Why property is no longer an excellent Investment-Part 2 ( Continued)

This post is a continuation of part 1. Please read the link first. Based on the parameters and the given scenario ( Price stagnates, no capital appreciation) , below is the layout of the spreadsheet.

Sold within 1 year of purchase

By the end of the 1st month, if the property is sold, the percentage loss is 42.85%. When this loss is annualised, the percentage loss is 514% per annum.
By the end of the 12th month, if the property is sold, the percentage loss is 37.80%. When this loss is annualised, the percentage loss is 254.34% per annum.
The above is due to the horrific 16% stamp duty.

Sold after 1 year of purchase but within 2 years

By the end of the 24th month, if the property is sold, the percentage loss is 22.73%. When this loss is annualised, the percentage loss is 11.36% per annum. The above is due to the horrific 12% stamp duty.

Sold after 2 year of purchase but within 3 years

By the end of the 36th month, if the property is sold, the percentage loss is 7.58%. When this loss is annualised, the percentage loss is 2.53% per annum. The above is due to the horrific 8% stamp duty.

Sold after 3 years of purchase but within 4 years

By the end of the 48th month, if the property is sold, the percentage gain is 7.64%. When this loss is annualised, the percentage gain is 1.91% per annum. The above is due to the horrific 4% stamp duty.

Sold after 4 years of purchase but within 5 years

By the end of the 60th month, if the property is sold, the percentage gain is 22.94%. When this loss is annualised, the percentage gain is 4.59% per annum. There is no longer any seller stamp duty.

From the 6th years onwards, i will hide some columns and leave only the End of month, Percentage gain and Annualised percentage gain columns.

As can be seen, if one has holding power to wait, there is still some meat left but seriously the reward is greater than the horrific risk of capital depreciation, excess supply resulting in lower rents, increase in mortgage rates Do remember that this model is assuming the house is constantly being rented out and that commission for renting out the house has not been included. Repairs, renovations have also not been included.

Why property is no longer an excellent investment (Part 1-to be continued)

Been debating with a friend on whether property is a good investment for ages!The problem with this debate is both of us just throw out qualitative statements about the good and bad of it. I gave up. Took out a spreadsheet and did a property calculator. Let this spreadsheet be the end of such meaningless debate. I have inputted the new rules implemented this January 2011. The following parameters are what have been placed into the model. I would like to add that this model serves as the best case scenario for residential private property investment. Therefore, one would very likely get less than the returns stated.

Parameters based on government rules
- 40% downpayment is needed.
This is because we are looking at property as an investment and very likely this investor has an outstanding home loan already.
- Seller stamp duty (SSD) of 16%, 12%, 8%,4% in the 1st,2nd,3rd and 4th year respectively if property is bought and sold within these years. No SSD if sold after 4th year.
- Buyer stamp duty(BSD) of 1% on first $180000, 2% on next $180000 and 3% on remaining property price.
-Property agent commission of 2% paid by seller
-Property tax of 10% of annual property value

Assumptions ( I would really appreciate it if you would tell me if i had made any unrealistic assumptions...i am open to constructive criticism. Remember this is a model)
- Net rental yield of 3.5%. This is calculated by taking the monthly rent minus maintenance minus monthly property tax divided by property price Monthly property tax is derived from the annual property tax divided by 12 months. ( i feel i might be quite optimistic about the yield already given the way i calculate it)
- Mortgage is fixed at 2% per annum. (Very good already)
- Loan tenure is 30 years
- Property is rented out 100%.(best case scenario)
- Rent amount is constant. ( best case scenario)
- Buyer legal fees is $2500 ( Is this fair?)
-Seller legal fees is $2000 ( Is this fair?)

What i have not included (because it varies greatly from individual to individual)
- i have not included the property agent's commission for renting out the property
- i have not included the renovation or repairs or furniture cost
- i have not included home insurance

The Horror Story
Mr Dick Albaross, who has a hearing problem, has $380,000 to invest. He eats fish every meal and likes to go to the wet market to buy silver pomfret from Auntie Chuck Hubert. In the wet market, he hears Auntie Chuck Hubert chant " buy pomfret", "buy pomfret". Being hard of hearing, he thought she meant " buy property" , buy "property". Since Auntie Chuck Hubert sounded so earnest, she could be right!!! Hmm, should i buy a property.....Dick pondered.

Scenario 1 (Property price stays stagnant)

( This post will be continued to show the annualised percentage gain for the different years when the property is sold......Gotta go gambling now....).