Fund head Christine Lagarde said the Fed may have scope to keep interest rates at zero for longer than investors expect. How right she is about that!

    http://www.bloombergview.com/article...ets-are-frozen

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    Quote Originally Posted by Arcachon View Post

    If drop 50% equal developer pay for everything, wonder got this type of developer in Singapore.
    The idea is that developers continue to bid lower and lower and lower until bidded prices way way lower. Then interest rates and other forms of housing taxes go up.

    Then the 50% drop comes in.

    Realistic?
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

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    Quote Originally Posted by Kelonguni View Post
    The idea is that developers continue to bid lower and lower and lower until bidded prices way way lower. Then interest rates and other forms of housing taxes go up.

    Then the 50% drop comes in.

    Realistic?
    1. The idea is that developers continue to bid lower and lower and lower until bidded prices way way lower, GLS stop.
    2. interest rates, Find me a country don't want to print more money.
    3. other forms of housing taxes go up inflation go up, more money printing.

    http://video.ft.com/3615132358001/60...edium=referral

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    Quote Originally Posted by Kelonguni View Post
    The idea is that developers continue to bid lower and lower and lower until bidded prices way way lower. Then interest rates and other forms of housing taxes go up.

    Then the 50% drop comes in.

    Realistic?
    Your answer to lower price of Private property.

    http://forums.condosingapore.com/showthread.php?t=21889

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    Quote Originally Posted by Arcachon View Post
    Your answer to lower price of Private property.

    http://forums.condosingapore.com/showthread.php?t=21889
    That is kelongism. Price flooring by Govt regulating supply.
    The three laws of Kelonguni:

    Where there is kelong, there is guni.
    No kelong no guni.
    More kelong = more guni.

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    Written by VIP

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    Quote Originally Posted by newbie11 View Post
    Written by VIP
    Confirm by vip, I like vip post.

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