Getting Your First Property In Singapore
Getting your first property in Singapore can be quite an experience and stressful.
With getting that property being one of the biggest ticket purchases for many, the learning journey will be especially steep and stressful without external help. Recognising that, we hope to help Singaporeans make better personal finance decisions with our latest Facebook Live on strategies, tips and tricks to getting your first property.
If you have yet to catch our Facebook Live, you can catch it here.
We kicked off the discussion with 2 very interesting slides regarding Singapore’s property market.
Singapore Property Index
The Singapore property index tracks the overall price movement of the public residential market. It is compiled based on quarterly average resale price.
As seen in the chart above, we see a general uptrend from the year 1976 to the year 2017. This might be one of the statistics that gave many Singaporeans the confidence that property in Singapore is a profitable investment.
How HDB Flat Might Depreciate Over Time
The second article depicts how HDB flat depreciates over time due to it being a leasehold of 99 years.
The graph depicted the depreciation a homebuyer will experience if he bought a HDB 5 room at $860,000 with 56 years’ lease left in the year 2017.
Who we interviewed regarding these commonly asked questions?
Our speakers consist of
- Timothy Ho: Managing Editor at DollarsandSense, a leading personal finance blog in Singapore
- Nicholas Woon: Real Estate Consultant at ERA Realty Network Private Limited Singapore.
- Johann Lim: Happiness Champion at Qanvast – Interior Design Ideas, go-to interior design platform for homeowners to discover local home ideas, products and renovation tips
- Heikal Shafrudin, Owner at HDB Hero, specialising in helping HDB owners upgrade to private housing
Property In Singapore: Place To Stay Or Investment?
We opened the question to our panel of speakers.
Below are their answers:
- Heikal: HDB is a place to stay, and Private property will be for investment
- Johann: Property is a place to stay
- Nic Woon is fully for investment.
- Timothy thinks that property is a place to stay.
- Kenneth: A property is mainly a place to stay, with a pinch of investment element to it.
What will your answer be?
Further Reading: Commonly Asked Questions
For all the questions, we break them down into 3 parts:
- Before getting your first property: Factors to consider
- While getting your first property: When you are about to or have gotten your keys, what are the things to consider?
- After getting your first property: After staying for a few years, what are the things to take note of if you wish to sell or rent the property out?
Before getting your first property
Choosing between a BTO, EC or Resale
With all things being equal, getting a BTO will be the best option.
BTO is usually cheaper and one will get a fresh new 99 years lease when he purchases a BTO. On top of that, one will qualify for more grants which can help with the cost of getting the property.
Reason for not recommending a Resale: HDB Resale Statistics show that for the past few years since 2013, the prices are slightly declining. Should this continue with the Singapore government constantly coming out with BTO to manage the supply of housing, and also to control the price of HDBs.
Hence, should our HDB price not grow as much as in the past, the only gains one can look at when purchasing a Resale flat will be the CPF housing grant, which is as much as $70,000. Between BTO or EC, the determining factor should be your combined income. Both ultimately give rather good returns.
While your home is the first big ticket item, the second one should be on a renovation.
BTO is usually going to come bare, hence homeowners will allocate a certain budget to build on it.
Resale usually comes with the renovation of the previous owner, hence, money might have to be spent restructuring the place.
EC has most of the fixtures, which means lower renovation cost.
Estimated renovation cost:
- BTO: $30,000 – $50,000
- Resale: $30,000 all the way up to $100,000
- EC will be the least.
I think it depends a lot on personal preference and objective.
For BTO and EC there is usually an average of 3 years building period and 5 years Minimum Occupation Period (MOP). In that 8 years, the value of the property might have increased.
In fact, returns on BTO is quite well documented at about $120,000 to $200,000. Whereas, for EC, it is compared to the likes of getting a Lexus at a Toyota price, where the intrinsic value is already inbuilt.
The only difference? For BTO, you most likely need zero cash upfront. EC is catered to the sandwich class where you have the extra money for the downpayment.
Resale is for people who do not have the flexibility of waiting. Resale, however, is a 3 years shorter wait to sell as compared to an EC or BTO. This is for people who might be looking to upgrade their property soon.
Bank Loan vs HDB Loan
Read also: The Complete Guide: Bank Loan vs HDB Loan
HDB Loan: The Interest rate is generally stable at 2.6%, most likely for the next 10 to 15 years until the interest rate for CPF Ordinary Account increases.
For bank loan, however, it fluctuates.
So the question to ask yourself, given that mortgage is something you need to pay each month, do you want it to be consistent or you are ok with it changing?
As many of us are expecting a constant income every month, having expenses fixed might be the way to go.
A good question to ask yourself will be, “Do you have the initial 5% and 15%?”.
This is important because, if you were to go for HDB loan, you can finance the down payment fully with your CPF.
This means that if you were to go for a BTO, 5% will cost you around $20k to $40k.
The next 5% will then be paid 3 to 4 years down the road where your CPF Ordinary Account will have sufficient due to the accumulation of your salary contributions over the years.
Hence, if you do not have the cash upfront, HDB loan works better.
Point to note will be: Once you take up a bank loan, you will not be able to go back to a HDB loan.
To add another perspective, I may go for a bank loan if I have the means.
Few key pointers to take note:
- Having cash upfront can lead to inappropriate spending. Whereas if the same amount of money is put in the CPF account, it allows accumulation of interest.
A good case study where bank loan can be useful:
- Should the wife or husband decides to stop working for a few years while paying for the house, you will still have that extra $20,000 to $30,000 to fall back on for your mortgage.
On top of that, one can always refinance their bank loan every 2 years.
Should you rent or should you own a property?
For non-Singaporean: Renting might be better due to Additional Buyer’s Stamp Duty (ABSD). For foreigners, it is at 15%. 5% for Permanent Residents getting their first property.
There is actually a study done in the US on when it makes sense to rent and when it makes sense to buy. The study determined that 7 years is the deciding factor of whether one should buy or rent.
Should one be looking to stay in a particular country for less than 7 years, renting will be the better option.
During: When you get your keys
When do we look at Interior Design?
If the search for interior designer takes place after getting the house keys, it is too late.
Here’s a possible timeline that a couple can look at:
- 1 year before getting their key, the couple should sit down to think about the amount of disposable income they have for home renovation.
- Once that is done, with that budget in mind, the couple can then go on to search for the design they want and formulate the design they love.
- 3 to 6 months before getting the keys, it might be a good time to meet up with the interior designers.
- It is important to get the opinion of a few interior designers. Usually, 3 to 5 is a good number.
- About 1 or 2 months before collecting keys, this is the best time to go in-depth with the interior designer, going through all the budget and key details.
Some problems one may face:
- Assuming a couple has the budget of $30,000. After meeting all the interior designers, the average quotation is higher than the budget set aside. This can be a case of a couple having a requirement higher than their budget allocation.
- A good interior designer should be able to come out with a rather good visualisation of your apartment with the floorplan provided to the couple.
Some good tips when choosing interior designer:
- Check out the existing of current projects for the interior designers that you are looking to engage. From there, one will be able to better sense the result he or she is getting from engaging the interior designer.
Sometimes as a home buyer, requirements change. This is especially so after stepping into the house once it has been built.
Hence, one good thing to take note of when finding an interior designer will be his flexibility and ability to adjust to your needs and wants when scenarios like this happen.
Should we try to source our own generic furnishing (eg lighting, random chairs, fridge and other utilities) ourselves or trust the Interior Designer to settle for a reasonable rate?
Most of the time our general renovation quotation does not come with furnishing. This is something that homeowners should take note of.
On the other hand, there are interior designers who accompany you to shop for furniture. Make use of that.
What is the take on optional PVC fittings for floorings and walls? Is it advisable to go for it?
In my point of view, if you have sufficient budget, choose a trusted interior designer to work it instead. The drawback for such action will be that the cost is added to your renovation cost.
On the other hand, if you were to go for the optional HDB fittings and renovations, the cost can be lumped together with your HDB price where you can take a HDB or bank loan for.
Other things to take note of when choosing an interior designer
If it is too good to be true. Think twice, think thrice.
Always look at the fine prints.
Eg. There are some interior designers that state that they will cover your electrical wiring for 30 feet. So what happens after, it will add up to the cost.
After: When you think of selling or upgrading
Given a 15 years timeframe, would a HDB or EC still have similar capital gain? Since EC would be privatised by then.
Assuming one buys an EC for $800,000. Comparing this to getting a HDB for $400,000. If the property market goes up by 20% across the board, in terms of gains, the EC will be more than that of the HDB.
While logically, it makes sense to think that the EC will go up more, this is not possible without coming out with the higher upfront payment, higher taxes, higher monthly payment for the years to come and lesser grants.
Hence, a good question to ask yourself will be that, is there an opportunity cost that one is missing out with higher downpayment and monthly payment.
Could an individual make more money should he chooses to invest that difference?
I would assume HDB market to be pretty much stagnant moving forward, due to government intervention on the supply side. With EC being a hybrid of HDB and private housing, after 10 years it will be privatised. This means that the EC will be categorised under the private property chart which goes in cycle. In good times, it can fluctuates to a high price. This, however, depends on the entry point too.
With the EC becoming privatised after 10 years, it means that it will be added to the free market where sales of it is not restricted to Singaporeans or PR only.
However, there is an important factor to take note of. In the past, housing is much more affordable for foreigners as compared to today due to the Additional Buyers’ Stamp Duty. This increases the uncertainty for the demand and pricing of private housing in Singapore.
There is a famous example amongst property agents:
- Simei Green Condominium and Eastpoint Green Condominium. They were completed around the same time where one is an EC and the other a condominium.
- After 5 years, the price of the EC matched up to the condominium. It went on to overtake after 15 years due to a better location.
- But back then, there was no Additional Buyers’ Stamp Duty.
While on paper, EC seems to be the answer, but as we enter a new market dynamics and implementing of new taxes, there is certain impact which we might not be able to predict.
Is there any difference in ROI when it comes to 3-room, 4-room or 5-room?
Based on experience, buyers who bought a 3-room BTO flat made a lot more than a 4 or 5 room. The reason might be due to the absence of 3-room back in the days, and the government was not able to price the 3-room properly.
Average returns on:
- 3-rooms: $180,000
- 4-rooms: $120,000 to $160,000
- 5-rooms: depend on the location
There is a lot of factors which can contribute to the price which I think home buyers should not ignore on top of the number of rooms:
- Does the area you are getting your flat has little supply of 3-room/4-room or 5-room?
- Location plays a key factor too.
A key point to note: Even within the same estate, the prices can range significantly.
One can have a 5-room flat that is easily $100,000 more than the cheapest 5-room flat in the same estate, just because of levels and where it is facing.
If we look at the most expensive 5-room flat against the cheapest 4-room flat, the gap can be $200,000 or more in the same estate. Hence, it is a good habit to check out the different prices and range of apartments, even within the same estate.
If you are looking to upgrade, what are the financing options?
- One gets his BTO
- Stays for 5 years which is his Minimum Occupancy Period (MOP)
- Have yet to finish paying up his loan
With this, when one sells the house, the transacted price will take away the remaining of the housing loan, the CPF one puts in and the interest. Everything else will be the cash proceeds.
After obtaining the HDB’s in principle approval of the sale, what happens is that one can use that approval of sales to apply for a bridging loan for those looking to upgrade.