For those of you who are considering purchasing a HDB flat, ape has no advice for you since ape is no property guru. However, the following was what went through ape's mind when he embarked on the journey of "owning" a property. (BTW, one doesn't really own a HDB flat since it's only good for a maximum of 99-years lease, that is, if you live long enough, the flat will be returned to HDB and you won't get a single cent in return)
The first thing that got into ape's mind was the objective of purchasing a property. What was ape buying a property for? To speculate and earn money or what they call "investment"? To live nearer to ape's workplace/parents/mistress (oops)? Or simply wanted a place to stay and able to declare "Welcome to OUR humble abode"? Well, it's all a bit of the above (and perhaps more for others) but ape set priorities and put "A place to stay and call our own" at the top.
Listing these objectives is important because they would eventually shape the choices and availability of the property ape were looking for. Therefore, with the priorities set, certain options such as "renting a property" or "staying in parents place" were ruled out.
HDB or Private?
First off, private property was (and still is) out of the question. Ape's income simply could not afford one. So ape turn to HDB. Ape didn't think further than affordability then. However, ever since, ape hears a lot of advice to make HDB your first property, even if you could afford private property. One of the reasons is that, should you ever wish/need to switch from private to HDB, it will be very difficult and it's not about affordability. Ape will leave that to the experts to explain.
Direct or Resale?
But then hor, should ape buy direct from HDB (supposedly subsidised?) or from the open market? Since ape was a first time buyer, ape can still enjoy a certain amount of grant ($40K then for a 4 room HDB flat) which more or less made the differences between direct and resale flats close to neglible - as far as $$$ is concerned. Eventually ape chosed buying resale for the following reasons:-
1) New flats were developing in places too far from parents (hey! ape still want to visit parents regularly hor!)
2) New flats were developing at areas not close to MRT (hey! ape no peanuts for private transport hor!)
3) Ape has to wait for a couple of years before the new flats are complete (hey! ape was getting married hor!)
To put it another way is that there's more flexibility in getting a resale flat instead of purchasing direct from HDB.
Where and Affordability?
So ape zoomed in on our requirement, that fulfilled our needs and start checking out the prices of resale flats in areas (near parents and/or MRT stations) to get a feel of "market rate". Next, of course is affordability. With our paychecks, we can afford a 5-rm or EC HDB flat but we decided against it. For the following reasons:-
1) The floor area for 5 room is big...which means we'll have to sweep more often, mop more often, pay higher Service and Conservancy Charges. BTW, Town Councils' Sinking Funds investments were not known and rebates base on flat type was also not popular then. So when all those news came out, ape said "Heng ah! Lucky I never buy 5 room flat!"
2) Whatever that went into our CPF would be utilised to service the housing loan... for the next 30 years! What? Did someone say "But your money just sit in the CPF cannot use for other purposes?"
But ape thinks simply, mah!
Firstly, can anyone guarantee that ape will keep his job for the next 30 years? On top of that, his income will at worse remain stagnant and will never decrease? Last time ape checked, no one gave such guarantee.
So how much can the ape afford? We estimated on this basis:- the monthly installment to furnish the housing loan should preferably be around 50% of our monthly CPF Ordinary Account (OA) contributions and not more than 75%. You'll need to do a bit of reverse engineering to establish what should be the purchase price of the flat. Other things ape had to consider was exactly how much loan would ape be taking? The loan cannot be more than 90% of the purchase price and cannot include any Cash-Above-Valuation (COV). On top of that, your initial CPF would be wiped clean first. (Ape will probably explain this in more details in the next post... but then again, ape thinks you shouldn't be lazy...so go HDB to find out the latest updates)
Why did we pick this figure of 50% of our CPF OA? Since no one can gaurantee that we could keep our jobs for the next 30 years, ape had to prepare for the worst - that is in case ape or wifey or both of us had been out of job! Let's say if ape was out of job the very fist month when he start furnishing his loan... where can he find the money? Not forgetting CPF already wiped clean. From his own savings, right? Then who's going to pay for S&CC, utilities, bread and butter? However, since ape applied the "50% rule" and if the ape was able to hold out for say 3 months before losing his job, he would be able to furnish the housing loan for another 3 months, right? The longer the ape keep his job, the longer he'll hold out if he loose his job. Boleh? In fact, if ape could afford it, he would not even want to stretch his loan for 30 years... the longer you loan, the more interest you pay!
So far,we're still on housing loan. We had to consider the cash sum, too. Thnigs that cannot be paid by our CPF, including Cash-Above-Valuation, property agent fees (if you're getting one), renovations and furniture. All these have to be worked out before one actually commit to purchasing the property.
So after working out our objectives, setting our priorities and calculated our affordability, the rest was a breeze - find a place that we like, give and take a bit base on priorities and make an offer within our affordability. Seller not impressed? Move on and find the next.
We got our first home within 3 months...I think. Had been staying there happily since. So why sell now? Well... objectives changed (or perhaps not) but priorities certainly changed but ape will tell you more next time.