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  • Writer's pictureElonn Seah

Is buying a private property as your first property a good move?

Short answer is yes, as long as...

  1. You do not overstretch your finances

  2. You wish to use real estate as a tool for retirement while enjoying the peaks of a private property

There’s a lot to consider when buying a private property as your first home: your budget, how soon you want to settle into your new home, your purpose for buying a property — is it for yourself or as an investment?

There’s also the question of whether or not it’s worth it to invest in a private property in 2022.

Going for public housing may be a better option if you’re looking for a more affordable space however it might not be the best option in the long-term especially with eligibility restrictions (highly depends on your longer term objectives).

All the best investments don’t always come cheap so it’s more advisable to look at other factors aside from the price. With that said, here is a list of pros and cons to consider as a first-time buyer looking to buy a private property:

The Pros of buying a private property:

1. Access to common facilities like clubhouses, gyms, pools and parking and many more.

This is probably the most obvious advantage but one that definitely adds to the appeal of buying a private property. You’re not just investing in your own home but also buying time.

For example, if you are often very occupied at work and happen to have a window of 30 minutes to spare; having a pool and gym downstairs means you save:

1.) 5 minutes of packing your bags

2.) 5 to 10 minutes of traveling to a pool or gym (assuming it’s just opposite your place)

3.) 5 to 8 minutes of wiping down/showering/changing to fresh clothes

Total time from your chair to activity time is around 15 to 25 minutes, whereas with facilities downstairs, you probably only need a total of 3 minutes to grab a towel, put on your shoes and immediately clock in a workout, or engage in a good time with your kids.

2. You can immediately rent out your place

Would you like to buy a magic piggy bank where it gets itself filled up every month? If it exists, does it make more sense to start a small piggy bank early and let it grow itself? Or wait till your income is larger before you buy your ideal piggy bank?

A property is like your piggy bank, and your tenant is your magician. Everytime they pay rent they are helping you pay your mortgage and build equity for your next house or your retirement. Hence it makes sense to start as early as possible. (a small unit’s $2k rent per month = $24k per year of magic)

In an HDB flat, it’s less unlikely to fully maximize this advantage since you can only rent out rooms and tenants aren’t allowed to rent the whole flat for the first 5 years. You are also only allowed to rent your rooms if you have a three-room flat or larger.

3. You can sell your property whenever

When it comes to private properties, there are lesser restrictions on resale so you can put them in the market whenever you like however you should also take note of the Sellers Stamp Duty (SSD) which applies within the first three years.

Ideally, you’d want to sell your property after the 3 year holding period because in the first year, you need to pay a whopping 12% of tax from the sale proceeds, after the 2nd year, you need to pay 8% of the sale proceeds and on the third year, you need to pay 4% of the sale proceeds.

What is a Sellers Stamp Duty (SSD)?

SSD is a form of tax that every property seller needs to pay to the IRA (Inland Revenue Authority) when selling any residential land or property acquired. This policy applies to properties acquired on or after February 20, 2010 and within the holding period of 3 years upon first owning the property. You can learn more about it here.

4. You can use your private property as collateral later

Ever heard of the home equity loan?

After finally being able to put in the remaining balance for the loan repayment of your home or even in the middle of doing so, there are times that life happens and we will need heavy financing; be it being there for a family member, funding your kid’s study overseas, or funding a new business.

Things like that require serious money and you might not be liquid today.

Not many Singaporean home owners know this but you can actually take out a secured loan and have your house as collateral. When you take a home equity loan, it’s possible to borrow up to 80% of your property value and the interest rates can be as low as 1.3% per annum.

What you should know about home equity loans

  1. First thing you should note is that only private property owners can apply for home equity loans

  2. Not everyone can be granted the full loan quantum

  3. You still need to qualify as if it’s a mortgage

  4. You shouldn’t use this loan to pay for another smaller loan or buy a new property

To get more in-depth information on home equity loans, you can go here.

5. Your affordability will improve

Affordability can be one of the major constraints of most first-time buyers. The Total Debt Servicing Ratio (TDSR) affects how much you are allowed to borrow for private properties. Applying the TDSR measure can actually increase how much you can borrow up to 55% versus buying a HBD, which follows the Mortgage Servicing Ratio (MSR) measures, and only allows you to borrow up to 30%.

Now that we’ve talked about all the upsides of buying a private property as a first-time buyer, let’s now go over some downsides:

Cons of buying a private property

1. Prepare to pay a higher cash outlay

Let’s first get rid of the elephant in the room: private properties don’t come cheap. In order to get your hands on one, you need to use a bank loan and that entails paying the first 5% in cash. Let’s say the property you’re eyeing is in the $1.5 million range, that would mean $75,000 of payment in cash. Whew! For young couples, this may become a big burden especially if you’re also shouldering other household expenses or have a baby on the way.

2. Higher maintenance fees

Condos that have all the beautiful amenities like pools, gyms, clubhouses etc. usually ask for a maintenance fee of around $200-$300 per month. Condos are also strict with your monthly dues, paying late could mean getting charged a substantial interest fee that’s usually around 15% per annum.

3. Risk of en bloc sales

Residents of older developments who are usually nearing the end of their lease might collectively agree to sell their properties. Take note that the SSD still applies to en bloc sales whether you agree to it or not.

First-time buyers should be careful when considering buying old resale condos since en-bloc might happen during the first few years of being owners. While this is more common for older condos, newer private properties can face the same fate eventually.

If you consider en-blocs as too risky, buying an HDB flat may be a better choice since there is less chance of en-blocs happening unless an en-bloc attempt is made by the government.

4. Banks are less considerate

If ever you find yourself unable to pay mortgage repayments, the bank won’t be considerate of your situation. You can be assured that with HBD loans, the payments can be flexible whenever you have valid reasons. Remember that the goal of HBD loans is to provide housing for while banks purely mean business, thus if you feel like you are in a high-risk situation, or if you work on commissions-basis and can’t promise a consistent flow of cash, then HDB flats might be more suited to your current lifestyle.

Do note that even though HDB loans are more flexible, this doesn’t mean that you can get away without paying them. It just means that HDB can help you find alternatives and will only repossess your flat as an absolute last resort.

5. It’s hard to get a BTO flat when you downgrade

Like most young couples, there may come a point when you would need a bigger space to cater to your needs or to fit your growing family and this is where Build-to-order (BTO) flats come in, as the name suggests these are built to order brand new HDB flats that have a 99-year lease.

Sounds great, right? Well, there’s a problem… There’s a waiting time of about 30 months before to ballot for a BTO flat after selling your private property, which means that you might have no other choice but to purchase an HDB on the resale market but sadly, the lease on these flats are shorter.

One important thing to keep in mind in order to avoid this is to buy a private property that you can actually see yourself and your family growing in. For one, you can avoid so many inconveniences and you can find comfort in knowing that you’ll be living in a place that you’ll be comfortable making memories in for the long-term.

The bottomline? Whether it’s a private property or an HDB flat, there is no right answer that’s fit for everyone.

We at SGexclusivehomes know that your situation (just like everyone else) is unique and there are a lot of factors to consider. Choosing your home can mean the difference between getting your money’s worth or money and time down the drain!

Still unsure? Feel free to ask our expert advice by filling up the contact form below!

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