Property planning

House is important for some people, ceritainly for myself as well. If you think you’re ready to buy a house, the first question is like to be “how much can I afford”, some calculation needed to be done for the fordability and appetite study so we’d know how to plan better.

Background

This post is on study my own situation and have a rough idea what’s my affordability to better plan my next move. Focus will be on Singapore property market.

Questions to be asked about buying Singapore property:

What type of properties am I eligible to buy?

There’re mainly 3 types of properties for residence in Singapore:

• HDB flats
• Executive Condominiums (ECs)
• Private properties

I have bought 1 HDB 4 years ago on the resale market, the regulation has limited the ability for everyone to purchase properties as the controlling method of property market. And 1 household can only has 1 HDB or EC maximum, thus only private is the choice for my current consideration unless sell the HDB. The detailed rules can be found in the following link: HDB gov website.

There’s a thing called minimum occupation period (MOP), The MOP is calculated from the date you collect the keys to your flat. It excludes any period where you do not occupy the flat, such as when the whole flat is rented out or when there has been an infringement of the flat lease.

The MOP duration depends on the purchase mode, flat type, and date of flat application, for my case, the MOP is 5 years, and for other types, you can check on HDB Gov website. The date I can purchase another property is after October 2022, so the I still have minimum 1 year to plan the next purchase.

Statistics

What are the money source of the property for me?

Depending on the liquidity, my money sources come from: cash, stock fund, insurance deposit, cpf ordinary account, bank loan.

Cash is direct source, stock fund can be withdrawn around 1 week time due to the conversion and bank transaction duration. Insurance deposit is a long-term deposit plan, for me, I’ve invested since 2015 but the plan only ends after September 2040, so it doesn’t count now. CPF ordinary account is the source as well depending on the amount.

What are the cost?

The house price, the tax, other malicious cost.
Besides house price, tax is more complicated, basically, the tax includes: Buyer’s Stamp Duty (BSD), since it is the second house, the Additional Buyer’s Stamp Duty (ABSD) will comply.

What are the maximum loan I can get for HDB and Condominum respectively?

If buying HDB instead of Condo, mortgage service ratio (MSR) of 30% applies, so higher salary is needed for the same amount of loan. The projected table is like the following:

Scenarios

As a Singapore Citizen, I have the choice of keep my current public house which is called HDB and buy another property. While situation of the cost will be effected greatly if I do so. The following will have some calculation regarding the different cases and the projected property value I’ve used is SGD 1 million; 1.5 million; 2 million; 2.5 million respectively as reference.

Option one: Keep current HDB

Cost

The government makes it much harder for resident to own more than one property to cool down the market. Higher tax will apply and the lower loan amount we will get.

From the above table, BSD and ABSD can be as following regarding different property prices.

To get as much bank loan as possible, I need to clear my existing mortgage first so my loan will be considered as first property by bank. There’s another 200K needs to be cleared.

Income

Cash is king, more cash will definitely make the purchase smoother. Current stock fund can be valued at 20K SGD. Since it is the second house, CPF fund can only be used in the amount of excess of $90,500 in my OA+SA/RA, which currently no excess. I can’t use CPF as fund. So the downpayment will be solely on cash excluding the loan amount.

The main money sources fall into cash and loan, to consider loan, loan tenure is capped at 30 years for HDB properties, and 35 years for non-HDB properties until the age of 65. The best tenure I can get is before my 35 years old for private house. The loan to value (LTV) ratio changes significantly depending on how many loans. If I have 1 housing loan, the maximum 2nd LTV ratio will drop from 75% to 45%. The 30% difference for 1million house is already 300K which is higher than my left loan of current property, so the better choice would be paying up the existing loan to get more from the bank. That’s why the 200K is suggested to be paid in cash.

If I want to purchase property as the listed values, I need 2 things: 1st match salary to the projected salary; 2nd set aside the total cash as illustrated in the above table.

Option two: Sell current HDB

Cost

If current HDB is sold, it will recover approximately 320K cash. And there will be no ABSD. The additional cost will be the following tables.

Income

Comparison of the 2 options

• Clearly the cash sacrifice is quite different at the moment, ranged from 590K to 940K. Although the differences, need to consider this is taken into consideration of paid up the first property loan and get to keep the extra house, which should be valued at 600K when sale and generate rental yields.
• Option1 will keep 2 properties while option2 only keeps 1 property, the tax differences range from 170K to 425K, by keeping the HDB, if rental yield per year will be around 42K, the break even point will be less than 10 years which is a good deal, but taking into consideration this HDB will permanently counted as 1 property, so if more plans for future residence purchase, even higher ABSD which is 25% applies. The question falls into whether 10 years' breakeven is worth it or any changes within 10 years?
• Summary is if one can take the burden of heavy downpayment, keeping both of the properties is the better option.

Planning for the next step

• Increase credit score

  • Clean debts - done in November 2021
  • Cut off cards - done in January 2022

• Get higher loan

  • Increase salary - ongoing in July 2022

• Get more cash

  • Job - bonus and referral fee
  • Stock value
  • Other channels