Saturday, December 27, 2014

A Small Home For Me Please

I just read this post by AK, and I found myself nodding in agreement the whole time. There was one specific portion which I just loved:
Financially, the shoebox apartment is less burdensome as it was much cheaper to buy and I also pay less in property tax. We always hear people saying Singaporeans are asset rich but cash poor. Although not always the case, many people "over consume" when it comes to their homes. Real estate can be good investments for income but, unless we have and are willing to rent out spare rooms, our homes are consumption items. -AK
I have long maintained that a home is an expense, it is not an asset. Exactly like what AK has said, unless you rent out your spare rooms, you are over-consuming.

Recently I got into a strong debate with my parents. They know that I am looking to move out soon, and they are actually also looking to move house (same house more than 20 years!), so they like to talk to me about property related news.

The debate started off when my father said that he is willing to co-invest and lend me money so that I can buy a larger place for myself. I immediately said no, and my parents were very stunned.

In their mind, a bigger house is a better investment. To be fair to them, my parents have only ever had 1 property, which they bought in the pits of a 1985/86 property bust. Because of this extremely fortunate timing, they have long held the view that the best investment that can be made is in a property. Therefore since property investing is so lucrative, I should channel my funds to buy as big of a house as possible.

However, this is not true. Unless I rent out my extra rooms, I am just living in a bigger, more expensive house. Although I do not mind to play landlord one day, with property yields looking to be in the mid 3% before expenses and taxes, I do not think it is worth it. On top of putting up with living with a stranger, there are so much extra inconveniences to put up with that is so hard to measure. I rather outsource such landlord acts to Saizen REIT. No hassle, double the yield. Fantastic.

Although the property will appreciate in value, bigger properties do not necessarily appreciate faster than smaller properties. I would imagine that their raise in value would be roughly the same if percentages were used, rather than total absolute amount. Of course if you use a bigger capital base to invest, you get bigger dollar value capital returns. Generally speaking of course. An excellent property investor might tell you differently, but he is an expert after all.

Therefore, I don't see the point in paying an extra premium for "over-consumption", which is in the form of spare room(s). 

His other points in favour of a small place have also won me over. Easier cleaning of a small house is definitely a plus point. I also like the idea of living a simple and minimalist lifestyle, not collecting so much clutter and junk in a house. His point about the carpark space was very funny, but also very true.

Now, I know shoebox living is not for everyone, especially for those people who live in private landed housing or lived overseas where houses are much bigger than in Singapore.

Throughout my younger years, I shared a room with my sibling on a bunk bed. All I had to myself is the bed, 4 drawers in a cupboard, a table and a shelf full of textbooks I hated, haha.

When I was in the university, I had a single room to myself and we had shared facilities. The room itself could not have been larger than 20sqm (215sqft), which I am probably inflating for some margin of error. In the room itself, there was a lot of fixtures, like tables, cupboards, wardrobe, so the actual livable area is much smaller. However, I still managed to fit all my clothing and belongings in the room and I was extremely comfortable! It was small, yet cosy.

When I moved to Europe for 7 months to study, I stayed in a 54sqm (581sqft) apartment.... with a roomate! Although we had much less belongings since we were living with just the things we packed in our suitcases, the house actually felt very underutilized. Our bathroom was huge, so if you take that into account and compared to a Singaporean dwelling, my apartment would actually be smaller than most apartment in Singapore. With 2 people we were very very comfortable. When my roomate moved out early and I had the whole place to myself, it felt actually a bit too big for me!

With that said, my point is that I have already lived in a small space for most of my life. I have tried and tested a 581sqft place, so I am very certain that a place similarly sized would be more than sufficient for my needs, which is why I am not considering getting any place much larger than that.

Everyone have to live somewhere. It's just whether you're renting, buying or squatting. For me, I want to buy something that is suitable for me and pay the correct amount. I could continue squatting with my parents and save thousands of dollars, but I think it is time I live on my own. Yes, I am paying for the independence and freedom, but that is something I don't mind spending money on.

Other than taking advantage of leverage and pocketing the difference after the sale (which makes it an investment and not a home purchase), I do not see the benefit of a larger HOME as a single. Right-size to what you need and feel comfortable with, as it is the same with the amount of insurance you should take up, and the investment risks you are assuming. To each their own, based on their circumstances.

6 comments:

  1. Hi GMGH

    If I read this correctly, I guess either your parents were thinking of moving in with you or they are thinking that a bigger home warranties a lower psf. The latter might be what you think but not sure why your parents want to do that. As you said, an empty room is resources not maximised so that is clearly not the best option.

    My impression is that you are still single, are you referring to a condo in this post that you are planning to buy?

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    1. Hi B,

      Aye, your latter guess is the right one. I don't know either, I guess they think that a larger home is a better buy. PSF does benefit from economics of scale with a larger place, but if left unrented, it is still "over-consumption" imo.

      Yup B, I'm single, so a condo or a resale EC is all that is available to me (landed also, but lol). I would love an HDB flat, but that is not an option for me, unless I wait til 35 or get married.

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  2. Hi GMGH,

    A shoebox might be comfortable for you now. However, when you're married and starting a family, the limited space might become a constraint.

    Since a house is a long term commitment, most people would factor in this outcome, unless you intend to stay single, or move to a bigger house at a later stage in life.

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    1. Hi S-Reit System Investor,

      Actually, that is my only concern, about the flexibility to include a family! However, yes a shoebox is limited in physical space, so "if" I get married and start a family, the only probable solution would be to move to a bigger house at that later point in life.

      I rather use the word "if", because marriage isn't a sure-thing in my books, so I will refrain from using "when". Why give myself pressure? Haha!

      If it happens, I have a Plan B (larger home) that I am willing to follow through. If it doesn't happen, then the status quo of Plan A (smaller home) is the best scenario in my circumstances!

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  3. Hi,
    Interesting post, however, at different stage of life, the needs are different. And as what s-reit said, it's long term. Previously, you were renting and it is only temporary, now, you are going to own it.

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    1. Hi Oldman,

      Thanks for dropping by!

      Yes, homes are static while our needs are not and changes. However, unless the future is certain, I rather plan for the present while leaving options to accommodate future circumstances. Selling a place and moving to a new one is definitely a chore, but it is better than locking up a few hundred thousand in an empty bedroom, I think!

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