Signing on the dotted lines to collect the keys to your long-awaited first home is every young Singaporean’s dream. Its what dating couples look forward to, or even married couples living with their parents or in-laws. Its a slice of peaceful haven, a place you can finally call your own. However, purchasing our first home may constitute the biggest financial decision in our lives and along with it, the fear of making a wrong decision, future value of the property, development plans, availability of amenities and the list goes on. For newly wedded couples and young families who wish to exercise financial prudence, here are three things to consider when buying your first home.
1) Location vs Price
Is that ‘premium’ location really worth that extra debt?
I’ve heard from friends and colleagues that people around them are taking up huge loans for their first home to show off- and all because their friends bought an EC or Condominium for their first house, and therefore they cannot loseout. Especially before TDSR (Total Debt Servicing Ratio) was initiated by the government, too many individuals overstretch their finances just to get their hands on their first EC or Condominium. This materialistic mindset is prevalent in Singapore, and is a cause of concern, so much so that the government has to step in to cool things down by bringing in the TDSR.
In every decision we make in life, there are always pros and cons which we have to weigh very carefully before we make our next move, as a single misstep can result in catastrophic consequences.
According to property agents, its always “location, location, location!” when it comes to housing prices. However, I personally believe that its not the most important factor to consider when we purchase our first home. Being an island state where land is scarce, property prices have been skyrocketing as Singapore transited from a third world nation to first.
In recent years though, prices have been on the downward trend or stabilising, so for those who still think that housing is a great way of investing for our future/retirement, its time to have a change of mindset. It’s no longer the 70s or 80s where Singapore experienced double digit growth year on year; in my humble opinion, we are at our tipping point right now as a nation and economy.
Spending within our means is the key to future financial success in life and we should base our home buying decision on affordability and not based on our emotions. Like the saying, “we should not bite more than what we can chew”, let us observe financial prudence and be good stewards of our finances.
Another advantage of buying a house in a less popular area like CCK is that the starting price is one of the lowest in Singapore and therefore gives you a decent gap to bridge if our housing market appreciates overall in the years ahead. And if the housing market goes down south, you have less to lose than your friends who sank close to a million dollars on their swanky EC or Condominium in the heart of Singapore. A 4-room flat in CCK costs less than $300,000 which is much more affordable than a similar BTO in areas like Kallang/Whampoa and Tampines (crazily overrated and overcrowded!).In my humble opinion, I personally value price over location or amenities, and that is why my very first home is a BTO located in Choa Chua Kang (CCK). One of the few towns where BTO supply is greater demand and thus we sent in our $10 bid which basically guarantees us a roof over our head. Being really compact and well integrated with the public transport system and town centres, CCK has enough facilities and amenities within reach for any new family to get by without spilling blood on the home mortgage.
Living on the city fringe also gives you unique advantages such as people who are working in the far west (Tuas, for example, ahem) like myself or someone who likes to drive up to Johor Bahru for groceries, movies and a good meal when our exchange rates are at record levels. News just came in today that 1SGD hits 3.14RM.
I’m not saying that living in city fringe area is for everyone or that areas like CCK is the only way for first time home owners, but there are indeed some really strong plus points for areas like this to be considered by prudent first time home owners.
2) Future appreciation potential
Naturally, this factor only matter if you intend to sell your flat at some point in time. If you have already set your heart on living there for the rest of your life, then kudos to you, you can skip ahead to the final point! What plans are there to develop the area? Is there a chance that your property will increase in value in the foreseeable future?
Head over to URA MasterPlan 2014 to see what the Government is up to and has planned for the area you might be considering at this moment. It gives a lot of clarity to future home owners in considering current and future amenities, and most importantly, to gauge the potential of price appreciation in that particular area.
Quoting my own experience 3 years ago when i was hunting for my very first house, the decision was made based totally on practicality and financial prudence. I used to live in Bedok, a matured HDB estate of over 40 years with huge variety of amenities like coffeeshops and hawker centres, I was spoiled for choice. I had a huge culture shock when I just shifted over to CCK. That was when I realized that there are NO hawker centres in the whole of CCK and coffeeshop food standards and pricing was a far cry from Bedok. But there were significant advantages in CCK as well. The pricing for one is really affordable, 4-room BTO flats on the 10th storey only cost $280,000 as compared to $450,000 for one in Bedok or even $800,000 for an EC in a suburban area.
Here is a summary of my thought process 3 years ago when I was making the decision for my current BTO flat. The URA MasterPlan showed me a few areas whereby it will make CCK a worthwhile proposition.
- Upcoming Downtown Line Phase 2 (December 2015)
- Decentralizing of the CBD and shifting over to Jurong East (15minutes drive from my current house)
- 15 minutes drive to Tuas (for those who work in the west) – PSA will be shifting from the current Tanjong Pagar/Pasir Panjang Ports to Tuas
- Close proximity of Prestigious schools like Bukit Panjang Government High, NUS High, River Valley High, NTU and NUS
- Within walking distance from the future Tengah MRT station
- Seamless connection to JEM, Wesgate, IMM, Jcube and Jurong Point
- 10 minutes drive to the future High Speed Rail Station
- Close to Ng Teng Fong General Hospital and Jurong Community Hospital
3) Affordability and TDSR (Total Debt Serving Ratio)
Finally, all potential home owners have to consider their financial standing critically as this is one of the biggest decisions we have to make in life, other than marriage. I have personal friends who have destroyed their family and careers just because they’ve over-leveraged in the past, before the inception of the TDSR. I’ve also witnessed the destructive power of human ego and pride firsthand, and don’t to witness it again in my life- thus would like to use this opportunity to educate and inform others.
How much loan can we truly afford and yet live a decently comfortable life?
Click on the link below to find out more about your TDSR:
http://findahomeloan.co/Total-Debt-Servicing-Ratio-TDSR-Calculator
The TDSR limits the amount of money banks can lend you: which is 60% of your gross monthly income minus all of your outstanding debts.
The outstanding debts that the TDSR will take into account include:
- Credit card balances (including “instalment plans” with retailers)
- Student loans
- Personal loans
- Car loans
- Other home loans
The trend in society is that we all need to run the rat race and strive to get the 5Cs, etc. However, I always believe that we should not commit grave financial sins just to expedite the process and ending up losing everything you already have. Human ego is one scary weakness in all of us and we need to learn how to manage it in order to make it in life.
There is absolutely no need for us to be in constant comparison with our peers and relatives over who has the most expensive condo or the most expensive cars, bags and even watches. Live within our means and learn to create more sources of income so that we can achieve financial independence (whereby your passive income exceeds your commitments) and financial freedom (whereby you can work for fun and passion and not for survival aka semi retirement) as soon as possible!
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