Photo: Sheila & Daniel's real wedding, Her World Brides June 2013
Last year may have been the year of #SG50 but this year is definitely starting to be the year of #SGRugi. Assuming you don’t speak Bahasa Melayu, “rugi” means to lose out. If you’re calling it “lugi”, that means you’re either a Tagalog speaker, or a hardcore Ah Beng.
Why is it the year of losing out? Because if you just bought a car before the COE dropped by $9,000 in (Jan 11, 2016), you definitely rugi. Today, though, we’re going to talk about housing prices in Singapore, and how now is almost definitely the right time to buy a new home (see also: 6 budget tips to note when buying your new home).
Unlike the sudden drop in COE, housing prices in Singapore have been dropping steadily
The price index for private residential properties in Singapore dropped 3.7% in 2015, compared to a 4.0% drop in 2014. While it’s hard to really say if this suggests that the price drop is slowing down, it’s definitely clear that prices can be expected to keep dropping for the next year, at least.
What’s going to make this worse, is the fact that supply of properties is on the rise. A staggering 27,149 private residential units are expected to be completed by this year. This number is including Executive Condominiums. In comparison, only 23,298 units (including ECs) were completed in 2014.
The private resale market in 2015 has been doing a little better compared to 2014, though that’s not really saying much, since 2014 saw the lowest number of resale transactions in the past 5 years. As a result, the vacancy rate almost nearing 8% in 2015, the highest it’s been in the past 5 years.
The HDB resale market is doing only slightly better, with resale prices rising by an estimate of 0.2% last quarter, after steadily falling since the 2013 high.
On the other hand, as with previous years, HDB BTO applications in 2015 have always exceeded supply, and even launching the bumper crop of 12,411 flats in the last exercise saw an oversubscription by more than 3 times the available units. This despite flats in non-mature estates like Sengkang and Punggol still going from $143,000 to $353,000 and above.
But 2016 promises to bring as many as 28,000 new HDB flats, or about 2,000 more than last year.
What does this all mean for you if you’re buying a house in 2016?
Simply put, it would suggest that there’s no better time to buy property in Singapore. With prices falling and supply rising, it’s really a buyer’s market out there. However, because buying a property in Singapore can be a complicated process, you should be aware of what you’re getting yourself into. It is, quite possibly, going to be the biggest financial decision of your life.
What do new HDB buyers need to know in 2016?
First, make sure you’re eligible to buy a flat from HDB. And just because you’re eligible now doesn’t necessarily mean you’re ready – we know that in 2013, 1 in 5 couples under the Fiance/Fiancee Schemes eventually cancelled their BTO application. So be sure you’re ready to take the plunge.
First, you should make sure all your finances are in order. Even if you’re a Facebook co-founder, you’ll probably want to take out a HDB loan or a bank loan in order to finance your purchase. Make sure you meet all the eligibility requirements, especially the income ceiling. It’s important to also find out just how much you can loan – there’s no point looking at residential units that cost more than the amount you’re able to borrow.
The other thing you definitely need to consider is what the downpayment is. If you’re taking a HDB loan, your downpayment is 10% of the purchase price. This can be paid using cash or CPF. If your flat costs $400,000, for example, then you can pay $40,000 from your CPF to cover the downpayment. Assuming you have that much in your Ordinary Account, of course.
If you are taking a bank loan, then your downpayment will be whatever your loan doesn’t cover. If you get the maximum loan of 80% of the purchase price, then your downpayment is 20% of the purchase price. That means if your flat costs $400,000, your downpayment is $80,000. Unlike HDB loans, a part of the downpayment has to be in cash. When the downpayment is 20% of the purchase price, 5% will need to be in cash. That’s $20,000 in cold, hard cash you need to have on hand. If you don’t have that much cash on hand, the last thing you should do is take out a personal loan. Instead, you should probably consider looking for a cheaper unit.
Of course, there’s more costs involved than just the downpayment. Option fees, stamp duty, legal costs and housing agent fees are just some other miscellaneous costs that you will incur. But the downpayment is still the biggest upfront cost. So you should definitely never underestimate it.
There’s no one answer to say which is better: taking a HDB loan or a bank loan. It all depends on your current situation.
One more thing, if you’re a first-timer, you should definitely take advantage of the priority given to you and only apply for the location you want. First-time HDB applicants in the latest exercise were allotted between 70% to 85% of the flat supply in a non-mature estate, and 95% of the flat supply in the Bidadari estate. Even then, there was generally more first-time applications than units available.
What do private home buyers need to know in 2016?
When it comes to buying private property in Singapore, obviously there’s no option for a HDB loan. Which means, unless you’re a regular on Forbes’ list of billionaires, you probably need to get a home loan with a bank.
As mentioned above, for a bank home loan, you will need to come up with at least 20% of the purchase price as a downpayment. Of the 20%, 5% needs to be strictly in cash, while the remaining 15% can come from cash or CPF. Note that I said, at least. Because of the loan requirements, your downpayment could be as high as 80% of the purchase price if you already have an existing home loan on one or more properties, and your loan tenure is more than 30 years, up to a maximum of 35 years.
How much you can loan from a bank depends on a number of factors too. Limitations like the Total Debt Servicing Ratio means you can only borrow up to 60% of your monthly income. And this includes other debt obligations too, like your credit cards, car loans and education loans.
Ultimately, you should get an in-principle approval, or IPA, from the bank you’re planning to borrow from. This is an indicator of how much you are able to borrow.
Which bank’s home loan should I choose? There are so many.
Great question. Currently there are three main types of home loans available: fixed rates, SIBOR-linked floating rates and fixed deposit-linked floating rates with DBS or OCBC.
Currently, the 3-month SIBOR is at 1.19% and expected to increase significantly, which means you’re probably better off with the DBS FHR18 at 0.6% or the OCBC 36FDMR at 0.65%. Of course, you can’t just look at the rates, you should also take note of the spread, or the additional interest rate charges imposed by the bank. Still confused? Contact MoneySmart’s mortgage specialist (it’s free!) and he’ll let you know which rate is best for your personal situation.
But don’t wait too long to decide – the last thing you want is for 2016 to truly be #SGRugi for you.
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