A reader recently asked me if I would blog about buying an apartment for first timers in Singapore. I thought of this before but decided that I am not a good candidate for this topic because for most people in Singapore, their first apartment would be from HDB and I don't have any experience in this area.
However, I have blogged about buying real estate in Singapore before and quite a few times too. So, in case you are thinking of buying an apartment either for self stay or for investment, you might want to consider the following points:
1. To rent or to buy?
In some countries, there is a strong culture of renting. This is usually when buying a home is considered too expensive. This is the case in places like Japan, Taipei and Hong Kong, for examples. In a report, it was stated that more young people in London prefer to be renters in recent years.
Does renting make more sense in Singapore now as well with sky high prices? Well, according to the "Rule of 15", it could make sense anywhere in the world. In a nutshell,
"Rule of 15" says that if we could buy a home at a price that is 15 times or less the annual rent a similar property would fetch in the area, it makes more sense to buy than to rent.
Personally, I prefer to own the apartment I stay in but I can see how renting could make sense especially if prices of homes are sky high. Imagine if rental yield is a miserable 3% per annum and imagine if the price of real estate has peaked (which seems to be the case now), it could make more sense to rent an apartment for the next couple of years.
If a $1 million property should decline in price by 15% in the next 2 years, that means a $150,000 decline in price! Unless we decide to stay in the St. Regis or Orchard Residences, for examples, I think that with $150,000, we could rent a decent size private apartment in RCR (D3 or D4) for 3 years or more. If we were to rent a HDB 3 room flat in the same region, we could rent one for almost 7 years.
2. HDB flats
Of course, as Singaporeans, we are lucky because we have good quality public housing. It is reasonable to assume that for most Singaporeans, their first apartment will be from the HDB.
Of course, there has been and will always be debate on whether HDB flats are priced fairly but unless we want to move to Johor, we have to accept that HDB flats are the most affordable housing choice for most Singaporeans.
Using the "Rule of 15" will help us stay grounded and avoid the atas DBSS which were going for as much as $888,000 at one time, for example. (Thank goodness, DBSS has been thrown out together with MBT.)
Although we could choose a housing loan with a duration that terminates at age 65 and I am assuming that most people need a loan to buy their first apartment, I think we should aim to keep the cost of borrowing down and to make complete payment within 5 to 10 years. This should become a more important consideration in an environment where interest rates are more likely to increase. So, the POSB HDB Loan is a good idea for people who want to do this.
"Interest rates will not stay so low forever and anyone who signs up for this new POSB HDB loan should do so only with a contingency plan to pay off the entire loan at the end of the 10th year. It is a contingency plan and this means that the borrower should have the ability to do so but he doesn't have to if circumstances remain benign."
Of course, there will always be people who would prefer to stay in private housing and anecdotal evidence shows that the numbers are probably larger than what we might think.
If we think that HDB flats are expensive real estate, then, condominiums in Singapore are simply too extravagant. A BTO 5 room flat in CCK costs about $300.00 per square foot. An executive condominium in CCK will cost at least 2.5x that amount while a private condominium in CCK will cost at least 4x that amount.
Condo living is not a need. It is a want. Consider carefully whether we can really afford it, which is an objective exercise, and consider carefully if it provides value for money, which of course can be quite subjective. It would be utter misery if we were to become a slave to our home as we sweat to service the loan instead of enjoying our home with peace of mind.
"If to stay in a condominium, we are forced to live like paupers, the price is too high."
MAS has a good page on "Buying a Home":
If you are going to buy your first apartment soon, you might want to bear these in mind as you think of the options available. You might also want to read the related posts below which this blog draws from.
Buying an apartment is probably the single biggest financial transaction for most people. Don't be swept away by emotions.
Staying grounded will help people to keep their finances healthy and, also, their homes.
1. To rent or to buy: Rule of 15.
2. POSB HDB Loan: Peace of mind.
3. Slaving to stay in a condominium.