Property 101 for the desperately seeking singles

Property prices in Singapore – both HDB and private are now at their record highs.

If you are a single person and finding that buying a house in Singapore is getting too expensive, you are not alone.

Figures from the Urban Redevelopment Authority (URA) showed that prices of private residential properties increased by 0.6 per cent in the third quarter 2012, compared to the 0.4 per cent increase in the previous quarter.

The Private Property Index (PPI) is now at a record high of 208.2 points.

In fact, the PPI has surged almost 70 per cent since the trough recorded during the Lehman’s Brothers crisis in the second quarter of 2009.

On the public housing front, the HDB Resale Price Index (RPI) rose from 194.0 points in the second quarter 2012 to 197.9 points in the third quarter.

This represents an almost 2.0 per cent increase over the previous quarter.

Meanwhile, the median cash-over-valuation (COV) ranges from S$21,000 for a three-room flat in Woodlands to S$66,500 for a five-room flat in Bishan.

I’m not here to argue about affordability but I hope to equip you with some basic knowledge on property ownership.

Before you make the plunge

Owning your first property, while exciting, requires plenty of financial planning.

Now, I know some of you out there hate maths but trust me, here’s where maths come in handy.

The first step is to do some basic calculation to determine if you have sufficient cash and CPF savings.

Knowing your sums will enable you to assess your financial situation.

Private or resale HDB?

The next question to ask yourself is should you buy a private property or a HDB resale flat?

I consider myself a conservative person and will opt for a resale HDB flat to get my first leg in the property market and enjoy the CPF Grant (every Singaporean must enjoy it at least once!)

However, if you can afford it, go ahead and get yourself that swanky condo that you’ve been dreaming of.

Before that, you need to know some basic financial calculation.Ready? Here goes…

For private properties, you need to come up with 5 per cent cash and 15 per cent cash and/or CPF if you are buying direct from a developer.

If you are buying a resale condominium, you need to give 1 per cent in cash for the option fee followed by the remaining 4 per cent (also in cash) within 14 days to exercise the option.

After that, you need to pay the remaining 15 per cent in cash and/or CPF.

With the price of mass market condos (i.e. condos in the suburbs) hovering around S$1 million, you will need to cough up with S$50,000 in cash and S$150,000 in cash and/or CPF.

You also need to apply for a bank loan to finance the remaining 80 per cent of your purchase.

Once a loan is approved, you will get a Letter of Offer from a bank specifying how much loan will be granted.

Should there be any shortfall, you need to top it up in cash.

Do also bear in mind there is a stamp duty to be paid on your property that works out by using the following formula:

3% x $1,000,000 – $5,400 = S$24,600.

For private properties, you must pay in cash.

How about for resale HDB flats?

The procedure is almost same.

If you are earning not more than S$5,000 you can apply for a CPF Grant of S$15,000.

Then, you will need to apply for a bank loan and obtain a Letter of Offer or apply for HDB Loan Eligibility and produce an HLE.

This will determine how much loan you can get from the bank or the HDB.

Let us assume the HDB flat costs S$400,000 (including a COV of S$10,000)

You will first need to given an option fee of $1,000 (the usual practice) and within 14 days pay the remaining S$4,000 to exercise your option.

In all, the deposit needed is S$5,000.

You will then be required to attend a first appointment with the HDB who will assess your eligibility and determine how much you have to pay.

During the second appointment with HDB, you will need to pay the following:

The cash portion works out to:

5% x $400,000 = S$20,000

Meanwhile, the cash portion for the COV is now S$5,000 [S$10,000 – S$5,000 (from the deposit)]

The remaining 15 per cent can be paid using your CPF. This works out to:

15% x $400,000 = S$60,000

Here’s the best part! Remember, I told you earlier you can get grants of S$15,000?

Well, now your CPF portion works out to:

S$60,000 – S$15,000 = S$45,000

Let us not forget your stamp duty which can be paid using your CPF:

3% x $400,000 – $5,400 = S$6,600.

How much to spend on renovation

Now that you have your dream home, how much renovation should you spend?

Go back to my blog on Renovation 101. The rule of thumb is not to spend more than 10 per cent of the value of your property on home renovations.

Go for minimalist colours and do simple renovation to ensure everything works.

I assume you want to rent out your property one day, right?

But wait..

The Ministry for National Development (MND) is now studying if singles can buy Build-To-Order (BTO) flats direct from the HDB.

If you can wait, why not wait out to see if this scheme will be rolled out?

BTO flats are generally more affordable than resale HDB flats.

After five years, you can then rent out the entire flat or sell it in the open market.

If I were you, I would keep it and upgrade to a condo!

Happy house hunting!

*the above information are basic financial calculations that do not factor into other costs like legal fees, fire insurance, property tax and agent’s fee. You are advised to engage a good real estate salesperson and a lawyer to help ensure a hassle free property transaction.

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