Balloting for that BTO flat or shopping around for a resale flat are practically a rite of passage for young Singaporeans about to tie the knot.
Since it’s something so many here go through, people tend to go through the motions without really trying to critically think about what they’re doing. They ballot for the biggest flat they can afford, thank the gods when they finally get allocated one after many unsuccessful attempts, and then sign up for that home loan.
Easy right? Not really. Here are four mistakes too many young people are making when they start the process of getting their BTO flat.
Applying for a BTO flat in an inconvenient area just to increase their chances
Balloting for a BTO flat is a stressful procedure. There are some people who are just damn unlucky and can’t seem to get a flat no matter how many times they try. With this kind of luck, they can forget about buying Toto or 4D.
As a result, you have people getting all kancheong and balloting for a flat in any estate just to try their luck, without really giving much thought to the area in which the new launch is situated.
The problem is that once you actually get the flat, unlike young couples in other developed countries whose first homes are usually a rental, you can’t just move to a new place should you change jobs and discover that you now face a tedious commute from Bukit Panjang to Changi Business Park every day.
For instance, everybody is talking about how the new Punggol estate is so wonderful with its park and river. But instead of just blindly balloting for a flat there, go down, view the area for yourself and most importantly, try taking public transport from the site of your new flat to wherever you are most likely to be working, or to the central parts of town you frequent. When you experience first-hand how your commute will be affected, you’ll be able to make a more precise cost-benefit analysis of living in that area.
And seriously, when they tell you that your flat is “just a five minute walk” from the nearest MRT station or “offers easy access in minutes to the CBD”, take it with a pinch of salt and visit the site for yourself.
Biting off more home loan than they can chew
Despite the fact that Singaporeans are always complaining about how expensive housing is, 5-room flats have proven very popular amongst balloters, despite the low birth rate and the relatively small size of family units.
Many people sign up for the most expensive flat they can possibly afford simply because they feel like they need to “invest” as much as they can in the housing market before prices start rising again.
In 2013, the MAS warned that about 5% to 10% of Singaporeans with mortgages were in fact overstretching themselves.
Even if you don’t actually end up defaulting on your loan, there are many reasons over-saddling yourself with debt is a bad idea. There are numerous reports of how Singaporeans are ill-prepared for retirement, and there’s also the more insidious problem in society of people toiling away miserably in jobs they hate, but feeling like they have no choice because they need the money.
People are always quick to point fingers at the high cost of living, but one can’t help but wonder if many of these folks are bogged down by financial burdens they’ve voluntarily taken on.
Not bothering to compare home loans
I’ve heard many Singaporeans speak of applying for home loans like taking the PSLE—better hope I don’t fail or get rejected, they say. This also means they’re prone to applying for home loans at banks they think are likely to accept them.
That’s not how it should work. In reality, you are the customer and the banks are providing you with a service. So it’s in your best interests to shop around for the home loan with the lowest possible interest rate. You can do this easily using the MoneySmart home loan wizard.
In addition, many people just end up signing up for the HDB home loan because it “sounds” safer and you won’t get rejected, so what could go wrong, right?
In reality, the HDB loan actually offers higher interest rates than bank loans most of the time, which makes it more expensive! On the other hand, with an HDB loan, you pay a lower downpayment and you do not have to pay the hefty 1.5% prepayment penalty that you’ll have to pay a bank should you strike Toto and decide to pay off your home loan early.
Make sure you understand the differences between HDB loans and bank loans before blindly signing up for the former.
Not doing research on future plans for the area
In some ways, Singaporeans are a forward thinking bunch. In fact, it could be said that we are constantly preparing for a tough future. Yet there are still quite a few people who don’t bother to research future plans for an area in which they’re buying a BTO flat.
The future of the area your property is in is going to have a direct effect on the value of your home, as well as your rental yield should you use to rent it out years later.
Just because an area looks super ulu doesn’t mean it will necessarily still be such a wasteland a few years down the road when your flat is ready. The government is constantly building new roads to improve access and revitalising neighbourhood centres with facilities like hawker centres. New malls (in fact too may of them) sprout up all the time, and we are all too familiar with how planned MRT stations can turn a heartland area into a goldmine. Also, your quality of life can be improved by bicycle paths and recreational facilities—I would totally consider anywhere connected by bicycle paths to the city.
Then there are also developments that deter some people from buying homes in certain areas, like industrial parks, workers’ dormitories and old age homes, sadly.
Much of this information is available online in the form of the URA Master Plan, so check before you buy.
Are you currently balloting for your first flat? Share your experiences in the comments!