Saturday, May 17, 2008
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The following is a checklist to help you plan your property purchase:
Affordability should be the first and overwhelming consideration for any prudent buyer. As a general guide, your total monthly housing loan instalment should not exceed 30 per cent of your monthly income. This will help ensure that you have sufficient money left for fulfilling other objectives such as your childrens' education and saving for retirement. Do your calculations even before you start your property hunt.
It is also prudent to set aside cash and/or sufficient CPF monies to pay for at least six months' monthly instalments to meet loan payment in the event of unforseen circumstances such as lost of employment.
So they say property is all about location, location, location. A well-maintained property in a good location would be better able to sustain its valuation in the long run. However, look beyond the property value today. Study the master plan and identify promising locations that are still sold at prices that are relatively under value.
Make arrangements for viewing at least at two different times of the day, such as in the afternoon to check for afternoon sun and at night to check for reasonable peace and quiet.
Keep an eye on the physical structure to estimate any cost of renovation and repairs that might be necessary. Include this cost in your calculation for the purchase of the property. This is especially important for very old property where extensive re-plumbings may have to be done.
For instance, a large vacant plot of land next to the property may eventually be built up, blocking your view and affecting the value of the property. Check the master plan provided for URA about the sort development that has been planned for in the surrounding areas. Look out for elements such as places of worship which may have substantial impact on the property value.
For any property with a remaining lease of less than 60 years, the maximum CPF withdrawal limit is usually less than property with more than 60 years lease remaining. Check also with your banks to see if you're able to obtain a home loan before making your commitment. It's usually difficult to obtain home loan for property with less than 60 years left.
You might risk forfeiting your option money in the event that the bank is unable to meet your financing requirements. If the purchase price of your property is higher than the bank's valuation, any excess would have to be paid in cash. You might also need a higher loan amount than what the bank is willing to lend based on your income.
Consider the following factors when shopping for the right home loan:
Loan duration
Check the maximum loan term that you can get. The normal loan term is 30 to 35 years, or up to when you are 65 or 70 years old, whichever is lower. However, if you plan to retire by age 60, you should not take out a housing loan that stretches to when you are say, 65 years old.
Payment projections
Compare the monthly repayment (based on different interest rate scenarios) from various banks to see if you are comfortable with the amount.
Interest rate comparison
Check to see if the bank offers fixed rate loans and how long the fixed rate period will be. Note that banks typically charge higher interest rates if you want fixed interest rates. Hence, if interest rates are not going up, you might actually be better off choosing a floating rate housing loan instead.
Freebies
Check if the bank gives free fire insurance and other freebies.
Free loan conversion
If you are buying properties that are still under construction, you might want to check if the bank offers a one-time free loan conversion when the property reaches temporary occupation permit status as you want the flexibility to switch to a better package rather than be stuck with your existing package, which might be a worse option.
Penalties
Ask to see what fees will be charged if you do a partial or full redemption of your loan. Also check how long the penalty period is. Currently, there are some housing loan packages with zero penalty period, while typically most loans have one to three years of penalty period.
Other costs
These include legal fees. Banks typically provide a legal subsidy pegged to 0.4 per cent of the loan amount. Thus, if your loan is big enough, the bank might help you pay for the legal fees fully without you having to pay at all.
Promotional packages
From time to time, banks might come up with special promotional packages.
May also want to read:
How to Calculate Rental Yield for Singapore Property
Inland Revenue Authority of Singapore(IRAS): Stamp Duty Calculator
Singapore Property History
How to calculate Stamp Duty for Singapore Property
How to calculate Singapore Property Tax
Free Sample Tenancy/Rental Agreement: For HDB and Private Property
REAL ESTATE BUYERS GUIDE: Checklist for Buying Property
The purchase of property, whether for investment or as home, involves a substantial amount of money and often involves long-term financial commitment. Imprudent purchase made on impulsive decision can lead to financial crisis such as severe indebtness and bankruptcy.The following is a checklist to help you plan your property purchase:
Affordability
Affordability should be the first and overwhelming consideration for any prudent buyer. As a general guide, your total monthly housing loan instalment should not exceed 30 per cent of your monthly income. This will help ensure that you have sufficient money left for fulfilling other objectives such as your childrens' education and saving for retirement. Do your calculations even before you start your property hunt.
Emergency Fund
It is also prudent to set aside cash and/or sufficient CPF monies to pay for at least six months' monthly instalments to meet loan payment in the event of unforseen circumstances such as lost of employment.
Location of Property
So they say property is all about location, location, location. A well-maintained property in a good location would be better able to sustain its valuation in the long run. However, look beyond the property value today. Study the master plan and identify promising locations that are still sold at prices that are relatively under value.
View the Property more than once
Make arrangements for viewing at least at two different times of the day, such as in the afternoon to check for afternoon sun and at night to check for reasonable peace and quiet.
Inspect Property for Repair-Renovation Costs
Keep an eye on the physical structure to estimate any cost of renovation and repairs that might be necessary. Include this cost in your calculation for the purchase of the property. This is especially important for very old property where extensive re-plumbings may have to be done.
Check Surroundings
For instance, a large vacant plot of land next to the property may eventually be built up, blocking your view and affecting the value of the property. Check the master plan provided for URA about the sort development that has been planned for in the surrounding areas. Look out for elements such as places of worship which may have substantial impact on the property value.
Verify The Remaining Lease
For any property with a remaining lease of less than 60 years, the maximum CPF withdrawal limit is usually less than property with more than 60 years lease remaining. Check also with your banks to see if you're able to obtain a home loan before making your commitment. It's usually difficult to obtain home loan for property with less than 60 years left.
Obtain bank loan approval prior to purchase
You might risk forfeiting your option money in the event that the bank is unable to meet your financing requirements. If the purchase price of your property is higher than the bank's valuation, any excess would have to be paid in cash. You might also need a higher loan amount than what the bank is willing to lend based on your income.
Mortgage shopping
Consider the following factors when shopping for the right home loan:
Loan duration
Check the maximum loan term that you can get. The normal loan term is 30 to 35 years, or up to when you are 65 or 70 years old, whichever is lower. However, if you plan to retire by age 60, you should not take out a housing loan that stretches to when you are say, 65 years old.
Payment projections
Compare the monthly repayment (based on different interest rate scenarios) from various banks to see if you are comfortable with the amount.
Interest rate comparison
Check to see if the bank offers fixed rate loans and how long the fixed rate period will be. Note that banks typically charge higher interest rates if you want fixed interest rates. Hence, if interest rates are not going up, you might actually be better off choosing a floating rate housing loan instead.
Freebies
Check if the bank gives free fire insurance and other freebies.
Free loan conversion
If you are buying properties that are still under construction, you might want to check if the bank offers a one-time free loan conversion when the property reaches temporary occupation permit status as you want the flexibility to switch to a better package rather than be stuck with your existing package, which might be a worse option.
Penalties
Ask to see what fees will be charged if you do a partial or full redemption of your loan. Also check how long the penalty period is. Currently, there are some housing loan packages with zero penalty period, while typically most loans have one to three years of penalty period.
Other costs
These include legal fees. Banks typically provide a legal subsidy pegged to 0.4 per cent of the loan amount. Thus, if your loan is big enough, the bank might help you pay for the legal fees fully without you having to pay at all.
Promotional packages
From time to time, banks might come up with special promotional packages.
May also want to read:
How to Calculate Rental Yield for Singapore Property
Inland Revenue Authority of Singapore(IRAS): Stamp Duty Calculator
Singapore Property History
How to calculate Stamp Duty for Singapore Property
How to calculate Singapore Property Tax
Free Sample Tenancy/Rental Agreement: For HDB and Private Property
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2 comments:
Dear Smart Buyer:
Can I ask what criteria do you use as yardsticks to determine valuation for investment property in a location?
a. The rental yield? For example, annual rental divided by expected yield?
b. Price levels at past economy downturns?
c. Bank Valuations?
Current price levels are at 2006 levels, if this could come to 2003 levels, then the banks will have to write off a lot of loans and many homeowners will cry...
Mostly (a) and (b); because as an investor, getting reasonable return is my priority. Bank valuation is mostly for the purpose of getting bank loan and it varies with economic condition.
Best wishes
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Dear visitors:
Your comments are most welcome!
The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.
Smart Buyer :)