The COVID pandemic got me thinking about having my own space with the idea of having one room for sleeping, one for home office with the living room serving as my gaming space.
When the time came for me to get a place of my own, I found that I could not buy a Build-To-Order (BTO) HDB flat because I exceeded the ceiling cap. Therefore, I had to change my plan.
For context, single and middle class Singaporeans are limited in terms of housing option in Singapore. You are only allowed to buy a HDB flat at the age of 35, regardless if it is a BTO or resale. Then, there is also an income ceiling cap of $7,000/month for those who want to buy a BTO. There is the option of buying a private property such as condominiums but they unsustainable in terms of mortgages and other payable fees for someone like me.
So, given the constraint, buying a resale HDB flat was the next best option for me.
We have to remember this one thing. Buying a house is a huge commitment, and it is especially so with the high interest rates and inflation. Therefore, if you choose to buy a resale HDB flat as a single, the first few year could deplete your cash savings if you are not careful.
This is why you need to get your finances in order
And here is the breakdown to help you understand why.
The first step in your house buying journey will see you spend an upwards of $1000 on buying something known as Option to Purchase (OTP), a legal document signed by the seller to reserve the flat for you. This amount is payable by cash only to the seller of the flat. The good news is that this is also part of the overall flat’s selling price. This is done after you and the seller agree on a purchase price (offer price).
If you like the flat, you can “exercise” the OTP and then pay the remaining $4000. By doing this, you and seller officially enters an agreement and you cannot back out. Similarly, this amount is payable by cash only.
After that, you will have to pay up to $200 worth of fees to HDB. The breakdown goes like this: $80 for HDB application and $120 for HDB valuation request.
In my case, I had some other bills, left over from the previous year, to pay and I was struggling with a budget deficit for 2022. Therefore, paying all those money was a huge struggle for me. A major re-evaluation of my expenses was required.
Depending on the valuation issued by HDB and the offer price you made, you might find yourself in the situation where the offer is higher than valuation. This means that you have to pay the difference to the seller with your own cash and not payable via other means. This is known as Cash-over-Valuation (COV) since the banks will only consider the valuation price when they prepare the mortgage loan package for you.
If you happen to make an offer that is lower than the valuation, it is to your benefit. Sadly, that wasn’t my case as I had a COV of $20,000.
It threw my plans into complete disarray. I simply didn’t have the additional cash to pay for that. As I found a unit that my family and I loved, the next step was clear. I had to borrow that $20,000 to supplement my existing cash stash, the latter of which is to pay for the 5% portion of the valuation price. But, I also consider myself lucky as there are stories of people paying COV of up to $50,000.
As for the remaining amount, your mortgage from the bank and your CPF will be used, making up 95% of the offer price (75% from mortgage, 20% from CPF). This is where you also need to consider if your CPF has sufficient funds to also pay the Stamp Duty (a type of property tax) and legal fees.
With all that said, there is also commissions to be paid to the property agent who you might have engaged to help you to handle the paperwork.
Given my experience and the state of the property market in 2023, I would recommend that buyers set aside about $80,000 in liquid cash to buy a resale flat. And, it is important to remember emergency funds are not and should not be part of that $80,000. So, if you intend to have an emergency fund of $50,000, you will need to save up nearly $130,000 in cash.
In hindsight, this is also probably why setting the legal age to buy a HDB flat as a single at 35 years old is a good thing. This gives you time to build up the savings.
But, if you like to buy a BTO, then you will need to keep your monthly salary below $7,000 up to the day you actually get the flat.
Renovations do not come cheap either. If you have read Singapore news on renovation cost, you will find that homeowners pay up to $100,000 or more to create their forever home.
In my case, I decided to do some light renovation work as the unit was very well maintained by the previous owner. And my requirements were simple.
Oh boy, am I completely shocked by the amount of money I need to spend as well.
The first step was to replace the doors in my house. Depending on the material, the design, the type of locks, and the number of doors, the final cost can come out to be around $6,000 to $7,000. In my case, it was under $5,000 as the reseller gave me a bundle deal. And the best part was, my brother-in-law and sister were with me. They were equally shocked by the price tag.
I also went to looking for contractors to do electrical work as the existing electrical wiring and sockets were old and falling apart. The rough figure the contractor quoted me for a full house rewiring, socket and switch replacement and other electrical work is approximately $4000. And that’s excluding the installation of data ports and related network cables. A rough napkin calculation told me I need to set aside $6,000 for these two works.
And if you need house painting services, those can cost approximately $1,800 (or lower depending on the contractor).
With these costs, it actually got me to rethink whether I want to continue with other renovation work for 2023.
If you intend to enjoy your home, furnishing is important as well. This is something I’ve done only a basic research by browsing Ikea’s catalog. A quick napkin calculation for a 48-inch OLED TV, some Ikea shelves, a standing desk, chairs, a sofa and a bed can easily cost me up to $15,000.
And I have not even consider other things to buy such as kitchen appliances and kitchenware…
I hope you can understand now why you need to keep your debts low and have a good cash liquidity if you plan to get your own place. If you have not start saving money and have no intention of getting married, it is a good time to start saving and building your wealth now.