Start planning early, leave money for buffer

With enhanced housing grants and shorter waiting times for Build-to-Order flats, young couples had something to cheer about in this year's Budget.

PropertyGuru's regional head of special projects Winston Lee tells FOO JIE YING what young couples should look out for when buying their first home

When should I start planning?

Start your savings plan three years in advance.

Then, six months before you decide on a flat or house, start shopping for your options.

Decide on the type of house or flat you want, then work backwards. Think not just the downpayment, but also the cash needed for things like renovation and furniture.

How much do I need to save?

As a rule of thumb, a couple should not spend more than 40 to 50 per cent of their joint income on housing and any other kind of fixed loan commitment.

With the economy not doing quite well and retrenchment exercises in some companies, you cannot assume that you will continue to draw the same salary.

How much you need to have in your CPF depends on the type of property you want to buy.

But rather than flushing out your CPF savings, leave some as a buffer. If something bad happens, at least you have some money to last you through your monthly instalments.

Ideally, the amount you leave in your CPF should be enough to last you one year of instalment payments.

What should I consider?

• Urgency

For public housing, it depends on how soon you need the flat.

If you have saved up enough and are ready to start a family after getting married, you should go for the resale flat option.

Otherwise, you will have to wait a few years through the Build-to-Order (BTO) flat route.

The BTO option will suit couples - usually undergraduates or fresh grads - who have not built up their finances but are committed to each other.

• Location

Some couples prefer resale flats as they are often in mature estates.

A PropertyGuru survey found that one of the top considerations for flat buyers is the proximity to a shopping centre and their workplace, more likely in resale flats.

But buying a BTO flat is like a "greenfield investment" - the estate may have nothing now, but may be booming in five to 10 years.

The value of the BTO flat then increases along with the vibrancy of the estate.

• Long-term plans

If you plan to have children soon, it may be wise to find a flat with a childcare centre nearby.

You can also consider living near your parents, who may be able to help look after your children.

• Investment

The Government has sent a very strong signal that Housing Board flats are not for speculation.

So if you hope to earn some cash from selling your first home in the near future, private property is the way to go.

That said, I strongly encourage young couples to go for executive condominiums (ECs) if they have the means to do it.

After 10 years, ECs can be sold to foreigners, which bodes well for capital gains as this opens up the pool of prospective buyers.

But having said that, buy within your means.

There is nothing good about a young couple being saddled with loan instalments they struggle to pay.

fjieying@sph.com.sg

This article was first published on Mar 20, 2017.
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