Singapore may have avoided a technical recession so far in 2023, but will we be able to avoid it forever? If you are about to get your first property, a recession can be a bane to your housing affordability. That’s why we are here with some useful tips for those of you who are getting your first property amidst an impending recession.
1. Hybrid Work Is Becoming The Norm
The past few years of battling COVID-19 have been tough. However, there was some good that came out of the pandemic. One of them is the paradigm shift in mindset that work doesn’t need to be done in the office. In fact, many companies have started embracing hybrid work schemes where you only need to be physically in the office for 2 to 3 days a week.
City fringe areas are known to be expensive because of the proximity to the Central Business District (CBD). But since going to the office is now more of a “part-time” thing, living in city fringe locations may not be so important anymore. This means that, as a potential homeowner, you can widen your housing search to include non-city fringe areas which tend to be much more affordable. This will help you better manage your housing budget, especially with property prices on the rise since COVID-19.
2. Keep Your First Property Affordable
One of the causes of recession is the rising interest rates, which is a mechanism that central banks around the world adopt to put some brakes on the overheating economy. Raising interest rates has a spill over effect to both existing and new home buyers as this leads to a higher cost of financing when you are applying for your home loan (aka mortgage).
While there’s no way to stop central banks from raising interest rates, there are things that you can do as a home buyer. Firstly, make sure that you do not overleverage. In simple layman terms, overleveraging means that you get credit (i.e. loans) that are way beyond your means to repay them.
The Monetary Authority of Singapore (MAS) has already implemented a blanket cap of 55% as the Total Debt Servicing Ratio (TDSR). This means that you cannot have more than 55% of your monthly income be used to repay existing loans. If that happens, you cannot get new loans, including car, home, and credit card loans.
Thus, you should keep a close eye when buying your first property so that you do not overstretch yourself on the TDSR. Otherwise, you will find it implausible to get a loan for other necessities in your life. And the best way to do that? Make sure that your first property is within the affordable range based on your current (READ: NOT FUTURE) salary.
3. Don’t Forget About Renovation Costs
Homeownership is not just about the cost of buying the property that you are staying in. Let’s not forget that there are still “hidden” costs associated with buying your first home. One of the big ticket “hidden” item is the cost of renovation. This is especially true in post-COVID times when many interior design companies are lamenting about the manpower and labour shortage.
On average, you can expect the renovation costs to be around $10,000 for each room you have in your home. The average cost of renovating a 4-room flat will be around $40,000 to $50,000. And if you want more fancy add-ons, then it’s going to cost you more. Therefore, learning to manage your renovation costs is important.
You may be tempted to get a renovation loan, but try to avoid getting too many loans if you can. Instead, what you can do is to carry out your renovation in phases. You can start with the foundation works first like flooring and tiling as well as the carpentry works like build-in cabinets. The rest of the furniture that are not so important can come at a later time when you have more cash on hand.
4. Tackling The Time And Cost Conundrum
As the saying goes, time is money. This is especially true when it comes to buying your first property in Singapore post-Covid.
Build-To-Order (BTOs) are the most affordable housing option for first-time homebuyers. However, getting a new home now means that you need to wait 4 to 5 years before your home is ready, compared to the 3 to 4 years before COVID-19 struck. Should you then consider a resale HDB? Or maybe an Executive Condo (EC) or private condo new launch?
Firstly, resale HDB prices are rising because of the delays in BTOs. Homebuyers are switching to the resale market instead so that they can move in earlier. If you can afford the wait, going for BTOs do make more economic sense.
And what about condos? The reality is that the availability of ECs are quite limited, unlike resale HDBs. And private condos have a much larger supply than ECs. But the downside of condos is that, although they are built faster and bring more resale value, they are unfortunately expensive to begin with. Not everyone will be able to afford a condo, especially with the 55% TDSR limit.
5. Learn To Manage Your Home Loan
While you can’t control over how central banks are adjusting interest rates, there is one thing you can do as a potential homeowner. You should learn how to manage your home loan so that you get the best deals in the market.
For instance, most home loans have a lock-in period of 2 to 3 years. This means that, once the lock-in period is up, you are free to switch your home loan to another bank without any penalty. The good thing about that is that you may find yourself able to reduce your monthly loan repayment since you now have the opportunity to switch to a loan package that offers a lower interest rate.
And if you are not familiar with how to find the best home loan deals in the market, be sure to engage a mortgage broker like Mortgage Master. At Mortgage Master, we know the latest home loan packages in the market and sometimes can even offer exclusive interest rate packages that you cannot get directly from the bank. If you're looking to purchase a new property, or refinance your existing home loan, fill up our enquiry form and our mortgage consultants will follow up with a call.