A property is one of the first big ticket items that you will ever purchase. Therefore, it is important to do your due research on the property and financing aspects before going with the decision to purchase the property. Below are some pointers which you should be aware of before making the final call to purchase.
1. Your Intention
The intention of you purchasing a property must be clear, and we are not just talking about having a place to live in. In fact, your intention should be for the benefit of the future. Below are a few
examples of which you should consider:
– Are you planning to stay in the same property for the rest of your life, or will you be upgrading to a private property in a few years’ time?
– Is the size of the flat suitable for your family, should you have an increase in the number of family members soon?
– Are you purchasing for investment or own-stay?
– Do you need really need place immediately or could you afford to wait for a couple of years?
These are some questions which you should be asking yourself as it will help to filter out those
properties which do not meet your needs.
2. Public Housing or Private Properties?
BTO or Resale Flats?
There are 2 main types of property in Singapore – Public and Private.
Public housings are built and managed by the government, and it is more affordable compared to private properties. These flats have a 99-years lease; once the lease is up, the flat will be returned to the government. Despite that said, there have been several cases of an extension of the lease tenure. This is done by paying a premium to the government.
Under public housings, there are Built-to-Order (BTO) flats which usually takes 3 to 5 years to complete, and Resale Flats which are readily available in the market. There are certain requirements which you must meet to be able to purchase a BTO or Resale Flat. More information has been shared on this article. There is also one more type of public housing known as Executive Condominiums (EC), these are housing sold by government but built and marketed by private developers. EC are sometimes known as Public-Private Hybrid Housing, as buyers of EC will need to meet requirement similar that of buyers purchasing BTO and Resale Flats. EC will be fully privatized after 10 years.
On the other hand, private properties consist of Condominiums, and Landed properties. Private properties require less stringent requirement as compared to purchasing a public housing albeit it being less affordable.
The type of flat that you chose to first reside in will determine the grants that you can take up. More details will be shared under point 6, Financing.
It is not a hidden secret that properties in the Core Central Region (CCR) are costlier compared to those that are Outside Central Region (OCR). In addition to the high cost of properties, nearby amenities are also pricier as compared to those in the neighbourhood as the town area tends to serve overpriced meals.
Areas within the CCR:
District 9: [Central – Orchard] Cairnhill, Killiney, Leonie Hill, Orchard, Oxley
District 10: [Central – Near Orchard] Balmoral, Bukit Timah, Grange Road, Holland, Orchard Boulevard, River Valley, Tanglin Road
District 11: [Central – Near Orchard] Chancery, Bukit Timah, Dunearn Road, Newton
District 1: [City – Business District] Boat Quay, Chinatown, Havelock Road, Marina Square, Raffles Place, Suntec City
District 2: [City – Business District] Anson Road, Chinatown, Neil Road,
Raffles Place, Shenton Way, Tanjong Pagar
District 6: [City – Business District] City Hall, High Street, North Bridge Road
Part of District 4: Sentosa
The location of the property will surely affect your commute time to work (if you are not working from home), and time is money. Would you prefer to purchase a property that is closer to your workplace, at a slightly higher cost(if your work location is in the central region), or would you rather spend your time travelling to work? The choice is yours.
Before looking at the price of your dream property, it is ideal to work your budget to determine what kind of property you can afford. Not only will it help you save some time on looking at properties which are out of your budget, you will also avoid purchasing a property which would potentially put you in a financially undesirable situation. In the event where you are uncertain on how to go about with the calculations, you can consider seeking the advice of a professional real estate salesperson.
5. Miscellaneous costs
Costs such as stamp duties, legal fees and renovation costs are often overlooked by most buyers, even though it is quite a significant sum. The condition and state of the property will determine if you should renovate it. In most cases, the cost of renovation will go over the budget due to unexpected circumstances such as a pipe bursting. For those looking at resale flats, there is a chance of the entire block being selected to undergo Housing Development Board’s (HDB) Enhancement for Active Seniors (EASE) Program. This program improves the facilities of the home by making it senior-friendly at a subsidized cost (less than $1,000). If you do not have the intention to sell your place within the next few years, this program will surely help you to save on a portion of the renovation costs.
Getting a loan or applying for a grant will help to ease your financial burden.
There are certain requirements to meet in order to obtain a mortgage loan from a bank. For example, if you are purchasing a HDB or EC, your Mortgage Servicing Ratio (MSR) is capped at 30% of your combined gross monthly income. If you are purchasing a private housing, your Total Debt Servicing Ratio (TDSR) must be below 60% of your combined gross monthly income and. For those looking to apply for a HDB loan, you must be a Singapore Citizen with an income ceiling of S$6,000 (Single) or S$12,000 (Couple/Family).
The amount of downpayment also differs between Bank Loan and HDB loan. If you are taking a bank loan, the downpayment required is 25% of the purchase price of which 5% must be paid via cash (The rest of the 20% could be paid via CPF). On the other hand, HDB housing loan only requires a downpayment of 10% of the purchase price, and it can be fully paid via CPF with no upfront cash required.
A range of grants are also available when purchasing a HDB flat. These grants include Enhanced Housing Grant, Proximity Housing Grant and Family Grant. Grants given by the HDB aim to reduce the financial burdens for purchasers as they help to reduce the upfront cost during the purchase process.
7. Approval-in-Principle (AIP)/ In-Principle-Approval (IPA)
AIP/IPA is an agreement for a bank to loan you a certain sum of money to finance your property purchase. It is an important step which should not be left out as you do not want to be buying a property without any form of guaranteed financing (unless you are able to do without it). As a matter of fact, this should be the first step for anyone who is looking to purchase a property. An IPA not only guarantee you a form of financing, but it also gives you an idea of how much loan you are entitled. This way, you will be able to plan out your finances better which can save you time by filtering out properties that are out of budget.
This agreement can be obtained from any banks at no cost at all. You can find out which banks currently offer the best interest rate here – icompareloan.com
8. Option to Purchase (OTP)
OTP acts as a ‘reservation’ to the property and the seller will not be able to sell the property till you exercise the OTP or allow it to expire. However, there is a small fee to pay when acquiring an OTP, and that is the Option Fees. Option fee is capped at S$1,000 for HDB Flats and usually 1% of the sales price for Private Properties.
If the buyer do not exercise the OTP by the end of the expiry, the seller will be able to forfeit the entire amount with no refund at all, unless the agreement stated otherwise.
9. Property Valuation
The value of property will affect the amount of loan that you can get from a bank. Thus, it is ideal to check out the property valuation before coming to a decision. You may get the estimated valuation of property instantly through a few sites such as SRX valuation, UOB Home Valuation etc.
If you are unsure about the calculations and the types of loan that you can obtain from a bank, be sure to seek professional advice from a real estate salesperson or from a reliable banker.
10. Completion Period
This is the last step of a home purchase process. After you have exercised the OTP, you will have to decide on the completion period. This is an important step especially for those who have a Tight Cashflow and Timeline. Are you in the midst of selling your current property or waiting for the CPF refund before you are able to purchase a new property? If so, you will have to be extra careful about the timeline so that you are not caught in a situation where the payment for the new property is due and that your CPF or proceeds from the sales of your current property is not yet received.
A completion period usually takes about 8 – 10 weeks. Therefore, if you know that your CPF refund or proceeds from the previous sales will be delayed, it is best to request for a longer completion period, E.g: 12 weeks or more. This way, you can avoid any unnecessary forfeiture or even potential lawsuits.
There are many points to take into consideration before purchasing a property, but it should not stop you from getting a place of your own. If you are unsure of how to go about purchasing a property, you can always seek the advice of a professional.