Things Every Singaporean Must Do Before Buying Their First Home

Buying a home in Singapore requires a major commitment. Deciding to buy your first home is just the beginning of a long journey. In order to make informed choices, you’ll have to do a lot of research and make a proper plan.

Make sure that your plan is realistic and implementable. Following the steps mentioned below will make your journey a lot easier.

Steps to Take Before Buying Your Home

1. Scout for a good location

You may want to book your first home in River Valley or Upper Bukit Timah. But it may not be realistic, given the exorbitant property prices in these areas. Hence, you should start looking for the right area in addition to the right property. Check the transport links, nearest MRT, bus stops and other transport options that you use during peak hours. Check for nearby schools and playgrounds for your child.

If rental income is important for you, get a valuation of the property and an estimate of the rent you can demand over the next few years. Do your research to know more about the upcoming infrastructure projects in the area and how they can positively impact the valuation of your property.

2. Start with your research into the property type and size

Most people usually opt for HDB flats. However, that’s just the tip of the iceberg. You’ll now have to decide whether you want to go for a BTO flat or a resale property. A BTO flat is usually available in a non-mature estate. That might give you some respite on the price front. But there could be a long wait period. When buying a resale property, you’ll have to negotiate a price with the seller, and be prepared to pay a premium called cash over value (COV).

If you’re planning to go for HDB executive condominiums, bear in mind that these types currently have a minimum occupancy period (MOP) clause of five years. Foreigners may only be eligible to purchase these condos 10 years after their construction.

The alternatives are private properties – landed or apartments. Private apartments have no or less restrictions on ownership and are popular with foreigners wanting to own a stake in the Singapore real estate market.

If you’re a Singaporean or a PR, you may be able to buy landed properties without restrictions. However, foreigners may need to seek an additional approval from the Land Dealings Approval Unit of Singapore Land Authority to proceed.

3. Find out the approximate total cost involvement

While the approximate cost of your property has to be determined, there are other expenses you need to worry about. They are as follows:

• Stamp duty: To buy your property, you’ll have to pay stamp duty. If you’re a Singaporean national, you’ll have to pay the buyer’s stamp duty (BSD) only. The rate is 1% on the first S$180,000, 2% on the next S$180,000, and 3% on the remaining value of the property. PRs and foreigners have to pay an additional buyer’s stamp duty (ABSD), too. If you’re a PR, you’ll have to pay ABSD at 5% for your first home. A foreigner will have to pay a flat 15% ABSD irrespective of the volume of the flat.
• Home loan charges: Whether you’re opting for an HDB loan or a bank loan, you’ll have to pay interests and administrative charges. If you take a CPF grant, you’ll have to pay additional interests on that as well. HDB loans are currently pegged at 2.6%, 1 percentage point higher than the interest rate applicable on CPF Ordinary Account.

Home loans offered by banks are currently lower. You’ll have to decide whether to go for fixed interest rates or variable interest rates. While floating interest rates are currently lower because SOR, SIBOR and internal board rates for most banks are low in Singapore at the moment, future market volatility could make it more expensive.

However, some other considerations may be important. The loan to value (LTV) ratio for individuals with no other loan has been set at 90% by HDB. Banks usually set it at 80%. Of the balance 20%, at least 5% is expected to be made up front in cash. HDB loans are ideal for those without enough liquidity. Remember, that you need to have an approval-in-principal from a lender before you can make a purchase.

• Legal expenses: To complete different agreements, starting from Option to Purchase (which is usually set at 1% of the agreed price and is valid for three weeks from the date of agreement) to Sale and Purchase Agreement and more, a knowledgeable lawyer will help you navigate the legal waters without hassles.

After acquiring the sale and purchase document from the developer or reseller, the lawyer will create a description of the property and help you negotiate with the bank to secure a mortgage loan. A lawyer will also help you secure an HDB loan eligibility letter (in case of HDB loan) or a letter of offer (in case of a bank loan). This document needs to be submitted at the time of lease agreement signing. You need to have a good idea of the total fees you have to pay to your lawyer. Find out whether legal charges and administrative fees have been included or not.

It’s advisable to have a property agent since it’s your first time in the real estate market. An agent can help you find the best deals and negotiate with a seller.

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