How Can New Home Buyers Afford a Property in Singapore in 2021?

First-time home buyers are facing a difficult time in 2021, and I can understand why. Resale flat prices are at an all-time high, private property prices have risen across all segments, and numerous construction delays are getting a lot of grief. However, don’t give up completely if you’re a new home buyer today; there are a few actions you can take to help:

What can a home buyer in 2021 do?

  • Focus on quantum over price per square foot
  • Get AIP early, to know your budget range
  • Keep within parameters of affordability
  • Don’t prioritise non-essential features
  • For new developments, try not to buy in the latest stages (unless it’s a fire sale)
  • Understand how much you need in cash, versus CPF savings

1. Focus on quantum over price per square foot

One common issue with new home buyers is that they focus too much on price per square foot. This is partly because of how prices are presented on many websites, TV shows, etc.

For those totally new to the property market, note that lower price per square foot does not make a property more affordable. In fact, the lower the price per square foot, the bigger the unit tends to be; and hence, more expensive overall.

A Sentosa Cove bungalow may be priced at $1,600 psf (in fact, some actually are); but at 5,500 sq. ft., this would be an $8.8 million home.  Conversely, The M condo in 2020 had prices of over $3,000 psf; but because the units were small, the one-bedders started from under $1 million.

When it comes to affordability, buyers should focus on the quantum or overall price. This is what determines the ultimate amount that you have to pay, as well as other factors like your loan size. Don’t be too put off by a high price per square foot, if the overall price falls within your budget.

(This isn’t to say price per square foot isn’t useful; check out my previous article on how this should be used as an indicator).

2. Get AIP early, to know your budget range

One of the worst mistakes of new home buyers is to view properties, and put down deposits, without having a clear budget range. This isn’t just stressful, it can cause you to lose part of your booking fee.

Approval In Principle (AIP) should be sought from banks before you shortlist properties. This is a written statement by the bank, telling you how much they’re willing to lend you (it’s usually valid for two weeks, but this can vary). This prevents you from having to guess whether you can afford a property, before you secure the Option To Purchase (OTP) or pay the booking fee.

Keep in mind that you will forfeit part of the booking fee or OTP-related deposit, if you cannot secure the loan to complete the transaction.

In any case, the process of getting AIP will also uncover any issues early; such as outstanding debts that are affecting your home loan application. The earlier these issues are identified and resolved, the sooner you can get financing for a home.

3. Keep within parameters of affordability

Once again, focus on the quantum or overall price in this regard (see point 1). The total price of your home should not exceed five times your annual income. The monthly costs of your home – inclusive of the home loan and monthly maintenance fees – should be kept to 30 per cent of your monthly income.

(If you’re buying an HDB property like a flat or Executive Condominium, you have no choice in this regard; the Mortgage Servicing Ratio, or MSR, caps your monthly repayments to 30 per cent of your monthly income).

If you’re having trouble finding a home that meets these parameters, drop me a message and I can help you find appropriate options.

4. Don’t prioritise non-essential features

In some developments, non-essential features can add significantly to the cost. One example of this is height: sometimes being one or two floors higher can result in a difference of $100,000 or more.

Likewise, being in a stack with a slightly better facing – such as less sun glare or with a better sea view – can translate to hundreds of thousands of dollars in difference. However, these features are what we can call “nice to have”. They should be secondary to more important factors, such as:

  • Overall affordability
  • Proximity to school or work
  • Whether you would be close to parents
  • Availability of MRT stations

And others. If you find a development that meets these key criteria, it may be worth considering the less “glamorous” units there. This could lower the price enough that you’re in a position to buy.

5. For new developments, try not to buy in the latest stages (unless it’s a fire sale)

I am not promising that the earliest phases of sales are always cheaper – in some cases, developments do decrease their prices in later phases of sale. But as a general rule of thumb, the units sold during launch previews tend to come at bigger discounts. Some of these may even be loss-leaders, just to get the ball rolling.

(Contact me if you’re interested in these early previews, as they’re not always open to the public).

It is usually – but not always – most expensive to buy when a new development has just received its Temporary Occupancy Permit (TOP). There are some advantages associated with this, like being able to use a Deferred Payment Scheme (DPS) – but for now, suffice it to say that such purchases tend to come at a premium. You’ll be paying for the benefit of being able to move in immediately.

An exception to this is if a developer has a fire sale, or is in a rush to quickly clear remaining units.

6. Understand how much you need in cash, versus CPF savings

New home buyers are often confused as to how much they need to save; and the large down payments can scare them into putting off home ownership. In reality, you probably need less cash than you think.

Assuming there are no problems with your home loan application, HDB will lend you up to 90 percent of your flat price or value, whichever is lower. The remaining 10 per cent can be paid in any combination of cash or CPF.

So if you buy a BTO flat for $350,000, the down payment is $35,000. Assuming you and your co-owner have enough in your combined CPF to cover this, you will pay $0 in cash (have to put down around $2,000 for the booking, but this can be refunded later when you buy the flat).

For bank loans, you can usually borrow up to 75 per cent of the price or value, whichever is lower. However, only the first five per cent has to be in cash; the next 20 per cent can come from any combination of cash or CPF.

So if you buy a condo at $1.5 million, the cash required is only $75,000. The other $300,000 for the down payment can come from your CPF.

Knowing this can help you plan accordingly, and find a property even in 2021.

What you can’t do anything about though, is construction delays

Sadly, this is a fact of life in the Covid-19 environment. If construction delays worry you, then you have no real choice but to go for recently completed new launch properties, or to look in the resale market. Even then, be prepared to deal with delays in renovation, due to the pandemic.

I would, for safety’s sake, plan for the possibility of moving in six months later than the expected date. Keep this in mind if you’re renting temporary accommodation.

In the meantime, follow me on RonChongProperty.sg to keep ahead of the curve, and know what’s happening in Singapore’s private property market.

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