Wednesday, December 25, 2019

Owning a (resale) condo before 35.

Before I go on with this post, i just want to say that this is not some kind of investment or marketing blog post whereby how i boast share about how I made my first million dollars through investment or being some shady eBay seller. *cue 10 secs youtube ad with some guy holding his phone going - Hi, my name is xxx and i’m the top 10 xxx seller on xxx* Ok enough on that, back to business. 

So apparently from what i think (and based on stats), the readers of this blog are now young working adults and majority here are those that have been following my blogging journey for the longest time (Gosh. I feel so old now!) so I thought maybe I can share on what I've been up to at this stage of my life and who knows it might be of relevance to some of you. As the title states - owning a condo before 35. 

If you are ever thought of owning a condo, you are either in 1 of these 2 categories - #1: single and unable to get a HDB until age 35 or #2: Attached/ married and looking to get a condo, be it because your combined salary is above the HDB cap or you just decided that BTO/ resale HDB is not what you want and would like to stay in a private property. 

Before I go on, you need to know that you need to have a substantial amount of cash on hand (we are looking at 6 figures) before you even think about getting a private property. When i first embark on this journey, I thought all I needed was to have enough to pay for the down payment of the apartment (technically not wrong) but there are still several terms and timeline one should understand when getting a resale condo. 

If you noticed, I mentioned the word - resale for a number of times before in this post because there are 2 types of condo you can get. #1: Resale (Built, Temporary Occupation Permit (TOP) and ready to move in) or #2: New development (launched, yet to build and will take an average of 3 years before getting your keys) If you are looking to move in immediately or within the next 1 year or so, then option #1 would be what you are looking at. If you are a newly wed couple or in a steady relationship and intend to get married in the near future, then you can look at both options. In my case, i’m looking at option #1 because it has always been my personal goal to own a place before I turn 30 and i intend to “downgrade” to a HDB flat after I turn 35 (if i’m not married) but who knows what the future might entail, maybe I might be too comfortable staying in my condo that I decide to not downgrade? You never know, haha. 

So the process for getting a resale is much simpler and faster than a new launch because the place is ready and available BUT it also means that the moment you move into your new place, you will have to start repaying the monthly mortgage loan. That is one main difference between the 2 condo options. (If you guys are interested, i might do another post on the new launch/ development process)

Before I go any further, I would advise that you think through about embarking on this journey, simply because there is going to be a lot of money involved. Just to put it out quickly, after getting the golden key to your apartment (yayy!!!), you will start repaying a monthly mortgage of a few thousand dollars, there is also renovation cost (depending on how extensive you want to revamp your place). You still have to get furniture and appliances which is another few thousand dollars. On top of that, staying in a condo also means you will have to pay the monthly maintenance fee of a few hundred dollars. There are also monthly basic utilities bills like electricity and water. Ohhh! And miscellaneous like WIFI etc. Gosh. As I was typing this paragraph, I'm already having second thoughts about getting my place, lol. 

Ok fine. Now that you have reached this stage of the post, let’s talk more about money. Obviously I'm no crazy rich Asian with a few million dollars to spare so it’s important to know each fee and process before getting a place. 

Firstly, you need to determine what is the price range you can afford to look at - by using a simple online housing loan tool. The amount of loan you can get will be based on your monthly income. Say if your salary only allows you to loan $600k and your apartment is $1mil. Be prepared to have enough cash on hand and CPF. Piece of advice, don’t overestimate and go for something which you will struggle to repay. 

So now let’s say you have calculated your loan, and we are now looking at a potential 1 bedder + 1 study apartment which cost $800,000. After viewing, you love it and decided this is the one. This is when the whole process will start. 

Option Fee (1%) - $8000 

This is also known as THE deposit. So after looking through a few places and finally found your dream home, it’s time to reserve it. By paying this 1%, the seller will reserve their unit exclusively for you for the next 14 days. Do note that for whatever reason you decide that you don’t want to buy the unit anymore, the option fee will be forfeited. (Gosh. Make up your mind!) 

Exercise Fee (4%) - $32000 

Things will get serious from here on because you have committed to buying the unit that you have put a deposit for. It’s time to exercise the option by putting in another 4% of the unit’s price, which makes the first 5% ($40000) of the process. You will have another 14 days to pay this 4%. Payment will be made in cash. 

Buyer Stamp duty (3%) - $18600 

Buyer stamp duty is a tax on the purchase or lease of property. It’s beared by the buyer (you) and are documents that are prepared and sign whenever you buy or sell property. So to put it simply, it’s a tax payable to the government to process the transaction. It’s not exactly 3% of the purchased price but there is a table on how the BSD is being calculated: 

First $180,000 - 1% 
Next $180,000 - 2% 
Remaining amount up to 1 million - 3% 
Amount exceeding 1 million - 4% 

So in this case, we are looking at: 

First $180,000 - 1% ($1800) 
Next $180,000 - 2% ($3600) 
3% of remaining $440000 ($13200) 
Total: $18600 (bye bye $18K, sobs.) 

Lawyer Fee - $2500 

This fee is inevitable because you need a lawyer to do checks and make sure that everything is in place. This $2500 cannot complain, it’s for peace of mind. It’s like going to the temple and pray that everything goes well. In this case, you are forking out money to ensure everything goes well. LOL

Downpayment (20%) - $160000 

Now, this is the part where most people will have trouble and also the part that deters people from getting a private property (there are still tonnes of reasons tho) For a 20% downpayment for a $800,000 property, we are looking at $160000. Thankfully, this amount can be paid using both cash and CPF. Unless you have $160k cash lying around, I would think most commoners i mean people will use a combination of both cash and CPF. Say i have accumulated $80000 of CPF throughout my years of working, I would then use a good $60k to offset the down payment (20k for rainy days, I'll come to that later) and use $100k of my cash savings to pay for the flat OR then again, you could wipe out as much CPF as you can (in this case, $80k) and pay the remaining via cash. 

Monthly repayment of loan to bank - remaining amount for 30 years at 2% interest 

At this stage if you have settled the above, I would say that you can comfortably call this apartment your new home and can get ready for renovation and furniture shopping (plus a whole new set of things to worry about) but don’t forget that because unlike getting a new launch/ development, you have to start your monthly repayment of loan almost immediately. So for the above scenario of a $800,000 apartment with $600,000 loan from the bank, you can expect to pay about $2000+ a month.

Once again, thankfully this loan repayment can be paid via cash and/or CPF which leads to my earlier point of keeping CPF for rainy days. Say now you decided that you are going to do a 50/50 monthly repayment for your housing loan meaning $1000 cash and $1000 CPF (since you and your employer are contributing to your CPF fund monthly anyway) but suddenly one day you just decide you want to look for a new job, or decided to start a business and will not have a fixed monthly income, you can use the so called “rainy days” CPF money (remember the 20k from earlier?) to pay off the monthly loan for the time being. 

With that said, let’s do a calculation of how much cash you would need to have on hand before deciding to buy a $800,000 private property. 

Option Fee (1%) - $8000 
Exercising Fee (4%) - $32000 
Stamp duty (3%) - $18600 
Lawyer Fee - $2500 
Down payment (20%) - $100000 (excluding $60k via CPF) 

Total: $161100 

So yea, that’s the amount of cash on hand you need to have before embarking on this journey of owning a (resale) private property. New launch/ development adopts a different approach as they would take 2 to 3 years before getting the area up so payment is progressive throughout the years. I might share on that depending on the response of this post so if you are really interested, do drop me a DM on ig @andystorm! 

Then again, it’s a choice. The people around me have been asking me, “If you intend to downgrade to a HDB eventually, why get a place now and not wait till you are eligible?”, “Why not get a new development since it might be cheaper and you get a brand new flat in a few years’ time?”, “So expensive for a one bedder, you sure you want anot?”, “next time can sell and earn anot?” and the list of questions just went on and on. Well, all i have to say is that it has always been my personal goal to get a place that I can call my own (btw it’s not like my parents are chasing me out or what, lol) and I have set a new timeline for myself (used to be before I turn 30 but i realised i needed more time to think and plan properly.) 

I have already started house viewing and in fact, I really like the environment and units of the first development (p.s: condo = development) I visited but I still feel that I should look at more options and there is no rush into getting a place. Really excited (and somehow scared) to embark on this journey but I'm quite sure at the end of day when i finally get the keys or lay on my new couch, this will be one of the most meaningful and fruitful milestones in my life.

Onward to 2020,