Sunday 1 April 2012

The place of residence you bought is not an asset?

Once upon a time, the apartment or house we bought is considered an asset. 

This fact is easily bore out if you enquire on the property your parents or grandparents have paid and its valuation now. Please do it without giving the impression you are eyeing their property before their “departure” – least you get written off from the will… Hey! Don’t blame me!

The arrival of the great salesman in the form of Robert Kiyosaki came along and correctly offered the alternative view of using cash flow as a better guide to determining what should be an “asset”.

Guess what? Some people’s pendulum now moved from the extreme right to the extreme left. 

I scratch my head whenever I read comments that we should not count our place of residence as part of our net worth or consider it as an asset if it’s not rented out…

I wonder how these people value companies they invest in? Do they exclude the land and buildings the company owned if these assets are not leased out?

And I thought this will make a great asset play if the book values on its land and buildings are woefully out of whack with today’s market value… Potential sell and lease back to unlock their “asset” values?

If you bought a private property during the phase 1 launch, and discovered that the price has increased by 5 to 10% during phase 2 and 3 launches, would you feel a little bit smug about your “smart” investment? 

How would you feel if the developer drops the price instead in the subsequent launches? In Shanghai, the irate early buyers smashed the developer’s showroom… It would not happen here as we are more “disciplined”. But I am sure there will be a litany of complaints - our 2nd national pastime after window shopping. 

And if we have a new government, and the new HDB policy is to sell new flats at cost plus. How would you feel if the new BTOs (Build-To-Order) flats are priced at 50% less than the one you bought 5 years ago? Stranger things have happened; never say never!

Why the strong emotions if the property we owned is not an “asset”? 

The little lies we tell ourselves…


  1. Is SG a nation of full of millionaires with their HDB assets. Do we believe that these people will have that millionaire feeling?

    1. CW8888,

      You have asked a very valid question! It's more about what does this label a "millionaire" really means? Without reference to a unit of currency and reference to a purchasing power parity index.

      Indeed. A "millionaire" can mean differently in Singapore, Indonesia, Japan, Zimbabwe, and in US ;)

      Based on your personal experience, would you recommend your children to rent or buy?

    2. Agreed.
      A USD millionaire living in singapore and HK will be like struggling to drive a ferrari and live in big house and have a yatch somewhere in town.

      A USD millionaire living in Malaysia and Thailand, very doable.

    3. Renting???? The landlord can ask us to FO hor if he/she is boi song.

  2. Depends on your angle.
    Main point is you need a roof over your head and replacement cost will determine whether your place of residence is an asset.

    Too many variables (ie, loan fully paid, loan partiallly paid,got spare room to rent out, dont have spare room to rent out etc), so i only assumed loan fully paid and no spare room to rent out to simplify my scenarios.

    Scenario 1) HDB at $600k 5rm(SOLD).
    If I can downgrade(i donno the waiting period between 2 hdbs) to 3rm resale at $400k. Then I suddenly got $200k, so is an asset and the value was realised with the sale and downgrade.
    If I cannot downgrade?...then it is neither an asset nor liability. It is just a place to stay in.

    Scenario 2) 3bedrm condo at $1mil(SOLD!)
    I downgrade to HDB resale 4rm at $600k(Bought from the bugger above..hehe), I suddenly got $400k ! Again an asset with its valued realised.

    If cannot downgrade?..Impossible unless HDB clamps down again.

    Like that tio bo?... Your situation determines the outcome :>

    Ok lah.. Since i'm at it.. Give you bonus scenarios..
    If I fully paid the 5rm HDB and I got 1 store room and 1 bedroom to rent out.. HO SAY LIAO! ... $400 + $700 = $1,100. Somebody giving me money to spend every month!

    If i no money to pay installment on the 5rm HDB loan and I do the same as above..
    Ho Say Liao! Somebody pay the rent for me and i stay for free!

    1. WJ!

      I should have asked you for a guest post!

      You've made my day with your answer: "Your situation determines the outcome".

      That encapsulates the essence of my thinking when I wrote this post borrowing the Zen view: Nothing is good or bad; only thinking makes it so.

    2. "Main point is you need a roof over your head and replacement cost will determine whether your place of residence is an asset."

      There is also the choice of renting.

      I often wonder why people don't switch to renting once they have converted to the view that their place of residence is not an asset?

      Their lack of conviction shows... Only those who are renting and investing the rest for cash flows are the true believers.

      I don't listen to the talk; I listen to the walk.

    3. Renting??? The landlord can ask to FO hor if he/she is boy song.

  3. Oh ya...1 more scenario..

    If i am hermit and I dont like people to stay with me and I got spare rooms and I also dont have money to pay for my 5rm housing loan..

    How ah? Consider asset or liability?

    1. This is a good example of the "your situation" moment.

      There are solutions; but the hermit has to first let go of the banana he/she is clenching tightly in the jar.

      The conundrum lies with the individual; not the property.

  4. Liddat ..another one lah.. food for thought..

    If I am hermit and i dont like people to say with me and i dont have spare rooms BUT I stay in THREE Room HDB and is fully paid.

    It is definitely not a liability. But Can it be considered an asset? if the replacement cost for another place is higher? How?

    1. If there's an emergency cash crunch (owe money to ah long?) or if I want to uproot and move to a lower cost of living retirement place at our neighbouring countries, a fully paid HDB 3 room would come mighty handy!

      Talking about replacement cost, my HDB 3 room can exchange for a landed property in 2nd or 3rd tier cities in Asia. Life is good! (Provided of course you don't have chains on your feet)

      You are right. At the end of the day, it's how each individual see the world (or themselves).

      Why put on straight jackets and wear blinkers?

    2. Right on Mate!
      It's all about the individual's situation.
      If can migrate, it definite is an asset. :)

  5. wah so complicated! i see asset and liabilities pretty simple.

    if things that i own, be it house, car, stocks, you name it, it becomes liability or at best, not an asset if i cannot get rid at will.

    so my car and my house, i will still be needing them tomorrow, they are not an asset to me. whereas other asset i can part with them any time i want, they are assets.

    1. Coconut,

      Wonderful! Another alternative view on asset and liability!

      Yours is even more provocative!!! What you need is not an asset; what you can get rid off is!?

      You are right - why make it complicated? At the end of the day, it's not about who's right or wrong (thinking makes it so), it's more about do we act in accordance to our beliefs ;)

      Heart, mind, soul in harmony - inner peace.

    2. ya, years of speculation has taught me to be flexible. as flexible as i can be to get that inner peace. in trading, you really need a lot of that haha.

      and you know what, being simplicity makes the job a whole lot easier and more flexible for you to act. i can go from 100% cash to 0 cash in no time.

      i'm not sure it will do any good to investment though.

    3. In Sun Tsu Art Of War, SPEED is an advantage.

      (Provided of course you don't wreck your sports car!)

  6. To be even more direct, debt or no debt, every thing you have that can be converted to cash is an asset. To be crude, in the old days,(how cruel), wife and children are considered as assets; even the man himself is an asset. In other words when you need to survive, anything, everything is possible asset. Think of CDOs.
    Beware of what's coming next?

    1. Temperament,

      Thanks for wider take on "asset"!

      Yes, I've heard about wives and children being gambled away when policemen were still wearing shorts... Talk about sins of the father!

      This is the reason why I find blogging so fun! I just put a half-baked idea into post, and how wonderful to hear so many varied, different, and alternative viewpoints :)

      What I know and believe are limited by my own life experiences.

      By listen and having dialogue (sometimes poking back) with you all, I've really opened my eyes to all the possibilities! Amazing.

    2. wow haha Temperament, you drop a bomb. make me feels so lucky being living in this time frame.

      however, flexibility have to work in both ways or inter-changable. asset to cash back to asset again.

      your example seems to go only one direction.

  7. Hi coconut, not really one way ma. When the full of debts husband/father becomes rich somehow, he can redeem his wife and children if he still has a heart. But it is very rare indeed for it to end this way.
    What i am trying to say is when a man needs to survive he will do anything possible. What is debt? What is asset? It doesn't matter to him anymore?

  8. Enjoyed ur post!

    An asset should have the following:
    - Enduring value in the form of rising resale value, depending on appreciating property market. (depends on when u buy the flat and whether property market will crash)

    - ability to sell it off by the owner (HDB fail in this aspect)

    - abilty to use the HDB to generate income. (renting it out is one way, some use it as office as well)

    - loan used to finance HDB? Should less off outstanding loan from HDB value

    At the end of the day, i look upon the HDB as a roof, nothing more, nothing less.

    1. Thanks Anon 03:51!

      As a single, although I can't buy direct from HDB, I am grateful and contented that I have this tiny roof over my head.

      Especially when waking up to a thunderstorm this morning. While drinking the hot coffee that mom brewed, I have a warm and fuzzy feeling inside.

      It's more than a roof; it's my home :)

  9. I think like wealth, asset is relative. Therefore so are networth.

    We just have to agreed to a common definition since everyone has their own scenario and views.

    The key is understanding "Relative" & thus "Standard convention".

    We have been reading Annual report for ages. Why not do our own Annual Report per current company standards on Cash, Net Asset and Total Asset definition ?


    1. Hey Cory!

      Ah, it must be Spring in Taiwan now. I miss the 4 seasons...

      I hear you :)

      Of course we can use and should the standard accounting definitions. That's what standards are for.

      I'm just having fun with those who use one standard in evaluating companies; but another yardstick when it comes to their personal wealth.

      The things we do to get an ego boost.


  10. companies are different. they are more liquid in that they can move out easily or do a sale and lease back deal.

    they can also rent out partially their building.

    we can't always compare that way.

    1. Bad stocks cause us personal heart-pain nia. Bad home is evryone living in that home will suffer. See the difference. Same as high leverages. Companies can be high leveraged but many of us can live with high leverages without occasional nightmares. See the difference again???

    2. CW8888,

      I hear you. You are coming from the viewpoint of a responsible husband and parent. Your family is so lucky!

      It's a pity not all family men behave or think like you...

      I am coming from a zero based, no-holds-barred perspective. I wonder if I am making any sense?


    3. Drizzt,

      Agree. Companies have more advantages than an individual. That is why some high net-worth individuals create holding companies for their investments.

      Just a tease. Companies are indeed different. Different sectors, different industries.

      In your excellent dividend companies tracking report, you are benchmarking them using the SAME accounting standards ;)

      There is an standard accounting terminology for net worth. Of course we can use our own definitions (it's a free country); but I would prefer to use - net worth (excluding personal home) - if I want to make up our own terminology variant from the standard :)

  11. [quote]
    Why the strong emotions if the property we owned is not an “asset”?

    The little lies we tell ourselves…

    though we might not consider the property we owned is an asset, the loan we took for the property is a real liability.

    I would be very nervous if my property valuation dropped like a rock.

    1. Hello Anon: 01:26,

      Right on!

      The heart, mind, and soul must align.

      The mind may say it does not matter since I am not selling... But the heart beats like hell in the silence of the night.

      If the body suffers, the soul may be tempted to take short-cuts to ease the pain...

      But don't take me too seriously. I am more of a quack!


Related Posts Plugin for WordPress, Blogger...