Lessons I Learnt from Watching My Parents Struggle with Property - 99.co

In 1993, my parents dropped a cool $300,000 on a two-bedder in Clementi, on a condo named Park West. If Park West sounds familiar to you, that’s because it went en-bloc in 2018. It no longer exists – and it is now Parc Clematis. 

For the most part, I never got to live in the condo. It was a pure investment on my parents part – they never deemed themselves wealthy enough to afford a condominium. Instead, I grew up in a HDB in Jurong East (yes, last time I got no ABSD). The only time I got to see the condo was when we were in-between tenants. 

Despite this, I kinda feel like this condo has taught me many, many things about finances, property and investing. Here are some I’ve plucked for you, I hope you enjoy the read. 

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Be prepared to hold your investment property through good times and bad

   It’s easy to love your condo in good times. Property prices are stable. You have your job and  household is dual income. Rental yield can also cover mortgage. But when rough weather starts to come in, things can take a dramatic turn. 

During the 1997 financial crisis, my parents struggled to keep the condo. And I mean struggled. I remember coming home each day to my dad placating my mom to keep the condo. Rental had been $3,000 pre crisis and they had a nice friendly tenant. 

That dude got retrenched, and now my parents were forced to accept a $900 offer. The new tenant was an asshole. He broke things, made late payments and was generally a rude mofo.

My parents got retrenched too. Those were hard times.  

My mom was the more emotional of the two. Tired of dealing with the drama and loss (rent failed to cover the mortgage) She wanted to let go of the condo at almost 40 percent off what they had bought it for.

Fortunately, my dad had prepared a small fund to tide them through. My parents scrimped and saved (and worked odd jobs) until they could ride out the storm. 

Recession is the best time to shop, especially for resale

While my parents were struggling to make ends meet during the recession, an opportunistic family went into the condo, picking up multiple units from others that were unable to hold on to their properties. 

Here’s the thing I learnt: in Singapore, those with holding power win out, as they don’t need to fire-sale at a loss, send it up for auctions before foreclosure, etc. They can wait until their property value recovers; in the meantime, they can easily service the mortgage, even with lower rental income or vacancies. 

The casual homeowner? Not so much. Once someone’s six months emergency funds run out, they’ll become more and more desperate to offload their property. (See my mom.) 

In every real estate transaction, there are winners and losers. Every time recession comes around, it’s very clear who are the winners. 

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No risk, no reward – but beware of overleveraging

My dad only had a Diploma in Engineering. My mom didn’t pass more than three PSLE subjects. They were never high earners, but they were great savers and had an investing mindset (trust me, back then, buying property to rent out was considered quite smart).

The risk they took to buy a condo was immense, and it was one that shocked all my relatives. How could an accountant’s assistant and a junior engineer afford a second home? But my parents did the math, calculated the rental yield, and bit the bullet.

Now, in case I sound like I’m glorifying risk-taking, I’m not. One of my mom’s friends for example, overleveraged and tried to service four condos at once. She eventually had to give all of them up, because she lost her job during the 2001 recession.

It’s about taking acceptable risk, not super over-leveraging (which is impossible to do today because TSDR*). 

*Maybe. At 99.co we maintain that your monthly debt obligations should not exceed 40 per cent of your monthly income, whereas TDSR places the limit at 60 per cent. Being at the full TDSR limit can still be seen as being financially stretched.

Don’t confuse your equity with your utility

This might sound like a very cheem sentence, but all it boils down to this: Is your property for own-stay or investment? It’s really important that you get that right. 

I say this because my parents always recognised that their condo was an investment – an equity play, not a place they LIVED in. They used it as a cash generating machine by renting it out, and counted on it for capital appreciation. They chose to live in their humble HDB instead. 

I see many Singaporeans in their 20s or 30s locking up alot of their net worth in the place they live. They do this by buying the LARGEST POSSIBLE HOME they can with their budget.

This is still okay-ish if you live in a condo, where prices actually have some hope of appreciating, but if you lock it up in an expensive $900,000 HDB, that’s a financial disaster waiting to happen.  

Because that actually leaves a lot of capital unused – the opportunity cost is tremendous. 

Remember: 

Own stay is own stay. 

Investment is investment. 

Get. It. Right.

4 days ago · 5 min read · by Ruiming He


Source: 99.co (11 mar 2020)

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Why You’re Always Told to Pick Two-Bedders for Rental Income - by 99.co

Have you been looking into property investment, and being a landlord? If so, you have been told approximately five gazillion times at this point, to pick a two-bedder. But have you ever considered why this is the “best size” for renting out a unit? Or what goes into deciding the best size in the first place?

Why a two-bedder is a safe bet for would-be landlords

Targeting the “single working expatriate” doesn’t mean one-room units are ideal; such tenants often pair up

As always, these are guidelines and not rules – factors such as location, facing, cost, etc. all contribute as well. But all things being equal, two-bedders are a safe bet for the following reasons:

• You get a wider pool of prospective tenants
• Quantum, maintenance costs, and renovations are often at the “sweet spot”
• Resale prospects are slightly better
• It’s more comfortable if it has to be used for owner-occupancy
• May be slightly more affordable to tenants splitting the rent

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1. You get a wider pool of prospective tenants

Two-bedders can also attract young couples or families, who are waiting for their new home

With one-room units, your prospective tenants are mostly restricted to single working expatriates – a group that already has abundant opportunities to rent elsewhere (almost everyone who buys a one-room unit intends to rent it out to them; good luck competing).

You’re also missing out on two important groups:

First, you seldom get to rent out to new couples waiting for their new condo or BTO flat to be put up  (most won’t be willing to squeeze into one room). This is one of the few groups of locals who will rent. Second, small families (e.g. both spouses and one child) are sometimes okay with squeezing into a two-room unit; but a 0ne-room unit rules out families altogether.

Also, tenants who intend to stay longer are often willing to pay a bit more for the extra room. A two-bedder might attract the sort of tenant who’s staying for, say, three to five years; on the other hand, a single-bedroom may result in attracting more tenants who are just looking at six to 12 month leases. The latter are usually less profitable to landlords, due to the cost of always marketing for new tenants.

2. Quantum, maintenance costs, and renovations are often at the “sweet spot”

Renovations and maintenance can be a lot less for two-bedders, compared to more “family sized” units

So why not a bigger a three or four-room unit? The reason comes to quantum, maintenance costs, and renovations.

Many two-bedroom units in prime regions (where you get the more affluent tenants and high rentability) are at the $2 million mark; The M Condo and Midtown Bay are recent examples. Given average rental rates of about $4,000 to $4,500 for these units in prime regions, landlords can still find decent gross rental yields of around 2.4 per cent.

However, three-room units tend to start from around $3.2 million, and fetch average rent of around $5,400, whereas larger units reach the $4 million+ mark and fetch rental rates of about $6,600. That means they often see gross rental yields of only about 1.9 per cent, compared to their smaller counterparts.

Next, you need to consider that bigger units have higher share value; the higher your unit’s Gross Floor Area (GFA), the more you pay for quarterly maintenance. The difference can be as high as $150 a month even in some mass market condos (it’s even more pronounced in luxury or central region units, where maintenance fees are steeper).

Finally, I don’t need to explain that smaller units are cheaper to renovate and upkeep do I?

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3. Resale prospects are slightly better

One-room units can be a tough sell, as prospective buyers may mostly just be other investors

Whether they’re lifelong singles, empty-nesters, or young families, few home buyers are looking for single room units.

For example, consider empty-nesters who have just sold off their four-room flat, because the children have all moved out: they might be willing to upgrade to a condo that’s slightly smaller than their old flat; but jumping from five-room to a one-room condo is way too drastic (pool and BBQ pit or not).

The person likely to buy a one-room unit from you is, in all likelihood, an investor looking to rent it out. And while they might still give you a good deal, these sellers tend to drive a harder bargain. They don’t love your unit, they’re more focused on the bottom line.

4. It’s more comfortable if it has to be used for owner-occupancy

Here’s a typical example: a young Singaporean buys a small condo unit while still living with her parents. She rents out the condo for rental income, to offset the costs.

In about five to seven years, she decides to settle down. Now she can’t get an HDB property, as she already owns a private property; but she also doesn’t feel it’s the right time to sell her condo. What happens next?

Well if it’s a two-bedder, it’s not too big a problem. Such units are still big enough for her and her partner, and maybe their first child too. But if it’s a one-room unit, then things can get a bit uncomfortable.

(New landlords often overlook this issue by the way – do consider what you’ll do in the next few years, if you decide to settle down and don’t have an alternate address).

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5. May be slightly more affordable to tenants splitting the rent

Splitting the rent can make a two-bedder very affordable to both sides

A two-room can sometimes be more affordable to a tenant than a one-room unit. For example, the rental for a one-room unit at $2,500 may have to be fully borne by one tenant; but a two-room unit at $4,000 can be split between two tenants, for $2,000 each. This can slightly increase the rentability of the unit.

Also, two is often a comfortable living arrangement for most tenants – many people are willing to share a unit with one other person, but will shy away from staying with three, four, or more unrelated tenants. Some landlords also don’t like arrangements such as a four-room condo being rented out to four separate people (that’s four different tenants you need to deal with and collect from).

As such, two-room may be easier to rent out, and easier on the landlord too.

This doesn’t mean that two-room units are by default the best choice

Again, it varies significantly based on the development in question. Other factors like location, facing, and price need to be taken into consideration as well.

But as a rule of thumb, two-bedders tend to be the preferred choice for landlords.

Would you buy as if your spouse wasn’t earning? Voice your thoughts in our comments section or on our Facebook community page.

Looking for a property? Find the home of your dreams today on Singapore’s largest property portal 99.co! You can also access a wide range of tools to calculate your down payments and loan repayments, to make an informed purchase.

1 week ago · 7 min read · by Ryan Ong

Source: 99.co (11 Mar 2020)

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Why You Should Pretend You’re a Single Income Household When Buying Property - by 99.co

Dual-income families in Singapore should pretend they’re not, when it comes to buying a flat or condo. You want to insurance against situations like retrenchment, illness, business failure, etc.? This is the insurance, next to having the actual policies. Here’s why:

When you assume your dual-income situation will carry on, you’re taking a huge risk

Just meeting the Total Debt Servicing Ratio doesn’t mean you’re being prudent

Let me give you an example. Say you and your spouse both earn $4,000 a month, which is typical among Singaporeans right now (our friends at Seedly have some more details).

Say you both team up to buy a house, with your combined $8,000 a month income. Now under the Total Debt Servicing Ratio (TDSR), your loan is curbed at 60 per cent of this monthly income (inclusive of other loans like car loans, personal loans, and so forth).

Assuming you won’t have any other debts besides this home loan, this means your monthly loan repayment can be as high as $4,800.

What can you buy with that?

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On paper, you can afford to buy a condo worth $1.4 million

The maximum loan for such a condo (75 per cent of price, straight from the developer) is $1.05 million. On a 30 year loan at 3.5 per cent per annum, this is a monthly repayment of close to $4,800. Congratulations, you and your spouse qualify.

On top of that, the actual interest rate – at least at the time of writing – is lower than the rate used to calculate TDSR*. It’s actually around two per cent right now, so your real monthly repayments are just $3,800 per month.

With both you and your spouse paying it, that’s about $1,900 a month per person. That seems pretty tight to me, though perhaps you can cope. But what happens if one day, your spouse becomes unable to work?

How long can you keep servicing the loan if only one of you could work? 25 to 30 years is a long time to live with the risk.

I’m not talking about death (as you would hopefully have life insurance or mortgage insurance that can cover that) – but consider the impact of retrenchment, being forced into a lower paying job, or being medically unable to work for a prolonged period.

Given that you earn $4,000 a month individually, how are you going to take over the monthly payment of $3,800, and still have money left over for groceries, maintenance fees, taxes, etc.?

*The medium-term interest rare of 3.5 per cent is used when calculating your TDSR, not the current rate of your loan package

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This situation is worse if it happens within the first three years of buying your property

Remember that in Singapore, you have to pay the Sellers Stamp Duty (SSD) on property sold within the first three years. This is:

• 12 per cent tax if sold within the first year
• Eight per cent tax if sold within the second year
• Four per cent tax if sold within the third year

If you’re forced to sell within the first three years, due to inability to service the mortgage, the financial damage is devastating. Your losses can also be compounded if you’re forced to sell quickly (e.g. your agent has no time to get you a better deal), and if you’ve already spent a significant amount on renovation and furnishing (these probably won’t “pay for themselves”, especially if you need to fire-sale the home).

Consider the difference, if you buy as if you were a single-income family

When you buy as if you’re single-income, you’re liberated from the opportunity costs of a high mortgage

Under these circumstances, you would buy an HDB flat instead of a condo.

A typical five-room flat (which is likely bigger than a $1.4 million condo unit) might go for around $550,000. At the HDB loan rate of 2.6 per cent*, for 25 years, your monthly loan repayment is just around $2,245. This has a number of implications:

• The family has one added safety net, beyond insurance policies
• The savings, if managed well, means you can safely afford a condo at some point
• You have fewer opportunity costs
• You have more holding power

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1. The family has one added safety net, beyond insurance policies

Look, not to deride insurance, but sometimes cases fall through the cracks. Unemployment insurance only pays out up to 75 per cent of your income, for a limited time (less if you opt for lower premiums). Disability income has certain requirements to meet, like being unable to perform a certain number of Activities of Daily Living (ADL) – if you’re not disabled enough there may not be a pay out (horrifying thought, I know).

In situations like that, the last resort could be having the other spouse start work. Even if the resulting income level is lower, it’s still a safety net in desperate situations.

2. The savings, if managed well, mean you can safely afford a condo at some point

What’s better than poolside living? Poolside living that you know you can afford.

Consider if your spouse were to save or invest $1,900 a month, instead of putting it into the same condo unit with you. Over a period of five years (the duration of your Minimum Occupancy Period), growing at just three per cent per annum, this is over $121,000.

Coupled with the sales proceeds from your flat, which has likely appreciated, you might then be in a position to safely upgrade to a property such as an Executive Condominium (EC).

This will let you a buy a condo without walking a financial tightrope, wondering if you could end up selling at any time.

3. You have fewer opportunity costs

In the event you have children, or one of you wants to seize an opportunity (e.g. start your own company, take time off to be a full-time student and upgrade), you have the opportunity to do so. One of you can hold down the fort for a prolonged period, while the other takes care of business.

If you’re both cash strapped and struggling to pay the mortgage, however, none of this will be an option. And 25 to 30 years is a long time to be tied up this way.

4. You have more holding power

From a more investment-minded perspective, an affordable home means you have holding power. If you need to sell at some point, it will be on your time and your terms. You have the luxury of rejecting buyers until the next ice age if necessary, or till you get an offer you’re happy with.

This doesn’t happen to buyers who are over-leveraged: if you can’t afford the mortgage in a few more months, then you need to sell fast; even if the prospective buyer’s offer sounds more like it’s for a used Honda than your home.

So seriously, even if the both of you are working right now, consider buying as if one of you isn’t

It may mean you don’t get to live near Orchard or have a swimming pool for a while; but that kind of stress pales in comparison to 25 to 30 years of worrying over a mortgage.

Would you buy as if your spouse wasn’t earning? Voice your thoughts in our comments section or on our Facebook community page.

Looking for a property? Find the home of your dreams today on Singapore’s largest property portal 99.co! You can also access a wide range of tools to calculate your down payments and loan repayments, to make an informed purchase.

2 weeks ago · 7 min read · by Ryan Ong

Source: 99.co (11 Mar 2020)

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The Maturity Factor - by SRX

When searching for a soulmate, one of the key considerations is always maturity. Would you really want to settle down for someone immature? I highly doubt so.

But when you’re searching for your dream home, does the question of maturity come to mind – whether you should choose a place in a mature or non-mature estate? Well if you haven’t been doing so, perhaps it’s time to consider, as this can play a significant role in your house hunting journey and also down the road should you decide to sell your place.

So, before we get started, what is the difference between a mature and non-mature estate? Well there’s no hard rule or specific definition from HDB but the difference is essentially down to the age of an estate. Mature estates are those considered more than 20 years old, such as Bedok, Bishan, Clementi, Pasir Ris, Serangoon, Tampines and Toa Payoh. Non-mature estates include areas like Hougang, Jurong East and West, Punggol and Yishun. In non-mature estates, you’ll typically see more BTOs such as the recent sales launches where there were BTOs in the estates of Sembawang and Tengah.

The main difference between the two types of estates beyond the age factor really boils down to the development of the area, which then affects the price. Of course, when an estate has been around for more than 20 years, you’d expect the area to have more offerings, from transportation, shopping malls and even sports facilities. The best example to look at will be Tampines, which is Singapore’s third most populous area with over 257,000 residents. There are currently three MRT stations that service the area that cover two MRT lines (East-West and Downtown lines), three shopping malls (Tampines Mall, Tampines 1 and Century Square), and Our Tampines Hub – which is Singapore’s first ever integrated community and lifestyle hub that features sports facilities, a regional library and more!

There’s a huge contrast if we look at Tengah, which is Singapore’s first new town in over 20 years. The first BTO flats were launched in late 2018 with another sales launch late last year. While there are major plans for the area to be developed, it is estimated it will take around 20 years for the place to be fully developed according to HDB. Furthermore, the Jurong Region Line – Singapore’s seventh MRT line – will only be ready to serve Tengah from 2026.

However, with a lack of amenities, you can expect prices of developments in non-mature estates to be significantly cheaper. Based on the BTO prices for the November 2019 sales launch, a 3-room flat in Tengah cost $208,000 while flats in Tampines and Ang Mo Kio cost $281,000 and $332,000 respectively. That’s a 35% price difference between Tengah and Tampines flats, and astounding 59% price difference between Tengah and Ang Mo Kio flats!!!

With such a substantial price difference, there’s a higher chance that the value of your property in a non-mature estate will go up once you choose to sell. For the case of Tengah, where the first batch of BTO flats are expected to be completed by 2022, you can expect the prices to go up after your Minimum Occupancy Period (MOP), especially once the area is serviced by an MRT in 2026. Wait a while longer once the estate is more developed and you can expect the reap the huge financial benefits.

Now that you’ve seen the pros and cons of each type of estate, jump on over to SRX’s resale listing page, to find your future home in your ideal location.

If you’re not looking at a resale option, you may want to consider the upcoming BTOs. The next BTO launch will take place in May where two will be in the mature estates of Tampines and Pasir Ris, while the other two will be in the non-mature estates of Tengah and Choa Chu Kang. Easily check out SRX’s HDB BTO Launches page that will provide you with all the relevant BTO information you’ll need at a glance.

Source: SRX (11 mar 2020)

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5 Ways Condos Can Be More Affordable - by SRX

Singapore is not known for cheap housing, and private properties like condos often bear with them a reputation of being unattainable by common working folks. However, with the right financial knowledge, condos may prove to be surprisingly affordable.

Minimum Cash Payment and Loans

Down payment can be more manageable than you think. For instance, down payment for a condo is 25 per cent, 20 per cent of which can be paid using your CPF. Only the other 5 per cent needs to be paid in cash. If the condo is two million dollars, that works out to S$100,000, which is a large sum but not entirely out of reach. One can achieve this in 5 years by setting aside around S$1,700 a month, which is much more doable if the load is shared between a couple. If asking for loans from banks, make sure you meet the Total Debt Servicing Ratio (TDSR), which caps your monthly repayment at 60 per cent of your monthly income.

Executive Condos - A Gateway to Private Property

While Executive Condos (ECs) are initially “under” HDB, their value tends to appreciate as they are privatized after 10 years. Their values tend to catch up with condos while being sold at about a 20 per cent lower price mark. One bright perk of buying ECs is that owners are eligible for CPF grants, thus offloading a considerable amount of the costs. These factors make ECs a good choice for first-time buyers of private property

Some Condos Are Not as Expensive as You Think

Simply searching condos below S$700,000 on www.srx.com.sg would yield thousands of results, with the lowest priced around S$475,000. Also, most condo conservancy charges are paid quarterly, and most mid-range condos charge about S$300 - S$400 a month. While that is higher than HDB charges, the cost is tax-deductible. Another notable tax-deductible thing to take note is your mortgage tax rate, which is applicable if you are renting your private property out.

Deferred Payment Schemes

Deferred Payment Schemes (DPS) are payment plans that allow you to pay just 20 per cent to 30 per cent upfront for a brand-new condo, and then pay nothing for the next two to three years. Using this scheme, you may enjoy full ownership of the unit while repaying the remainder as per normal after the two or three years are up. This is a great way to begin your foray into private housing.

No Additional Buyers Stamp Duty?

Yes, you will not have to pay Additional Buyers Stamp Duty (ABSD) if you are a first-time Singaporean home buyer. Because cooling measure mainly target multiple home buyers, if this is your first time buying a home, it adds merit to the consideration of buying a private property.

Peruse for your dream home and achieve your property goals now on www.srx.com.sg.

Source: SRX (11 mar 2020)

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