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SINGAPORE
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STUDENT NAME:
Submission Date:
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Contents
Introduction......................................................................................................................................2
Problem Statement...........................................................................................................................2
Situational Analysis.........................................................................................................................2
Cash flows....................................................................................................................................2
Initial Cash Flow......................................................................................................................2
Ongoing Cash Flow..................................................................................................................3
PV of Cash Flows........................................................................................................................3
Differential Cash Flows...............................................................................................................3
Recommendations............................................................................................................................4
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Appendices......................................................................................................................................5
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Appendix: 1..................................................................................................................................5
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Appendix: 2..................................................................................................................................6
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Appendix: 3..................................................................................................................................7
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Appendix: 4..................................................................................................................................8
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Introduction
In 2010, Mr. Wong shifted to Singapore with his family at the age of 40 years, after
receiving a job offer from a leading investment bank. In Singapore, they rented in a
condominium for next six years till 2016. He has to pay $4000 monthly as a rent. At the same
time, the Singaporean real estate market had improved and resulted in low prices of available
Problem Statement
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In 2016, while renting a home made their life easier but they are also looking into the
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pros and cons of purchasing their own house. Mr. Wong has perceived the real estate market
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flourishing and providing properties with the low prices, as an opportunity to have an investment
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in. He has decided to purchase their own house on installments, and use the amount for paying
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Situational Analysis
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As the real estate market has started improving from the previous year, Mr. Wong has
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decided to purchase his own house on installments. For this, he has to conduct a detailed analysis
Cash flows
Mr. Wong has decided to withdraw his pension fund for down payment and to take a
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Initial cash flow has been calculated with the help of available data. Initial cash flow
includes those payments that incur at the time of the purchase of the property. The initial cash
flow normally contains down payments, initial fees and taxes. Appendix 1 shows the initial cash
flow for the purchase of property. The payments include down payments, stamp duty, agent fee,
Ongoing cash flows are expenses that an individual has to bear in order to operate
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smoothly along with some major expenses. The outgoing cash flow includes the installment
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payment for the loan, which is a huge expense along with some additional fees such as:
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maintenance fee, property tax, repairs and general maintenance. Appendix 2 shows the ongoing
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cash flows for purchasing the property.
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PV of Cash Flows
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The present value of cash flow helps in identifying the current time value of the future
cash flows. In this, the current cash flows have no effect, but with the passage of time the future
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value tends to change due to ever-changing value of money. Appendix 3 shows the present value
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of cash flows incurrence in purchasing and acquiring the property, throughout for the ten years
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period. The present value has been calculated by assuming 10% discount rate. The present value
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Differential cash flows are the cash flows that incur additionally for ongoing operations.
The individuals must have to pay these cash flows just to maintain the smooth running of the
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operations. The new project includes some differential cash flows. In this property purchase
project, Mr. Wong would have to pay differential cash flows in the form of maintenance fee,
property tax, repairs and general maintenance expenses on monthly basis. Appendix 4 shows
Recommendations
After a detailed present value analysis, it is recommended to Mr. Wong that acquiring a
property at the time when the real estate market is showing decreased prices can be considered a
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great opportunity to invest. Although the present value analysis indicates that the future value of
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property could be decreased after some time, but considering the qualitative measures it is
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actually a good idea to invest in the property in an already established residential area. The
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reason being, the prices will increase in a good neighborhood over time and definitely 10 years
down the road. Therefore, considering the qualitative factors, Mr. Wong should consider buying
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the property as it shows that the purchase of this property will have potential price increase in
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future.
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Appendices
Appendix: 1
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Appendix: 2
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Appendix: 3
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Appendix: 4
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