Buy an Expensive Property and a Cheap Car


You just got promoted or getting married soon or are just doing well that you don’t know what to do with the money. These trigger points usually result in you purchasing a property or a car or both. Both these assets are expensive in Singapore. Before you take the plunge and place your deposits, think!. Let’s take the case of 2 imaginary individuals with different approaches.

Sam Teo is a successful middle level manager in his mid forties. He has a well paying job, and lives with his wife and young daughter in a HDB five-room flat for more than 2 decades. Sam has a penchant for sporty and luxury cars. Currently he drives an expensive luxury car which he feels gives him the prestige and recognition that he feels that he needs for his job.

On the other hand, Jack Chandra is a successful executive also in his early forties. Viewing cars as a mode of transport, Jack has always purchased small and inexpensive cars 2 years after he obtained his driving licence at age 23. Being careful with his money, Jack had been able to save and purchased a terrace house 15 years ago and before the property boom started. He lives in the house with his wife and young son.

The question is whether Sam or Jack would be better off in 2 decades if they continue with the same trend.

There is a wise saying which you may have heard before. The saying goes something like this: “Buy a big house and a small car”. This is sound advice. What it means is that you should invest the bulk of your money in assets like property whose value tends to grow over time. It also means that you minimise expenditure on depreciating assets whose value decreases annually.

In Jack’s and Sam’s case above, there is no dispute that over time, their properties would rise in value. However Sam’s absolute asset value rise would not be as high as Jack’s given the lower value of the HDB flat. The great disparity is the high expenditure incurred by Sam in owning the expensive luxury cars. Given the high value of this rapidly depreciating asset, Sam could be losing $250,000 or more every decade. Over a period of four decades or so from starting work till retirement, he would have burnt more than $1 million with this costly lifestyle. However, the rise in the value of his 5-room flat could not reach an increase of $1 million to offset this loss.

On the other hand, Jack’s humble lifestyle means a depreciation rate of perhaps $60,000 a year. Over the same four decades or so, his loss would total only $240,000. Furthermore, the rise in value of his terrace house is likely to increase substantially more than $240,000 over these four decades. Thus not only could Jack offset the loss for the price of owing cars in Singapore for forty years, he is also likely to see the asset price of his house providing additional amounts for his retirement.

I hope this example helps you to understand the wisdom of the saying which I modified to be: “Buy an Expensive Property and a Cheap Car”.

(Note: The author did not receive any payment or incentive from any company or organisation for their citation in this blog.)