If your mom's retirement funds are making less than 3.25% p.a., I would suggest you cash out and use the money to pay for the condo, it will go into reducing the amount of interest you have to pay.
Also, property prices are already at their peak, chances of it increasing is slim, while chances of it dropping is high (given the current financial crisis). Maybe you should just hold for 6 months to a year to assess the situation.
Simply put, making your money work harder for you means to gain higher rates of risk-adjusted returns. Your mother should explore financial instruments suitable for herself (based on her risk profile) to earn higher interest rates as compared to bank interest rates.
Buying into stocks and shares (S&S) doesn't always mean you'll burn your money, though personally I feel one should only consider it as one of the last few options. It is perfectly fine if you invest in S&S after doing thorough research on the companies and with a long term view in mind. However, if you are buying with a speculative mind, also known as gambler's mind, then you are digging your own grave.
Besides S&S, there are other financial tools which can be used to address your mother's concern, without putting her money in unnecessary risk.
Land banking can potentially give good returns if your land is included as part of an expanding city. However, there are still risks involved because you would never know how the city expansion plan would change. One example is the conversion of a neighbouring plot of land into a cemetry. What's more, you are not familiar with the surroundings, unless you are prepared to travel there a few times to get a good feel of the ground. Another recent example in Singapore would be the setting up of foreign workers' quarters in Serangoon Gardens. Who would have expected such a plan to be proposed?
Landbanking is not risky. Landbanking with Walton could well be. You entrust your money into someone's hand and hope they will 1 day return you with lots more. Hope. You think they will? Anyway, some of the exits could well be created, i believe. I saw some of my friends letter of offer. The lands were bought by company 12321314 ltd. what kind of company is that? hahaha Think twice people when you decide to give up your steering wheel. Don't be an idiot.
TDurden,
it is not advisible for you to buy a new condo which price is so high at this moment. based on the condition of your family, you may consider a 2nd hand condo 2br which is more reasonable and should be no higher than 500k in total price, for investment purpose, you are allowed to loan about 80% from bank, or 400k loan in total. i believe you can find such condo near bt batok or jr west.
1. will the bank willing to grant loan? is one issue at this weak mkt.
2. 3.25% may float up to 6%, it happened to me once!
3. your mum would got tremendous pressure once she buy the condo, it may
affect herself emotionally, let alone about the inflation risks mentioned above by people.
Let's say ur mum decided to go for this 2br 2nd hand condo. total purchase price at 500k, you need to pay 5% cash, the rest 15% either by cash or CPF, (CPF has a certain amount reserve aside compulsory, cannot use for housing).
with 80% bank loan, or 400k for 20yrs, the total interest based on 3.25% would be total 137k after 20yrs, (after 20yrs, the total asset should worth more than 637k, otherwise, you never earn, but the bank does.)
and monthly installment would be around 2240, managment fee would be around 300 a month, unless you can rent out for 2500 per m, otherwise, how to cover this loan?
all my calculation here havn't included the property tax which is a few thousand per year.
Think twice before you invest, or may need to wait either of your brother start to work.
Property is a good investment. However the risks involve is:
- The amount you rent out the condo may be lower than you expect to repay mortgage loan
- Not as liquid as stocks or unit trusts
- You need holding power. Making money on property is about timing.
Property is always slow at following the stock market by 1-2 years. The stock market typically has its worst months Sept-Oct. Jan-April is usu. good months for stocks (meaning the market tend to rally according to history).
Property prices will probably fall further this year. Do not go into it yet, get advice from a realtor and a financial planner.
Stocks is not the most risky investment instrument. Nothing is risky as long as there is research done.
Stocks' advantage:
- High liquidity (As long as you are not into penny stocks and stay on blue chips in Singapore)
- Ownership in a company, you earn dividends when the company makes a profit
Stocks' Disadvantage:
- If you invest $1000 in the shares of a company and the company goes solvent overnight, you only lose $1000. To be safe, seasoned stock investors always exit if their share prices drop by 20% or depending on their research. It is never advisable to hold and wait for the price to appreciate.
Unit trusts works like stocks except it is a basket with various stocks and alot more investors having a share in this basket as opposed to you being an individual owner.
As the stock market has dropped considerably, it is like going to a 50-70% sale in a shopping store. Some trustworthy stocks you can purchase in Singapore are the blue chips like ST Engineering, Cosco Corp, Sembcorp Marine. I purchased Sembcorp Marine at $0.90 a few years ago during recession. It peaked at $4-5 last year. Not to mention the dividend I received from Sembcorp, it was extra savings.
In regards to land banking, instead of researching on a company like buying stocks, you will have to research on the government of the country companies like Walton is investing in. Personally I find it hard to determine the value of a land, thus I did not invest in land banking. Though if I have extra money, I might put a little into it.
Hope the information helps.