My First Property

Where to buy for your first property?

Buying property for the first time is always an exciting adventure! The thought of setting up your own “nest” definitely invigorates one. But at the same time, there are so many decisions to make… Where to buy? HDB or Condo? How big should I buy?… How do we make these decisions systematically?

1. Budget

The obvious starting point is understanding your budget. The rule of thumb to determine your budget is that the maximum monthly mortgage payment should not be more than 30% of your combined monthly income. Best if I use an example to illustrate: Suppose you and wife are getting married and is looking for their first abode. You are earning $5,000 a month while your wife is earning $4,000 a month. Your combined income is $9,000. In this case, the monthly amount for servicing mortgage should not be more than $2,700 (30% x $9,000). The next step is to find how much the bank can lend you. You need to do some financial calculation here to determine your maximum budget for your property purchase (ask your agent to help you!). Your inputs for the calculation as follows: Monthly Payment (PMT) = $2,700 Number of periods (n) = 30 years x 12 months = 360 Interest Rate (i) = 2.6% (This is the interest to borrow from HDB. Is good to use this as a gauge even if borrowing from bank as they are using floating rate) Calculate the amount the bank can lend (PV), which in this case, is $674,427. The banks can only lend to you 80% of the property value. You will need to put down a deposit of 20%. In this case, your maximum budget for your property would be: $674,427 / 0.8 = $843,034. This is on the assumption that you current have cash / CPF of $168,606. If you do not have this amount of deposit, your maximum budget is then limited by your deposit rather than the amount you can borrow. Assuming that you have only combined cash and CPF of $100,000, your maximum budget will then be: $100,000 / 0.2 = $500,000

2. Investment Consideration vs Living Preference

Very likely, your first purchase is for your own stay. Many will face the dilemma of whether they should put investment consideration as their priority or living preference. In terms of Investment Consideration, the 2 main questions are:

a. Should we be buying now? It seems that price are dropping! Maybe we should rent first?

b. Properties in the city have better chance of appreciating, we should buy in the city even though it is far from our parents!

The simple answer to this is that we should always consider LIVING PREFERENCE first! Your first property is NOT an investment vehicle and is a place for you to build your family. That should be your ultimate objective and should not be compromise with other objectives! There are enough stories out there whereby people trying to beat the market (for investment returns) but end up at the losing end. Let me just share some of it here! – In 2008 just after the Lehman brother crisis, the private property market begins to collapse. Many are in the opinion that the HDB market will collapse too! There are people at the point in time delaying the purchase of their HDB flat thinking that they can get a better price. Some even do it at the expense of delaying their marriage! Of course, HDB price did not drop eventually (See Chart Below) and in the end they have to buy the HDB at higher prices and at the same time loss a few years waiting! Source: HDB website – There are new couples who chose not to stay close to parents in the hope of getting better investment gains for the properties. Eventually, especially after having kids, they need their parents to help look after. Many have to travel a great distance on daily basis to ensure that someone trustworthy is looking after their kids. This often results in great disruption of their lives! (Imagine have to wake up 1 hour earlier every day to ferry your kids to your parents place!) So moral of the story is… YOUR FIRST PROPERTY IS NOT FOR INVESTMENT!

3. HDB, Executive Condominium (EC) or Condo?

With your budget determined, is easier to make a decision on the type of property. Generally speaking, the best choice is newly launched Executive Condominium (EC). This is of course with the consideration that it satisfy your living preference and your budget. The main reason is that EC is subjected to the maximum income rule similar to HDB flats. To apply for a newly launched EC, your combined income cannot be more than $12,000. The developer usually have to give a discount compared to the market to make sure that their apartments are affordable. However, when you sell your EC, such restrictions are not there after certain period of time. You can sell like a normal condominium (currently is after 10 years). In essence, you will be buying a Condo (most EC looks like Condo anyway) at an unfair advantage to you (assuming that your income is less than $12,000) but when you sell, there isn’t any disadvantage as compared to another Condo! If you have a budget constraint, the obvious choice will then be HDB. There are various grants available especially for 1st time buyer so know what is available for you! Usually your headache comes when you are in this condition: you have the budget for either an outskirt Condo or a HDB flat in the city. Assuming that you have no constraint on the living preference and there are no newly launch EC available, how should you decide? In such scenario, our advice would be going for the Condo. Reason being that firstly, you have a better living condition in a Condo and secondly, a Condo would have better appreciation opportunities as compared to HDB over long term. HDB is not exactly a free market product and the government has a lot of control in the prices. At the same time, it is not in the government’s favour to have the price of HDB sky rocketed. In that sense, the appreciation for HDB will be capped. Condo on the other hand is more controlled by the market. There is a definitely a greater chance of price appreciation over long term in this case!

4. New Sale vs Resale

Most people like prefer new to old. But in the case of properties, resale properties has their advantages. Below are some of them:

a. There is a greater chance of getting properties that are more value for money. New properties tend to have a price premium which diminishes quickly after 1 to 2 years.

b. Waiting time is definitely shorter especially when the new properties are under construction.

c. What you see is what you get – You are looking at the exact product and you know who your neighbours are. Unlikely buying off models or floor plans, you may not get what you expect when you walk into your new apartment for the first time!

In any case, it is possible to get a new home from a resale property by just doing a major renovation! So our point is that don’t write off resale properties! You can find good gems there most of the time! Of course we shouldn’t get properties that are too old as well… the simple rule of thumb is that we should really be careful for properties that are 25 years old and above.

5. HDB – where to buy?

  If living preference and budget is not a constraint, you should try to get your HDB in mature estate such as Bishan, Bukit Merah, Clementi, Kallang, Marine Parade, Queenstown and Toa Payoh. Apartments in these areas are always in demand unlike units in the outskirt whereby you can have a situation of no buyers at all! If making a choice between a smaller flat in mature estate versus a larger one in the outskirt. Would definitely advise to take the one in mature estate! This may seem to be an obvious suggestion but realistically, many do not make the choice correctly. They are attracted to the lower price in the outskirts even though they can afford something in the matured estate. After staying in the outskirt, most of them will realise that it is not that convenient. And if they wish to sell during bad times, they really have to be very lucky! If due to budget constraint and there is a need to stay in non-matured estates, at least go for places with a growth story. Jurong and Woodland are 2 good places to consider. We can see that a satellite CBD is slowly taking shape in the Jurong area and we do expect more people to be shifting over. For Woodlands, with the closer integration with our Malaysia neighbour, it is likely to gain some attention as well. Try to avoid estates that have poor connectivity to CBD and have nothing else besides blocks and blocks of HDB flats. Choa Chu Kang and Bukit Panjang are 2 examples. I can’t really find selling points for HDB in these areas!

6. HDB – 3, 4 or 5 rooms?

When choosing the room types, besides understanding your family needs, another important consideration is the neighbourhood! For example, even though you may only need a 3 room flat, you have to understand that a neighbourhood dominated by 4 and 5 room flats is always better. Do take this into consideration especially if you have small children!

7. Condo – where to buy?

Firstly, do not brush off resale properties! Very often, there is a premium in new properties and you can usually find gems in resale properties when you dig hard enough! You have to acknowledge that property market is not an efficient market. What we mean is that there is always opportunity to get undervalued properties and there are always people overpaying for a property! Again if living preference is not a constraint, the key here is finding undervalued properties. One of the simplest way to do so is to compare unit price of similar properties. Properties can be similar in terms their location, e.g. in the same district or in terms of the same target market, e.g. condos in tampines and pasir ris is likely to have the same target market. Obviously, look for condos with the lower unit price. Don’t be surprise that you can get cheap and good condos! It happens all the time! Another consideration would be to see the growth potential of the area. As mentioned earlier, Jurong may be interesting with the satellite CBD taking shape. Another example would be the Tanjong Rhu area whereby we can expect a lot more buzz with the sports hub coming into picture. As at the time of this article is written, an area worth looking at is District 4 and 5 (Telok Blangah / Pasir Panjang area). There are some obviously undervalued properties (Jurong prices!) and the area definitely have a growth story! With the establishment of Mapletree Business Park and the development of the research hub (biopolis), we can definitely see more activities brewing in this area! Which property in the various district? Check out our recommendation!
As first time property buyer, most likely you will be buying for your own stay. You have to option to buy:

  • HDB Build to order flat
  • Resale HDB  flat
  • Private condo or property
Things to take note when purchasing Build to Order (BTO) flat:

 

Citizenship

  • Singapore Citizen,
  • Family nucleus must comprise at least a Singapore Citizen with a Singapore Permanent Resident,
  • Family nucleus must comprise at least a Singapore Citizen with a spouse which is not a Singapore Citizen or Singapore Permanent Resident

Age

  • At least 21 years old
  • At least 35 years old under the Single Singapore Citizen Scheme, Non-Citizen Spouse Scheme and Joint Singles Scheme.

Income Ceiling

Type of flat Average gross monthly household income
Buying a 3-room (mature towns/estates), 3-room (Premium), 4-room or bigger flat
  • Your average gross monthly household income must not exceed $10,000
  • If you are buying a flat with your extended family, your average gross monthly household income must not exceed $15,000
Buying a standard 3-room (non-mature towns/estates)
  • Your average gross monthly household income must not exceed $5,000.
Buying a 2-room
  • Your average gross monthly household income must not exceed $5,000.

Housing Grant

The CPF Housing Grant is a housing subsidy provided by the government to eligible buyers of HDB flats. It can be used for the initial payment or to reduce the mortgage loan for the flat purchase. The various CPF Housing Grants available are:

 

  • Additional CPF Housing Grant
  • Special CPF Housing Grant
  • Step-Up CPF Housing Grant

Loan

HDB Loan
  • HDB Loan Eligibility (HLE) letter must be obtained before committing to the purchase or transfer of a flat.
  • The HDB Loan Eligibility Letter (HLE) will give an indication of the loan you are eligible
  • To be eligible for HDB loan your average gross monthly household income not exceeding :- – $10,000 for families – $15,000 for extended families – $5,000 for singles buying a 5-room or smaller resale flat or 2-room new flat in non-mature estate under Single Singapore Citizen (SSC) scheme

Bank loan

    You can apply for housing loans from the bank.

Minimum Occupation Period (MOP)

You must have physically occupied your flat for 5years, before you are eligible to sell your flat in the open market.

 

Things to take note when purchasing HDB resale flat:

Citizenship

    • Singapore Citizen
    • Family nucleus must comprise at least a Singapore Citizen with a Singapore Permanent Resident,
    • Family nucleus must comprise at least a Singapore Citizen with a spouse which is not a Singapore Citizen or Singapore Permanent Resident
    • Single citizen with family members who are neither Singapore Citizens nor Singapore Permanent Residents (SPRs) can buy an HDB flat from the open market. You must form a family nucleus, with your parents and siblings (if any) or your children under your legal custody, care and control (for widowed, divorced or separated persons)

Note: From 27 August 2013, SPR household (i.e. a household with no SC owner) will have to wait 3 years from the date of obtaining SPR status before they can buy a resale flat

 

Age

  • At least 21 years old
  • At least 35years or above for single Singapore citizen scheme or joint singles  scheme

Income Ceiling

There is no income ceiling unless you are applying for a CPF Housing Grant or an HDB Loan.

 

Housing Grant

CPF Housing Grant for Family To be eligible, your average gross monthly household income must not be more than

  • $10,000 or
  • $15,000 (if you are applying with your extended family)

Here are the types of grant available

Type of Grant

Amount

SC / SC Household SC / SPR Household
CPF Housing Grant for Family $30,000 $20,000
CPF Housing Grant for Family (living near parents/married child*):
  • parents living with you in the resale flat, or
  • your parents or married child are the owner-occupants of property in the same town or within 2 km

*At least one of the parents/married child must be a Singapore Permanent Resident or Singapore Citizen.$40,000$30,000Half-Housing Grant

  • If you are a first-timer citizen and your spouse has previously taken a housing subsidy

$15,000or

  • $20,000 (living near parents/married child)

The Additional CPF Housing Grant (AHG) are also available to help lower-income citizen families.

  • It can be used to offset the purchase price of the resale flat
  • Eligible first-timers can use the AHG amount (up to $40,000) as an additional subsidy over and above the prevailing CPF Housing Grant for Family.

CPF Housing Grant for Singles Average gross monthly household income must not be more than

  • $5,000 or if you are buying a 2-, 3-, 4- or 5-room resale flat
Singles Grant Higher-tier Singles Grant
$15,000 $20,000

Higher-tier singles grant applies to Single citizen applicants aged 35 years or above who buy a resale flat to live with their parents

Loan

HDB Loan

  • HDB Loan Eligibility (HLE) letter must be obtained before committing to the purchase or transfer of a flat.
  • The HDB Loan Eligibility Letter (HLE) will give an indication of the loan you are eligible
  • To be eligible for HDB loan your average gross monthly household income not exceeding :- – $10,000 for families – $15,000 for extended families – $5,000 for singles buying a 5-room or smaller resale flat or 2-room new flat in non-mature estate under Single Singapore Citizen (SSC) scheme

Bank loan You can apply for housing loans from the bank too. However you will have to set aside cash monies of 5% of the valuation amount for the purchase

 

Minimum Occupation Period (MOP)

For 2-room or bigger resale flat purchased after 30 Aug 2010, you must physically occupied your flat for 5years, before you are eligible to sell your flat in the open market.

 

CPF usage and Age of property

If you are using CPF to buy a property with a remaining lease of less than 60 years but at least 30 years:
  • Your age plus the remaining lease of the property must be at least 80 years.
  • The maximum amount of CPF that you can use is a percentage of the lower of the purchase price or the value of the property at the time of purchase.

Ethnic Quota

Proportion of your ethnic group and Singapore Permanent Resident quota (if applicable) has not reached the set limit on the block that you are buying

 

Procedure

After you have negotiated the price to buy the resale HDB flat,

  • Furnish the Option monies to the sellers, the sellers cannot ask for more than $1000.
  • In return the seller will sign and issue the option to purchase to you. Take note that within 21days you will have to exercise this option to purchase.
  • Do up buyer checklist (must be done before exercising of the option to purchase)
  • Apply for valuation of the flat
  • Bank loan letter of offer signed or HLE letter ready and signed before exercise the option to purchase
  • Exercise the option to purchase and furnish the exercise fees to the sellers. Note that the option fees plus exercise fees must not exceed $5000
  • Register for HDB appointment
  • Attend HDB 1st appointment
  • Completion (HDB 2nd appointment). Typically 6 to 8 weeks from HDB 1st appointment

Condo

Citizenship

  • Singapore Citizen or Singapore Permanent Resident or Foreigner

Age

  • At least 21 years old

Bank loan

You can apply from the bank for the housing loan. Do take note of Total Debt Servicing Ratio (TDSR) requirement

 

Procedure

After you have negotiated the price to buy the condo,

  • Furnish the Option monies to the sellers, Option monies is usually 1% of purchase price
  • In return the seller will sign and issue the option to purchase to you. Take note that typically within 14days (or the number of day specified in the option to purchase) you will have to exercise this option to purchase.
  • Exercise the option to purchase and furnish the exercise fees (typically 4% of purchase price) to the lawyer.
  • Exercise to completion of the purchase typically takes about 6-12 weeks depending on agreement between both buyers and sellers
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