Behind The Scenes: Helping A First Time Buyer (From Confusion To Clarity)
Updated: May 20, 2020
Behind every happy closing photo is a story, and this particular case is no exception!
This is a story of how I was able to assist my client overcome challenges and confusion, eventually helping her achieve her goal of owning her first investment property. I’m very elated to share this with you. I would like to bring you behind the scenes to show you how I turned her dreams into reality, from the financing to the selection process of owning the "right" property.
I still remember vividly how it started. One fine afternoon, while I was working from home, my phone rang. It was a WhatsApp message from my ex-secondary school classmate, Megan (name changed).
Her message read this way:
Hihi Jacq, any good condo lobang or HDB resale to recommend ?
Instantaneously, I was very heartened that Megan, my classmate of 27 years ago, sought me out. All the good old memories of studying in St Hilda's Secondary School came flooding in. After all, we belonged to the same "gang" in class. I recalled fond times of us hanging out together before the bell rang for assembly, and rushing to the canteen during recess to queue up for our favourite chicken rice.
In fact, due to our similar height, we were often made to partner up with each other during PE lessons. Looking back, it's been very long since we last met.
Hence, we made an appointment to meet over dinner, so that I could find out more about her goals and have an in-depth discussion in order to assess her eligibility to own a Condo VS a HDB resale unit.
The following was her plan: - Buy a property within her means. - Lease it out first for rental income, with the possibility of her own stay in future.
At first, this seemed like a straight-forward case. But, there is more to this than meets the eye.
Let's portion out this case study into 4 sections, mainly:
1. Financial Calculation
2. HDB or Private
3. Resale or New Launch
4. Choice of Project
1. FINANCIAL CALCULATION
Megan believed that since she is a first time property buyer, she will be eligible to borrow up to 75% Loan-To-Value (LTV) which also means 75% of the property price.
After my further assessment, she revealed that her aged parents had previously utilised her name to be the guarantor for financing the current property that they are staying in.
This was done to stretch the loan tenure for a more affordable monthly loan repayment. Back then, this was a brilliant idea, so creative that the government decided to close this loop-hole for good. This meant that instead of 75%, she is now only eligible for 45% LTV. The important point to note here for property buyers is:
No Property ≠ No Property Loan
A decrease in borrowing percentage simply meant an increase in the amount of cash she needed to come out with for her downpayment.
So in order to proceed with the purchase, Megan had 2 options on how to pay for the down payment.
Option 1 was to use CPF and cash.
Option 2 was if there was not enough cash, Megan could apply a creative financing strategy which I shared further with her.
Next was to calculated the property price she can afford. Based on her salary and current obligations such as existing home loan and car loan, she is able to afford a property up to 750K.
I also help her to source for the best home loan interest rate which significantly help her with much savings on her monthly repayment.
2. RESALE HDB OR CONDO ?
Next, to buy a resale HDB or a Condo? If she bought a resale HDB, she would be able to enjoy a more affordable price tag and a larger space, however, she will not be able to rent out her unit for the first 5 years after her purchase.
I shared with her that despite HDB coming with a more affordable price tag, it no longer has intrinsic value from an investor’s point of view.
HDB no longer has intrinsic value from an investor's point of view.
In order to know why this is so, it is important to take a look at the HDB resale price index extracted from SRX below.
As you can clearly see from the price index above, the HDB price index has corrected ever since year 2013.
This is due to the introduction of Mortgage Servicing Ratio (MSR) which was introduced to peg HDB prices to the income levels of the average Singaporean worker.
Large price increments of the past are unlikely to reoccur. This is also inline with government's stance on keeping HDB prices affordable.
To understand more about the factors contributing to the dwindling prices of HDB, and whether you can still make a profit from selling your HDB flat, read my previous blog here.
Now, let's take a look at the performance of private homes as shown in the figure below.
On the contrary, the private home resale price index did not suffer the same fate as HDB. Driven by strong demand, prices have begun trending up.
Despite many rounds of government cooling measures, private home prices remain robust.
Singapore has built a reputation of strong fundamentals. These include political stability, economic growth, strong currency, market transparency and an effective legal system.
These reasons are also what makes Singapore an attractive top investment destination. Find out more from here.
As HDB prices are dwindling, they are not ideal for investment and hence Megan decided to drop the idea of purchasing a HDB flat. On the other hand, private properties offered great capital appreciation.
With this, we narrowed down our search criteria to focus on finding the "Right" private investment home for her.
PRIVATE RESALE OR NEW LAUNCH ?
This brings us to the next question. Resale or New launch? Which one would be more suitable for Megan? There are various considerations before one can decide which is better.
It also depends on the buyer's unique situation and needs. You can read more about the Pros and Cons of each in my previous article, New Launch Vs Resale, Which to Buy?
After looking into various considerations, I proposed that a new launch purchase would be ideal for her. These are the several reasons:
1. She will be able to enjoy Progressive Payment Scheme
Since a new launch condo is still under construction, Megan would have the option of paying for the purchase progressively in stages, rather than all at once.
This allows her to make smaller payments with more manageable instalment obligations. This also means that she can stretch out her loan repayments over a longer time.
2. She is not liable to pay for Property Tax until T.O.P
Property tax is not payable during the construction period. Hence, Megan would not have to pay for property tax until when she collects the keys to her new launch purchase.
Once she gets her unit rented out, the rent collected can defray the cost of property tax.
3. Room for capital appreciation
Many people think that how much they make from a property investment is at the point of sale, In actual fact, whether you make or lose money is already determined at your point of purchase. Unless Megan is able to find a fire-sale resale condo, chances are there is not much room for future capital appreciation.
4. Brand new fittings & furnishings
No matter if Megan decides to rent it out or stay, she or her tenants would get to enjoy fittings and furnishings that are shiny and new.
When it comes to rentability, many tenants would prefer a condo that has new facilities.
On top of that, the tenants would be happy to know that the fittings and furnishings are covered by a one year defect liability period from the developer.
5. Smart home living concept
Being the IT savvy sort, Megan would value the benefits of a smart home automation system. Some of its benefits include great potential in saving energy and money, convenience, boost in home security as well as safety regarding appliances and lighting systems. All these can be controlled remotely even when she is out of town.
CHOICE OF NEW LAUNCH PROJECT
Again, we narrowed down the search, which is to buy a New launch project. With that, the most exciting part of the property search process begins! Visiting show flats!
But wait, there are so many show flats in Singapore. Which show flat to visit?
I considered these factors to recommend a suitable project for her.
First of all, this project must be of investment-grade with good potential for future appreciation. Secondly, it should also be within her affordability. Last but not least, it must be able to attract tenants.
3 projects with great potential and within her affordability of 750K were shortlisted!
Each of these 3 projects are suitable "candidates" for her hence we went to explore the show flats together. After visiting the show flats, there was still lots of homework to be done!
I dove deeper into project specific considerations such as,
- the layout of the unit,
- nearby amenities,
- number of units within the project,
- reputation of the developer,
- quality of the furnishing,
- cost of maintenance fee,
- no of facilities and developer's price adjustment since the first launch.
After presenting all these factors to her, Megan finally made her careful decision. As the saying goes, beauty lies in the eyes of the beholder. She expressed her yearning interest to own 1 of them! I am glad that she managed to book a unit of her choice.
Why This Project ?
It is the perfect choice for her due to several reasons.
First of all, she loves the functional layout of the 1+study unit. It can be double up as another bedroom or converted to a walk-in wardrobe or store room. She likes the flexibility it offers.
Secondly, it is situated in the TOP favourite district of tenants in the Outside Core Region (OCR).
This strong demand from tenants makes it an ideal investment choice.
Thirdly, the low maintenance fee for this project is very attractive. It is merely $160 per month and this includes a carpark lot! Besides, it comes with a host of facilities. A typical HDB carpark lot would already cost $110.
CONCLUSION
In all, I was very glad to know that I was involved in helping Megan make an informed choice, and that my help was a key factor in her happiness today. I find that buying the correct property which fulfils all our needs, while not exceeding budgeting means is an important life decision.
Needless to say, it correlates positively with life satisfaction. Whenever I assist clients in their property journey, I inevitably feel delighted as well.
Schedule An Appointment
Due to the current Circuit Breaker measures, show flats are closed till 1 June 2020. Interested buyers can now view show flats virtually!
If you would like to grab this opportunity to own a Star-Buy unit with additional discounts, do not hesitate to connect with me for a free consultation and virtual tour of the unit layout.
About The Author
My passion for Real Estate sparked at a very young age. At 14, I would tail along with my parents as they went for home viewings, and get involved with the necessary matters whenever they shifted homes.
Later on, I was appointed as their power attorney who solely oversaw the sale and purchase of my family’s properties.
From my personal experience in engaging agents, I deeply understand how important integrity is in this business.
As properties are big-ticket items, their dealings should not be taken lightly. To offer the best advice, I always strive to put myself in the shoes of my clients such that I can help them make informed decisions which support their goals.
My mission is to add value and make a positive impact on the lives of my clients through sound investments and intelligent strategising. Let's connect at 97642556 to discuss on your goals.