Can I afford a bigger place?
Getting a bigger home for you and your family in Singapore can be exciting and nerve-racking at the same time. Here’s a guide to keep your next investment an asset and not a liability. For more ways to better invest in your future, start a conversation with a friendly financial planner from Manulife Singapore.
The property market in Singapore seems to be ripe for the taking these days. But while the temptation might be great and your current accommodations might be starting to look a little less than desirable, there are five important factors to assess before committing to buying a bigger property.
Make sure you’re not just bored
There’s nothing wrong with getting bored of your current nest, but it doesn’t mean a bigger place is necessarily the answer. You might just want a change in scenery, so move neighbourhoods. If you’re annoyed with the growing clutter, try a storage unit.
Remember: A smaller place probably means you’re spending less time and money to maintain the unit, and that in turn means you can afford to do more with your existing resources. Make sure upgrading will bring more benefit than strain.
The lucky house number isn’t the only number to be concerned about
As a general rule in life, don’t fall prey to the Game of Loans. No large purchases until your finances are in order. There’s nothing worse than buying yourself into being a slave to your things.
Also make sure that you can actually sell your current house — have you met the minimum occupancy period? Will you be liable to pay a higher stamp duty rate? Will your credit rating(that running tab at your local bar doesn’t count, but your credit card debt will) reveal anything that will raise your mortgage banker’s eyebrow?
Remember to ask about monthly conservancy fees and sinking funds for the unit that you’re after as they can vary quite dramatically.
Have enough cash for the initial burst.
You need to have a clear view of all upfront costs: Down payment, option fee, option exercise fee, stamp duties, agent’s fees, lawyer’s fees … you get the idea. The rules keep changing too so please work with a professional who is on top of it all. You’ll have enough to worry about.
It also means that when you set a selling price for your existing unit, you need to cater for all these other costs and hopefully make enough of a profit to buffer these expenses and feed your cash coffer. Expect these costs to vary between 10 and 40 per cent of the selling price, depending mostly on whether it is HDB or private property, and the length of time the bank is willing to extend you a loan for.
Shop around (this is the fun part!).
You’re not walking into a shop to buy five pairs of underwear for S$10. For most of us in Singapore, this is the largest loan we will take. Ever. Work out what you can afford for your down payment and monthly mortgage, then match that with neighbourhoods that make sense for your needs: Travel to and from work, schools, supermarket, park, parent’s house, etc.
Do your research through property portals and make appointments to view the ones that appeal to you the most. Even if you can’t afford all of them, it’s good to get a gauge of what different properties go for and why. It’s also a great way to get renovation ideas.
Work in some safety measures.
The biggest risk factor in getting a larger property is the larger monthly mortgage payment. If you’re currently in a S$300,000 property, a combined CPF should be able to cover your mortgage (based on the median household income in Singapore of S$8,666). But if you’re looking to invest in a million-dollar property, then you need to be able to afford monthly mortgage payments of close to S$3,000.
Aside from securing your income stream(s), you can also manage this risk by finding out how much you could possibly rent out the unit for. This way, if you’re ever in the unfortunate position of losing your income, you can at least look at renting out the unit to cover the mortgage and conservancy fee. Also think about how you could make this unit appealing to a larger pool of buyers, in the event that you need to sell it in a hurry.Aside from securing your income stream(s), you can also manage this risk by finding out how much you could possibly rent out the unit for. This way, if you’re ever in the unfortunate position of losing your income, you can at least look at renting out the unit to cover the mortgage and conservancy fee. Also think about how you could make this unit appealing to a larger pool of buyers, in the event that you need to sell it in a hurry.
Think of it as an accumulation of bonus points from things like proximity to public transport, good schools, food, drinks, an unobstructed view, good house number — every little bit helps.
Everyone deserves a shot at their dream home. So even if you can’t afford it now, work towards a financial plan and time frame so you can. It’s important to go in well-informed and prepared, so no matter the size of your home, you can rest easy in your financial freedom and peace of mind.
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