Monday, March 9, 2015

Expanding on AK's Thoughts: Affordability vs Value for money

I think we all know AK. To be honest, I think he is the single blogger that has made the most impact on me. Before I started blogging, discovering and reading AK's blog posts is what really made me seriously re-evaluate my knowledge of personal finance and my financial situation and plan. He talks about things that many people will conveniently shy away from because of all the blowback (CPF, materialism), but he does it because he believes in it and has very good rational reasons behind his ways of thinking. Deep respect to him, I really love what he is doing and how he does it!

Recently, AK wrote a post about property regarding affordability and value for money. At the end of his post, he concluded that value for money is the thing that should be focused on. Personally, I agree with his thinking and the reasons behind it, but I think he reached and presented his conclusion in a manner a bit too black & white.

When I started investing in SGX stocks in early 2014, a single lot size was still 1000 shares. Without much thought, investing in shares of DBS, UOB, Jardine, etc were immediately out of sight and out of mind. Can I drop $20,000 into a single investment? I couldn't! At the end of the day, I could only invest in what I could afford, and unfortunately that relegated me to stocks below the $1 price tag. Even dropping $2000 for a single stock in one go felt too much for me, considering how small my portfolio was.

But that is stocks, which is not property, so how is that related?

Well, this is the big fancy table I came up with, please feel free to plagiarize and post it as you wish.

As you can see, this is the same decision thought process when I first started buying stocks. I cannot afford to buy a lot of $20,000 even if it was a good value bargain buy! And there were also plenty of trashy penny stocks floating around that I could (literally) sink my money in.

Hopefully, the stocks that I have in my portfolio now fall under scenario 3, affordable and value for money.

In terms of property, think of Scenario 1 like some of the CCR projects. I can see some projects are well off their peak. Are they a good value for money buy now? Perhaps, but it doesn't matter! I can't fork out that kind of dough. Even when I dream, I don't dream myself that rich, haha!

Scenario 2 could be some of the OCR projects. Some projects are just ridiculously priced based on PSF, but because of their small unit size and OCR location, the total quantum needed to fork out to own such a property is actually within the realms of affordability (< $600,000). Yes, I could buy it. I also could buy a $50 roll of toilet paper. But just because I can afford it, doesn't mean I should buy it.

Finally, Scenario 3 is the fairytale zone that we would like to be in. It would be a project that falls within our affordability budget, yet it is also a value for money buy (based on comparing to historical prices and surrounding project prices).

As important as value for money is, I personally feel that it really doesn't matter unless we can afford it.


  1. Hi GMGH,

    To put it simply. If I am buying a property as a home, value for money doesn't really matter but if I am looking for a property to invest then value for money is very important.

    1. Hi Derek,

      I think homes should also be value for money, however you must want/appreciate the value that you are getting. For example, people who own cars have not much mind about public transportation connectivity, but for someone without a car, having public transportation connectivity is very valuable.

      The same can go for retirees that don't care about prestigious schools compared to a couple with infant children.

      The benefits of having such features in a property might be worth differently to each person in dollar value, so if it means a lot to you, but a lot less to others, I think it can make for a very value for money buy!

      I agree that value for money is the main importance for investment property!

  2. Once someone wrote to thank me after reading this blog post :Home for Living and not for profit taking (6) that I have helped him to decide to pay much more for a home to stay near his parent to build up his family.

    1. I agree that certain things cannot be valued with a strict dollar value, like living close to family or walking distance to public transport frequently used. To some people, it is not as important and it is worth less, to other people, it can be worth thousands of dollars! Utility value, I must remember this.

      Thanks Uncle CW8888, it's a very good post to remind me the difference between a home and a property investment!

  3. Hi GMGH,

    Interesting :)

    I like to see if something is value for money first. If it is, I'll find a way to afford it. if something is not value for money, even if I can afford it, it's a no-go. To me, it's the sequence of thought that matters.

    Conversely, some might see if they can afford something first, if it's value for money then they will go ahead. If they can't afford it, even if it's value for money then can't do it.

    Nothing wrong of course, but I think the first is more empowering ;)

    1. Hi LP,

      There are many ways to walk to Rome!

      I just find screening things out of my budget easier and helps me stick with my beliefs that "if I cannot afford it, I shouldn't buy it". Unless nothing turns up, I'll flip around the process so I can see how much more I have to go to be able to afford a value buy!

  4. Interesting, in the perspective of owning a car, I always tell myself I can way afford to own it but as I see no value of it so far, I have delayed to have it for the past 10 years.

    1. Hey Anon,

      Depending on your commute, work scope and after-work activities, I think it is very possible for most people to do the math and realize that it is a very expensive convenience to buy.

      Is the convenience of owning a car worth that amount of money? Depends on each person!

  5. My car is going to be 10 year - old in AUG 2015. By 2016 or early 2017 i just have to take a lift down from my block and less then 150 to 200 yard is the SMRT station. It is the DTL. As we are retirees, we see no reason to keep the car. It is really a "convenience" that is not value for money for us. i think even if you can afford something many times over, it should be purchased only if you really need it. Value for money is important but should not be the deciding factor. Besides if necessary you can pre-book a Taxi even for the next day trip.
    So why continue owning a car? i can't find any self justification reason.
    So i enjoy this last year of my luxury without regret.


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