“How do I buy a property?” – It is absolutely critical that we answer this question before we start shopping. Learn about the “How” before jumping into “What property should I buy?”
If we skip the initial preparation, we will soon find ourselves in murky waters, objectives blurred, and we deviate from what we originally set out to purchase. The more properties we look at, the more confused we become. Of course, they are all marketed to look attractive, value-for-money, and present themselves as your dream home.
Buying a property is not a place for trial and error. A roadmap for property purchase is necessary.
All the mistakes would have been avoided if I engaged the help of 2 key persons –a Mortgage Broker and a Property Agent. One looks after your loan, and the other, your property purchase. If you are buying a private property, the services of these 2 are free, so why not engage them? There might be some fees to pay to the property agent if you are buying a public property, but the benefits far outweigh the amount.
Start with getting a bank to approve your loan in principle. This will tell you how much you can afford. You will need to set aside 20% for your downpayment – first 5% in cash, and next 15% in cash and/or from your Central Provident Fund (CPF) Ordinary Account.
A Mortgage Broker can work out the sums very quickly to see if you meet the requirements for a loan – Total Debt Servicing Ratio (TDSR) for private properties, plus Mortgage Servicing Ratio (MSR) for public properties. He will also be able to advise on your monthly repayment amount, tenure, and current interest packages.
Other factors that will affect your loan include age of the borrower, age of the property, valuation of property, employed or self-employed, etc.
Other items that can affect your budget (and greatly drain your energy) include, how much CPF you can use, Buyer’s Stamp Duty (BSD), Additional Buyer’s Stamp Duty (ABSD), Resale Levy, Seller’s Stamp Duty (SSD), etc.
Calculating the timing well would provide you with sufficient time for renovations before moving in. Otherwise, you might need to rent an interim place, if you have to move out of your previous home before your new place is completed.
Building Under Construction (BUC)
- 5% Option Fee paid [week 0]
- Sales & Purchase (S&P) Agreement received [week 2]
- S&P exercised [week 5]
- Stamp Duty paid [week 7]
- 15% Purchase Price paid [week 8 for private properties/week 9 for Executive Condominium (EC) &Design, Build and Sell Scheme (DBSS)]
- Progressive Payment till Completion
Resale Private Property
- 1% Option Fee placed [week 0]
- 4% Exercise Fee paid [week 2]
- Stamp Duty paid [week 4]
- Completion [week 8 to week 16]
Resale Housing and Development Board (HDB) Flat
- $1,000 Option Fee placed / Valuation Report requested / Bank Loan secured [week 0]
- $4,000 Exercise Fee paid [week 3]
- First appointment with HDB [week 7 to week 11]
- Completion [week 13 to week 19]
This is where a Property Agent comes in really handy. Most of us know that they are paid a commission. It is also by this reason, that you are assured he will act in your best interest to conclude a deal, especially in price negotiations.
His expertise includes in-depth knowledge of a neighbourhood, properties for sale, amenities, market values and trends. His experience will help you to read a home quickly and interpret its value without partiality.
Spend some time researching online, and then come up with a criteria list as specific as possible. Arrange your list in order of priority and inform your agent that you would not view a place unless it fulfils your minimum requirements. This will save you a lot of time and wasted energy.
Location and neighbourhood
Which district would you like, and in which neighbourhood? Do you need to be near a particular school or Mass Rapid Transit (MRT) station?
Size and feature
How big and what kind of facilities? Coupled with your budget, this will determine if it is private or public housing.
This will determine your resale value, and possibly a higher renovations expenditure. The benefits of a mature estate is better amenities, and no new developments to surprise.
Space and layout
How many people will be living together? Do you need special functions like a quiet Study, large Dining, spare Bedroom, etc?
Buying a property should be a pleasure, but it can turn out to be a costly mistake. Knowing when to do what will certainly help minimize the unexpected.
Article by Kenneth Koh, Associate Director at Redbrick Mortgage Advisory.