As a property agent, I do not give my advice lightly. Everyone has their own unique situation – whether from a financial viewpoint or personal preferences.
I am aware that buying a property in Singapore will be one of the largest purchases you will ever make in your life. As such, I recommend you to think through all the potential traps and pitfalls in property upgrading – especially if you are planning to upgrade from HDB to private property.
I have talked to hundreds of families, couples and potential HDB upgraders.
Here I like to distill the 5 main traps that might hinder you from property upgrading.
In the light of today’s economic situation and the fact that iron ricebowls are a relic of the past, many people that I met are concerned about being unemployed or having a loss in income.
“How would we pay for our monthly installments?”
This is an understandable & valid concern. And that is why a detailed financial assessment is necessary to make sure you are able to comfortably service your monthly installment.
I actually do an additional step during this assessment.
I will basically calculate how long you can remain unemployed (zero income) – and yet still be able to pay your monthly installments.
Yes. We do not proceed if you find yourself not comfortable with the numbers.
With detailed planning and a unique financial strategy – I have helped some clients realize that can be unemployed for up to 60 months and yet – have no problems paying for their monthly installments.
That amount of buffer time that exists for them was basically unknown – until they met up with me.
Feeling that you might not be able to service the monthly installments is closely related to the previous trap.
But while that trap was closely related to income loss, this one revolves more regarding your relationship. Due to income differences between husband & wife, monthly installments are not always split equally.
Some spouses pay more, some spouses pay less.
Again, this income disparity is something I will take into account during the financial assessment.
How long can both husband & wife be unemployed before they are unable to service their monthly installments?
We will sit down and calculate this.
The next trap that you need to take into consideration is of interest rates going up.
Now interest rates going up is a concern. However, you will need to consider that for interest rates to go up – this means the economy is going up & people are spending more!
Interest rates are already lower than historic norms as seen in this SIBOR graph.
For a private condominium, the maintenance fees cover the maintenance and upkeep of facilities like servicing of swimming pools, gardening, cleaning of common area, paying for condo staff like security guards, cleaners etc.
Usually the fewer the residents in the condo development, the larger the monthly maintenance fees. It is also dependent on what type of condominium development and how large the unit is.
But to quibble over maintenance fees, this means that basically your finances might not allow you to afford a private condominium.
As a private property owner – do expect maintenance fees to go up – it contributes to the upkeep and maintains the value of your property.
For all the traps I mentioned earlier, this is the most important. It doesn’t matter if you can afford a condo and have the buffer even if employment happens.
The problem of buying the wrong condo at the wrong entry price results in a few serious consequences.
Some consequences include:
- lack of property value appreciation due to high entry price
- challenges in exiting from the property without making a loss
- not fully reaping the financial rewards of buying a private property
In an era of low interest rates, people buy property because putting money in property is far better than putting it in a bank. Thanks to inflation, money in the bank becomes less and less valuable year after year.
The beauty of investing in property is that as inflation grows – the property price is also pulled up. Hence property is supposed to be a hedge against inflation.
But buying a wrong property – and all that comes to nothing.
Hence it becomes essential that you consult with someone having substantial experience who has handled many different types of property transactions – from losses to gains.
There are plenty of factors to decide whether a property is the “right choice” or the “wrong choice”.
But ultimately it also depends on your own family’s goals & vision for the future – on the lifestyle you want to design.