Analysis Is It Worth Paying A Premium For A Pre/Post-War Flat In Tiong Bahru? We Break Down The Numbers

  • May 16, 2021
  • 15 min read
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Sean

Sean has a writing experience of 3 years and is currently with Stacked Homes focused on general property research, helping to pen articles focused on condos. In his free time, he enjoys photography and coffee tasting.

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Astrid
Astrid

YOLO! I dun think the buyers care about conserving their capital and not losing money when they buy leasehold with 50 years left.

Herb
Herb

Hey Sean, I am curious about the method you used to determine, that the return on the 44 year lease pre war flat is 63.5%. If you had used the downpayment of 260K and put in a fixed deposit at 4% interest. After 44 years of compounded interest, it would have $1.4 million inside. The net rental received after 44 years is $1.5 million. Considering you get to spend that rental money every month, and the high probability the rental will increase due to inflation along the 44 years a person holds it, the returns are much higher. Based on… Read more »

Stacked Homes
Stacked Homes

Hey Herb! We took into account that over time, not only would the downpayment be considered the initial investment, but so would the principal payments every month. When the loan is paid each month, there’s interest costs that reduces your returns, while the amount invested goes up. This is why the returns curve slopes down – consistently earning rent with an ever increasing base of investment. Eventually at the end of the 20-year loan, your total investment would equate to the $928,000 which makes sense since that’s what the flat costs. As the interest cost goes to 0 over time,… Read more »

Herb
Herb

If the deposit required was $1 and the net rental returns after interest, paying back principal etc was reduced to $100K. Would the returns now be 100/928 = 10.7%?
Or have i used $1 to make $100K?

Stacked Homes
Stacked Homes

Hey! It would be the 10.7%, as the total investment is 928 as we calculate the total amount invested, not just the deposit.

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