With numerous sales launches upcoming for both HDBs and private properties, it can be a challenge when finding the right property for investment or personal stay. Are you able to spot a good property when you see it? Are you thinking of just going with the lowest interest rate in Singapore without considering the necessary factors?
Thomas Chew is an associate director at Redbrick Mortgage Advisory. He has a wealth of experience in the real estate sector and multitude of valuable insights in the local banking scene. Thomas will be sharing key pointers on how you can spot good properties for worthy investments and finance it right (rather than just selecting the lowest interest rates in Singapore) to better seize opportunities for optimizing wealth.
STEP 1: Identifying a good property
Whether you are buying a property to stay, or for investment purposes, it is crucial to identify a suitable property with worthwhile investment prospects. While it is true that properties in land scarce Singapore generally rise in price over time, the opportunity cost of investing your first bucket of gold is incredibly high. Would you settle for 3% of investment returns when your peers are enjoying returns of 10%? For most, the answer is no. My experiences with clients have generally led to 3 key points to find a good property:
1. Do your research
Before purchasing a property, it is imperative to have all facts on hand and a good understanding of what you are getting yourself into. While you may gain more information when speaking with property agent(s) on the property, a prudent buyer would always conduct their own research. Some would purchase past years’ data or read pertinent metrices of the said property. This research may be as simple as reading articles or watching videos of others’ opinion of the property. The work is largely done for you and could also serve as a useful stage for you to consider the criteria you would prioritize when purchasing your property.
2. Investigate location for proximity to amenities and public transport
Another giveaway of a good property is its close proximity to public transportation services and amenities. It might sound like common sense, but I have encountered buyers looking to purchase properties for investment and falling in love with the property – so much so that they overlook the importance of connectivity to public transport. In well-connected Singapore, majority of the population relies on public transport and its proximity to MRT or bus nodes play a significant role in determining the property price. In other words, mixed-use properties are often sold at a premium, as they offer proximity to amenities such as food centers and retail stores within the mall while having public transportation options nearby.
Three Ms of a property: Mall, Market, MRT.
Additionally, if you are purchasing a property for yourself, do take your personal needs into consideration. Young families often prefer being located nearer to primary schools, which could also be a benefit if you were to rent the property to families in future.
3. Survey the neighborhood
While you are at the location itself, take some time to walk around the area and survey the neighborhood for unique spots, such as eateries, hobbyist shops or park connectors. While it is possible to check for such amenities on the map, exploring the area by yourself will help you get a better sense of the neighborhood as a whole. You could also take the opportunity to speak with residents in the area and better understand the general culture and demographics in the area.
4. Check for plans for developments that might affect your property value in the future
Another hack to choose a good property would be simply to read up on future developments that could affect your property value. Aside from keeping abreast on the general news and announcements, you could also check out for the Master Plans announced by URA, which will highlight key themes that urban planners will be carrying out in the next 5-10 years plans. In the coming years, we can generally expect properties close to the upcoming Thomson-East Line (TEL) and Jurong Regional Line to surge in prices. Typically, such price surges occur when the plans are announced, and when the MRT lines are in operation. Planning ahead into the future might aid you in choosing a property worthy of investment.
STEP 2: Determine what you can afford
With a few properties in mind, the next step is to determine your budget and narrow down on properties you can afford. It is paramount that you purchase properties within your means, as it is likely to be the most expensive purchase in your lifetime. Simply purchasing the most expensive property you can afford with a mortgage loan comprising of the lowest interest rate in Singapore, might cause unnecessary financial strain in the long run.
To have an idea of the loan amount you are eligible for, determine the Loan-to-Value (LTV) ratio for which you are eligible. For most housing loans by banks, this quantum is set at 75%, which means 75% of your property value can be paid via financing. While it might be enticing to borrow as much as you possibility can under LTV, another important indicator, Total Debt Servicing Ratio (TDSR) might stop you from doing so. TDSR considers your loan obligations as a fraction of your monthly income to prevent buyers from over-leveraging by setting loans at a maximum of 55% of your income. Even if you can borrow a considerable sum under these conditions, you should also consider whether it would put a strain on your finances.
Aside from considering your monthly salary and savings, you can also consider how much of your CPF savings you can tap into. Many have used monies from their CPF Ordinary Account (OA) to pay their monthly mortgage repayment, which has helped their cashflow management.
Before jumping ahead to search for the lowest interest rate in Singapore, there are other fees such as stamp duties, conveyancing fees as well as agent fees to be considered as well. Stamp duties include Buyer Stamp Duty (BSD), as well as Additional Buyer Stamp Duty (ABSD), which would be about 3-4% of your property purchase price.
Conveyancing fees includes lawyer fees which range from $1500 to $5000 (depending on the value of your property) Lastly, agent fees could amount to 1% of property price but are often paid by sellers for private properties.
Step 3: Choosing a mortgage plan
Now that you have a better idea of which properties are affordable for you, and a better sense of how you will finance your mortgage, you might be inclined to just select the mortgage loan that is offering the lowest interest rate in Singapore.
Stop and think twice.
It will be better to talk to a professional mortgage advisor, so you know which is the best option for your property portfolio. Selecting the mortgage loan with the lowest interest rate in Singapore may not work in your favour of optimum financing.
A few things to note when choosing a mortgage:
1. Valuation – does the bank value the property at selling price?
2. Loan to value – Will the bank give maximum financing?
3. Packages – Are the package features and terms in line with your overall strategy?
“You don’t know where you’re going, until you know where you are coming from.”
Professional mortgage advisors are able to offer you advice together with competitive (and lowest) interest rate in Singapore. They will recommend the most suitable plans for affordable monthly repayments based on your profile. Like any other field, experts with the knowledge would be able to offer new insights and potential loans suitable for you. It is also crucial to compare several home loans instead of just choosing the lowest interest rate in Singapore. While property agents may have knowledge on mortgages, mortgage advisors are ultimately the experts in this field who are constantly keeping abreast of new loan structuring methods and aware of potential ways to maximize your budget.
For instance, Mary is taking up a loan with LTV of 75% to purchase a private property worth $500,000. As she has no other debt, she is eligible for either Loan A which would incur interest rates of 2% per annum for 20 years, or Loan B, which would 3% interest rates annually for 15 years. While Loan B is shorter and there is less overall interest incurred, it would also mean a monthly mortgage repayment of $2590. In contrast, Loan A would incur about $1898 installment repayment every month. With her income of $5000, it would be more prudent for Mary to take up Loan A instead and ensure a more comfortable buffer for her to save up for rainy days. Furthermore, it would allow her to have more allowance to take up other loans in the future when she has more savings to tide her over troubling or volatile times.
Regardless of which property you choose or which budget you are comfortable with, mortgages are ultimately critical in determining your financial situation for the next 1 to 2 decades. Mortgages are by no means a minor decision, and prudent buyers should always compare at least 3 loan plans across banks to choose the best mortgage for them. If you are confused or unsure of where to start, do reach out for a consultation session with our mortgage advisors for personalized advice.