The unspoken proposal in Singapore has long been balloting for a new HDB flat, especially in the past years where successfully being allocated one is akin to striking the lottery. An indeed uniquely Singaporean path to 'happily ever after'. Or is it?
As most couples considering a life together are also first time property buyers and have their full-time jobs and other major things like wedding planning to juggle all at once, herein lies the potential to make some major booboos which can potentially undermine your finances in marriage and even test the mettle of your love.
Property decisions are long-term, and what you decide at the very start can lock you in for a very long time.
It is therefore prudent to be aware of the traps that well-intentioned couples fall into at this significant juncture of their lives. Here are 5 such traps and what you should be aware of:
1. Overextending your finances, making your love nest your prison
Sure, starting a new life together as a couple is exciting, it speaks of new beginnings, new adventures, and perhaps even a new family down the road. With the best interests in mind, it is tempting to splash out on a bigger property than you can comfortably afford, assuming that:
- Your pay can only go up, since you are young and talented.
- Low interest rates will go on forever.
- You can sell your property for a huge profit later on.
Thanks to the government's slew of cooling measures, among which are capping MSR at 30 per cent for HDB flats and TDSR at 60 per cent for all properties, you should find yourself unable to seriously overextend yourself even if you are tempted to.
Other factors you should consider, and be aware of in making the decision of how much to spend on your first property are:
- Will one of you stay at home to look after the children when they come along? This may potentially half your income, and no, your mortgage repayments will not be halved.
- Interest rates are at rock bottom currently but they will most definitely go up, it is just a matter of when.
- Property prices are not at fire sale prices, so forget about cashing in on huge profits and retiring to Timbuktu.
Make sure you are comfortable with the monthly repayments throughout the tenor of your loan, and think about when you'd want to retire.
This way, your home will always be the haven and sanctuary you envisioned it to be. And not the silent reason why you're always stressed or staying late at work while your maid enjoys your property.
You also do not want to find yourself unable to leave a job which you hate because of your mortgage.
2. De-coupling home ownership even while you seal your couple-hood
What with the ABSD for 2nd properties and above, it is enticing to attempt to beat the system by buying private matrimonial properties in single names.
After all, your spouse can buy a 2nd property in future without having to pay ABSD.
Although you may feel empowered by this choice, especially if you are able to afford the property with your own income, do not ignore the perils of such a decision.
Do consider the following:
Is it wise to buy a matrimonial property in a single name? Will your spouse be willing to contribute financially when the property is not in his/her name? Will that be fair? If not, will you be expecting your spouse to pay for everything else? Like the renovations, daily necessities, a car etc?
Even if you do decide to proceed with this decision, it will do you good to discuss these expectations before you do, so that they do not become stumbling blocks to the harmony of your marriage later on. Decisions made with good intentions can become thorny issues later in the humdrum of daily life.
The ABSD will not last forever, but your property may (especially if it is freehold). One must remember they are one of a set of cooling measures to rein in property prices and keep them affordable for first-time property buyers.
However, if property prices were to start tanking significantly, it is likely that the current measures, including ABSD, will be relaxed layer by layer, like peeling an onion. After all, it is to no one's benefit for the single largest asset owned by most of us to depreciate.
Thankfully, for HDB purchases, there is no such de-coupling option, and even the rules for how much to be returned to each spouse's CPF upon its sale is clear-cut.
These protect the individual and it would be prudent to consider them even when buying private properties.
3. Taking a mortgage only considering the interest rates for the first few years
Although interest rates still remain low at mid-1 per cent+ for mortgages, do not be swayed by mortgage bankers who sell you mortgages based on the interest rates for only the initial years and then count on refinancing later on.
Refinancing later on comes with many risks, including the interest rate environment then, your employment situation then, the state of the economy and property market then (affecting the valuation of your homes) and government/banking policies then (which affect whether legal subsidies can be given by banks).
There are simply too many unpredictable factors involved, and one is better off locking in the best possible housing loan package in totality right from the very start.
Even if the initial rates are 0.1 per cent higher than the other bank's, what you'd want to ensure is that the rates after the initial years are competitive, in case you are unable to refinance to your advantage when the lock-in period is over.
After all, one does not want to end up in a penny-wise, pound-foolish situation. This is especially so for properties under development, for which the monthly repayments and hence potential savings in the first few years are insignificant.
4. Buying a shoe-box unit for a palatable total sum but an exorbitant psf price
With soaring property prices in recent years, it has become an increasing trend for developers to launch tiny units as a way to move sales and preserve their profits.
It may be tempting to buy a 500 or 600+ sq ft condominium unit at less than S$1million, especially for professionals or HDB dwellers looking to buy an investment unit.
Do keep in mind the thousands of units coming into the market over the next few years, which means that it may not be easy to rent out or sell your unit at a profitable price. This while it locks up your 'quota' for property ownership with ABSD and punitive financing quantums for subsequent property purchases.
5. Buying an old charming property expecting an enbloc sale (for private properties) or SERs (for HDB)
Gone are the heady days of enbloc sales and overnight millionaires. Buying a property hoping for an enbloc or SERs is as good as gambling. You would probably not want to live with such an uncertainty for the years and even decades ahead.
An old property on a 99-year lease is simply what it is, an old property with a shorter life span. One should always assume that the value of the property will be zero at the end of the lease and ask ourselves if we are comfortable paying the amount for the remaining lease.
Buying a property takes an afternoon or less, but can either be the source of joy or worry and stress for many years to come.
If you are contemplating marriage and buying your first property in the foreseeable future, it is good to use the above as a checklist to have the necessary discussions with your significant other before making the largest purchase of your life.
This article first appeared in MoneySmart
Monday, May 04, 2015
MoneySmart
Source: AsiaOne (04 May 2015)