It pays to be patient when house-hunting

SINGAPORE - Recently, my brother and I had a protracted discussion about housing options for young working adults in Singapore.

He turned 26 this year and recently got into a serious relationship with a lovely girl who is neither a citizen nor a permanent resident. She had just finished her studies in another country, and while she was actively hunting for a job in Singapore, her prospects were still uncertain.

As an interim measure, she moved in with my brother, who is still living with my parents, as most children do till they get married in this country.

When she got offered a job recently, he came to me for advice about what was the best option for them accommodation-wise. It occurred to me then that getting that first home these days is not as straightforward a process as it had been in the past.

If both of them had been Singaporean, the no-brainer would be to apply immediately for a new flat from the Housing Board. As Prime Minister Lee Hsien Loong mentioned in his recent National Day Rally, a typical four-room flat from HDB costs $285,000.

With a household income of $4,000, a couple would be able to take a 25-year mortgage with a monthly payment of around $1,000, the bulk of which can be paid using the Central Provident Fund.

It is undeniable that buying the new flat from HDB today is the most affordable and cheapest route to getting on the property ladder.

Of course, there are some drawbacks to this - there is a three- to four-year waiting period for this new flat, which does not help couples who wish to get their home quicker. These flats are usually in non-mature estates, so you cannot be picky about where you live. And it also involves a firm commitment by both parties to get married - which not only takes the romance out of a relationship (will he or will he not propose is now redundant if you have both applied for an HDB flat) but in some cases, also puts pressure on couples to make decisions they are unprepared for.

In Singapore's increasingly cosmopolitan society, there are also an increasing number of mixed-race or nationality couples, which throws a spanner in the works since you can only apply for a new flat if one party is a citizen and the other is at least a PR.

So what are your options then?

There is the HDB resale market, which allows citizen/non-citizen couples to buy homes, but it still does require these couples to get married.

If you fall into the latter group, you would be heartened to know that the HDB resale market is tipped for a soft landing.

The Singapore Real Estate Exchange recently announced that the overall median cash over valuation (COV) hit a four-year low of $18,000 last month. COV is the cash premium you pay over a flat's valuation.

Overall median HDB resale prices also slipped 0.7 per cent last month, the first time prices have dropped for four consecutive months since January 2006.

This means it might be worth looking around for some bargains in your desired locations. The one rule to observe - to ensure you are buying within your means - is to spend less than 30 per cent of your monthly income on your home.

For those not eligible to buy HDB resale flats, that leaves the private property market - rent or buy.

Island-wide, median rent of non-landed private homes, excluding executive condominiums, stood at $3.82 per sq ft (psf) per month in the previous quarter.

This works out to $3,800 for an average 1,000 sq ft apartment - quite a pricey sum.

It might be an Asian mindset, but both my brother and I agreed that it was a waste to give thousands of dollars of money in rent when it could be going towards a mortgage.

One alternative, I mentioned to him, is to do a house-share. That is what my husband and I did many years ago before we bought our first home. We rented an apartment with friends and that reduced our monthly rent to under $1,000 a month - an affordable level that enabled us to save yet provided us with the option of living independently.

Buying private property is, of course, the obvious option - but even prices of suburban non-landed homes have crossed an average $1,000 psf. So for a 1,000 sq ft apartment, that would mean a $1 million commitment.

One possibility my brother is looking into is "shoebox apartments" of 500 to 600 sq ft, which keeps the upfront capital expenditure at an affordable level.

I have warned him, though, that it is tougher than he thinks moving from a spacious apartment into a cramped space. And such apartments also do not allow for the expansion of the family - which may not happen in the near future but is worth considering.

He says, however, that to all intents and purposes, such an apartment is a good first step. In the future, he always has the option of selling and upgrading to a bigger apartment, maybe when the market has softened.

And that is the other major consideration: Who can tell when the market will do so?

I had advised him to just focus on saving now while waiting for a property market correction. True, that would mean him and his girlfriend living with my parents for the foreseeable future (not a bad thing since it is rent-free - and they enjoy their company), but the tough choice is to spend money on renting now and halve their ability to save for a future home, to plunge in now while property prices are high and hope the market does not crash, or to wait till prices are more affordable while saving more money.

To me, the last decision is the most logical one.

I can understand his desire and eagerness to get his own place - I was in that same position myself not too many years ago - but in matters of the property market, patience is a virtue that cannot be underestimated.

stinvest@sph.com.sg

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