• TT Lum

How to Finance a Private Resale Property


Ahh the dream isn't it?


Most of us would have known how to apply for and finance a HDB, because information on that is practically available everywhere. Not to mention full-time HDB staffs on the hotline too, always ready to tackle your queries (albeit the waiting time may range pretty widely).


On the other hand, some of the most common comments we hear from people when it comes to private property are:


1) “Siao! I can’t afford a condo lah!” 2) “Why upgrade to a condo when I am comfortable in my HDB and paying less to stay in a bigger house?”


These are perfectly normal responses from most of us.

I know clearly because….I’ve said these two lines too often myself.


That is…until I started diving deep into research and understanding the Singapore real estate market.


Well, there are numerous reasons why people would choose to upgrade to a private property.


But we’ll leave this to another day, since today’s focus is on how exactly you can finance a private resale property.


 

Because there are simply too many different possible buyer profiles, we will briefly illustrate how to do so using only 3 standard scenarios, purely for concept sharing purposes.

(Yes I can foresee the uproar about “Where got so much savings/CPF/whatever for that age!”. Chill out guys, before we go into a debate on that, let us be clear on this…not everyone is suited to upgrade to a private property. Which is why it is best to consult the right people with expertise before you dive into an emotional decision. A typical buyer profile as mentioned below who is not excessively extravagant will easily have that financial position)

*Before we proceed further, for all 3 scenarios, we do not want to max out their purchase price in order to exercise financial prudence. *For simplicity sake, we also assume they are all looking into Resale condos, instead of New Launches since the progressive payment scheme (PPS) may be rather complicated for new readers, though rest assured they aren’t as financially daunting that quickly as resales. Then again, why is this so is another pretty big discussion, so we’ll shelf it too today and focus on the key topic.

*Note that using your CPF for buyer’s stamp duties & legal fees is allowed, except that you would likely have to pay them upfront with cash first for resale private property purchase, since CPF will take some time to disburse upon approval, and hence reimbursing you only after completion.

 

Scenario 1: Single Male, Age 31

Most people would desire to have their own nest by the time they reach 30 years old, regardless whether they are single or attached.

Since John qualifies for a property of maximum value $980,000, we’ll tune it down to make it more comfortable for him by looking at a $800k 1-bedroom bachelor pad condominium instead.

Let’s take a look at the table below regarding how much & when does John need to pay for a resale $800k condo.

Do note that the figures above are rough estimates, as the exact figures can vary depending on individual units and condominium developments.

But these will be the key expected upfront capital investments and post-purchase expenses for John.

The next table sums up the overall cash & CPF (only OA account) outlays, as well as cash remaining and total monthly outlay after the purchase of the $800,000 property.

Because John does not have enough CPF for the downpayment, he will need to draw from his cash funds to top up for the shortfall of $71,600 to cover the amount which usually could be paid via CPF funds.


 

Scenario 2: Young Couple, Both Age 30

Young couples would prefer to get their own place to settle in, mainly for privacy reasons, so that they can enjoy each other’s company exclusively and lead the anticipated “couple life”.

With Jack & Jill’s maximum private property affordability at $1,780,000, we presume that a 3-bedroom $1,200,000 resale condominium in the Outside Central Region (OCR) would be well within their means.

Note again that the figures above are rough estimates, as the exact figures can vary depending on individual units and condominium developments.

But these will be the key expected upfront capital investments and post-purchase expenses for Jack and Jill.

The next table sums up the overall cash & CPF outlays, as well as cash remaining and total monthly outlay after the purchase of the $1,200,000 property.

At this juncture, you’re likely thinking…why would we squander a large chunk of our hard-earned savings just for a condo that’s likely smaller than a 4/5-room HDB flat?

Which brings us back to the same question again...

Why do people upgrade to private properties despite the high prices and smaller unit sizes?

In this case, for most young couples purchasing private properties as their first homes, it may be because they want to kickstart their journey of building up their financial wealth with real estate as one of their main investment vehicles.

This is a very personal question for every individual profile, which you may need the help of a trusted professional to help you understand your true priorities.

It definitely isn’t as simple as seeing an ad “$1.2MIL CONDO, FREEHOLD, LOTS OF FACIILITIES, SEE IT TO BELIEVE IT” and then getting tempted to rush in to buy.


Sure, we see that some people can be emotional and decisive like that. But buyers like those are few and far between. Most people (ourselves included) will be likely be skeptical and wary of such ads, as we were taught from young that “If it sounds too good to be true, then it probably is”.

Anyway, let’s get down to the last scenario!


 

Scenario 3: BTO-MOP Couple, Both Age 35

If your BTO/resale flat has already met the Minimum Occupation Period (MOP) and you’re wondering what your available options are, this section of the post is for you.

Ali & Elly has decided to sell off their HDB BTO flat in Sengkang upon MOP to avoid incurring ABSD, in anticipation of their upcoming move towards a private condo. By cashing out their newly MOP BTO flat early, they managed to capture a good price with a fresh 95-year lease from their buyers.


For the time being, they have a choice of either renting a unit at a location of their choice, or sticking with the budget-friendly way to the delight of most conservative parents (staying with them).

With their current assets, they are able to maximise leverage for a private property of up to $2,280,000. However, Elly feels that it is more appropriate to be on the safe side, hence they have decided to keep to a budget of up to $1,700,000 for a Rest of Central Region (RCR) 3-bedroom resale condominium.

Since they had quite a fair bit of savings accumulated, they have both agreed to set a higher renovation budget of up to $100,000, in order pamper themselves and fully enjoy the fruits of their labour.

Note again that the figures above are rough estimates, as the exact figures can vary depending on individual units and condominium developments.

But these will be the key expected upfront capital investments and post-purchase expenses for Ali and Elly.

The next table sums up the overall cash & CPF outlays, as well as cash remaining and total monthly outlay after the purchase of the $1,700,000 property.

We know what you’re thinking…the numbers do look intimidating we agree. After all, we are looking at somewhere a little north of half a million dollars for total initial capital outlay.

Fortunately, Ali and Elly still have a comfortable amount of cash reserves left to cover for rainy days. Even if something unfortunate happens and both of them loses their income stream with an average total expense $7000/month ($5,233 + other day-to-day expenses) to cover, their cash reserves would be able to last them for at least 24 months, or 2 full years to be exact.

This should put them comfortably at ease to cover themselves and not be put through a case of forced sale when things are bad, yet at the same time start enjoying the perks of living in a private condominium with all the facilities while making their assets work hard for them.

 

Taking Calculated Risks – Is It Worth It?

In all 3 cases, buyers must of course perform their due diligence and seek the right help to source for the correct private property with better appreciation potential, if their goal of upgrading is either for asset progression or even capital preservation purposes.

Failing to do so can potentially lead to depressing experiences in the real estate market…such as:



However, when resources are being deployed correctly, returns in property market can be pretty impressive.


Just a quick peek at this entry-level $413,000 1-bedroom unit in a particular development in the Outside Central Region shows rather some eye-popping figures:



Given just a four-year timeframe, the shoebox unit above provided a raw profit of $161,000, or a return of 38.9%!


Well, $161,000 may not seem like a lot of money to some… but if we based it on the typical 25% capital outlay, the return on investment (ROI) would actually reflect a jaw-dropping 156% appreciation in 4 years!

We don’t think there are many relatively stable investment vehicles that can provide such ROI.


Sure, some stocks may be able to achieve way higher returns, but we all know the potential risks of stocks being capable of going both directions over time.


In the meantime, your capital in the Singapore real estate market is pretty much stable, thanks to the Singapore Government, who watches over the local property scene like a sharp hawk.

Think about it…which one puts you more at ease?

$1 million in a Singapore property…or $1 million in the stock market?

A rather obvious answer for most people who are not experts in the realm of stocks and equities.

In case you’ve been wondering, this could be one of the possible reasons why some of your peers with similar income levels as you do, are taking the leap of faith by putting their money to work in private properties. It may not necessarily mean that their families are rich.

Therefore, it is not that most people have no money. It is more of knowledge that they lack that leads to inaction.

Majority of the population perceive instalments for a private property as an expense. That is the sad truth if you do not know which is the right property to buy into.

However, having the right knowledge and plan execution would greatly reduce the chances of this happening. Instead of an expense, the instalments for the right property would become more of an investment into assets, rather than liabilities.

Nevertheless, we strongly advise anyone who plans to upgrade/invest to educate themselves through a trusted professional and have a long term game plan before you plot your first/next move in the real estate market.



In case you’re wondering about New Launch condominiums having to fork out this amount upfront, yet still having to wait for it.

Yes, the numbers are rather similar, except renovation figures wouldn’t be as high for newly-developed units, as well as a few other factors and components that differ from that of a resale condominium.

Keep a look out for this column…We’ll leave this topic for a future post!

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