Getting on the property ladder

OK there has been a lot of cow-beh-cow-bu (whining, moaning & groaning) on the part of Singaporeans about the difficulties that young people face trying to get onto the property ladder in Singapore. Yes Singapore is an expensive city to live in, even a modest flat is going to be expensive - yet this is probably the biggest purchase you're ever going to make in your life time, so how should one approach the challenges of getting onto the property ladder? Really, it is not rocket science, there's far more common sense than you think involved in this process. If you are thinking about making that first step onto the property ladder but not quite sure where to start, here are ten useful points for you to get started with.

Do you wish to invest in property? 

1. Start planning

Too many Singaporeans think about getting on the property ladder as something they will only do when they get married and have priority when it comes to purchasing a HDB flat - but it is something you can start thinking about any time. Property is a decent investment and it is highly unlikely that the property market in Singapore will crash any time soon. Do the maths, the population has more than doubled since the mid 1980s but the supply of housing in Singapore has barely grown given that land space is finite. I am not sure what young working professionals do with their excess income - do you just keep it in the bank or invest it wisely? Or do you fritter it away on luxuries or a car? If you do have some money and are in a position to think about getting on the property ladder, then it is time to start exploring the market. Start thinking about it, talking about it, make some plans.

If you do want to start planning but are not sure where to start even after having read my piece, you should speak to your friends who have managed to get onto the property ladder or an estate agent who would be able to guide you through the various options open to you. Oh and there are so many negative, pessimistic people who will be full of crap about just how impossible it is to buy a property at today's prices. Ignore them - just because they can't do it doesn't mean you can't do it.

Are you just dreaming about it or are you making concrete plans?

2. Go halves - but not the traditional way

The most obvious way to make a property more affordable is to go halves with someone, now this is usually the role of the spouse to step in and bear half the burden. Now with that principle in mind, you can go halves with anyone - a sibling, a parent, a good friend, heck anyone who is in the same position as yourself and would like to get on the property ladder. You just need a good property lawyer to draw up the proper contracts to make sure all parties involve know where they stand and have everything spelt out clearly in black and white.

3. Get help

I remember when I first got on the property ladder all those years ago, I was so determined to do it without any help from my parents because I wanted to prove a point. In hindsight, I think about all the money the bank made off me in terms of the mortgage interest they charged me and if I had gotten a loan off my parents, at least I could've paid that interest to them instead of the bank. Duh. I didn't think that one through, did I? Don't be afraid to ask for help from people in your life - at least let them make some money off you rather than making the banks even more rich from your mortgage business.

Don't be daunted by the numbes... get help!

4. Be prepared to make sacrifices

Once you have decided to buy property, then prepare to make the sacrifices necessary. Plan your life around that financial commitment - for example, do some basic calculations. How much disposable income will you have after you have paid your mortgage? What kind of lifestyle can you have? How much money do you need every month? When money is limited, you have to make hard decisions - such as children. Can you afford to have a child and maintain a mortgage at the same time? Or work: if you want to pay off that mortgage, can you afford to go for that easier job which is less stressful but pays less - or do you have to take on the higher paid but more demanding job?

5. Start looking - it takes ages

You should start looking - it is not a complicated process. It means looking at estate agents' websites and get an idea of the market rates. You need to be able to look at an asking price and be able to tell instantly if it is a bargain, a reasonable price or in the "yeah right dream on, you joker" territory. There are also some estate agents who will tweet new properties who do come onto the market or send out email alerts to prospective buyers.

What kind of home do you have in mind?

You will spend ages looking for the right property - you will often find some places which are quite nice but just unaffordable whilst others which are affordable may not be quite what you had in mind. Like you may hate the look of the kitchen or the view from the living room window may be terrible. The more properties you view, the more you know what you want (and what you don't want).

6. Start looking at financing options and legal requirements 

If you do require a mortgage, then start looking - there are so many different kinds of mortgages out there, with different banks offering different packages. Start shopping around and comparing what is available out there, so you know exactly what you need the moment you find the right property. Also, you will need a decent property lawyer to guide you through the paperwork - ask your friends who have bought properties recently for recommendations. Do this whilst you still have the luxury of time, rather than desperately looking up "property lawyer" on google the day before you need to exchange. Remember, there are good lawyers and bad lawyers out there - so do take the time to ask around to find a reliable one.

7. Start saving up a decent deposit

Even before you have found your first property, you should start getting a decent deposit together. Put it in a high interest account that will enable you access to the funds at short notice the moment you are ready to put a deposit down. The bigger the deposit, the less you need for a mortgage - remember you pay a lot of interest on a mortgage, so the less you need to borrow from the bank, the better. If there is something you can give up, like a car, to increase the amount of money you can save - then it is time to make that cut.

Start saving for your deposit and build up that deposit ASAP.

8. Think about the resale market rather than glitzy new developments

I love the resale market - let me tell you the story about how I picked up my second flat in Chancery Lane at a really good price. The young couple who were looking to sell that flat had found somewhere else and they needed to exchange really quickly as they were going to use the money I was going to pay them to pay for the other flat they had found. To make things even more complicated, the wife was pregnant so they wanted to get this move over and done with ASAP before her tummy got any bigger.

Given they were keen to complete the sale ASAP, I gave them a really poor offer like £350,000. They said, "come on we are looking to sell but your price is too low." I said okay, increased it a little, like by £5,000 - and they said "offer another £10,000 and we will shake on it". I said, "There's another property I am interested in and I am prepared to offer you no more than another £5,000 - take it or leave it. If you leave it, then I am out and will pursue that other property." So I picked up a bargain at £360,000 for a one bedroom in Chancery Lane, 13th floor, great views. I got it independently verified by an estate agent friend of mine who told me if he had been the estate agent for that sale, he would've priced it at £450,000 and would've settled for no less than £425,000 for it and I had indeed gotten myself a real bargain at £360,000.

I pushed hard and got me a bargain. 

I did look at a glitzy new development and oh the corporate marketing suite was so... corporate. I was given free wine, canapés  glossy brochures and was subjected to a sales pitch by an over-enthusiastic saleswoman. I was like, woah, back off - you're coming on way too strong lady! I will decide if I like it okay? Anyway, there would've been no room for manoeuvre for a development like that, but on the resale market, oh yeah you can haggle and bargain.

9. Think about your commute: location, location, location

There's a very practical consideration to your new home - the location. Is it near where you work? How are you going to get to work from this location? How much would your new commute cost you every month? It may be worth your while doing a dry run to see what options there are and which ones work best. I'm not that fond of a commute and if I have to get somewhere in town, I usually try to cycle so I get a bit of exercise in the process. I used to have to get two trains to get to work years ago and that was a pain in the butt to say the least. If for some reason, I missed a connection, then I would be late for work and I hated that journey so much. Do you have the option to work from home if the commute is going to be difficult and take ages?

What kind of commute to work would you like to have? 

10. Try somewhere else. Ayer Hitam anyone? 

Lastly, there's something people do in the UK and other big countries. Obviously, property in a big city like London is expensive - the flat I am living in (ie. the one in Soho, not the one I bought to let in Chancery Lane) is valued at about £500,000. It's a very small one bed room flat. That's the price one pays for having a W1 postcode (one of London's most prestigious postcodes). Now I have read recently that a Queenstown flat has fetched a price of S$1 million - that's the same as my flat. But hey, that's was a freaking executive masionette: it is huge compared to my flat. Executive masionettes in Singapore have 3 or 4 bedrooms along with 2 or 3 bathrooms. I have one bed room, one bathroom, a living room and a small kitchen. The HDB doesn't even build flats this small in Singapore.

Now if I moved to Singapore, with my £500k or S$1 million, I could trade my 1 bedroom London W1 shoebox for a luxurious executive masionette in Singapore with so much more room! So what do young British people do when they cannot afford a property in central London? Simple, they move out of town. You don't have to go very far at all before property prices come right down - as long as you're out of Greater London, the prices collapse pretty quickly. Take Northampton for example - population of 212,000 - it is about 107 km as the crow flies from London and by road, it takes about 90 minutes (depending on traffic). With the fast train, you can get from Northampton into London Euston in just 54 minutes flat. Not bad indeed, I say.

With £500k in Northampton, good grief. I can get a double-storey detached house, 4 bedrooms + a huge garden 0.65 acres. Just think about it - no more freaking neighbours to disturb me, a detached house like that - wow. I shall hold that thought and meditate on it for a moment. Oh but that means being miles away from central London where I actually rather enjoy living. Needless to say, a flat similar to the one I am living in right now would cost around the £100,000 mark. That is 20% of what my flat is worth - making it remarkably affordable compared to central London properties.

The equivalent of Northampton in the context of Singapore would be the town of Ayer Hitam in Johor. From Bishan to Ayer Hitam, the distance by road (provided by Google Maps) is 107 km. Now the thought of moving to Ayer Hitam wouldn't appeal to Singaporeans as Ayer Hitam is a very small and sleepy town famous for only one thing - it is often the first stop for the buses plying the Singapore to Kuala Lumpur route. I remember it from the 1980s and how filthy the toilets were. I also remember eating a particularly spicy bowl of mee rebus with a very sweet cup of teh-si there. But there's no way I'd wanna live there - no offence to my readers from Johor but if I was going to live in Malaysia, I'd pick somewhere like Kuala Lumpur instead.

Let's compare the prices in Ayer Hitam to those in Singapore. A single story terrace house in Ayer Hitam is going for 162,000 RM = S$65,500. The equivalent single story terrace house in Singapore would cost you about S$1.25m.  That means the equivalent house in Ayer Hitam would cost just 5.25% of what it would cost in Singapore. Wow. What a difference a hundred kilometres make. Compare that to Northampton where properties costs about 20% of London prices. Sure Ayer Hitam may be in Malaysia - but so what? Loads of Singaporeans have property in Malaysia (and vice versa) - you just have to cross the causeway and show your passport, it is easy to cross that border and many do so on a daily basis. Property prices can only fall once you get some distance (50+ km at least) from the city centre and Woodlands is just not far away enough - in the case of Singapore, it does mean moving to Johor state, across the border in Malaysia.

This is not a new concept - take Vienna for example. It is a very expensive Austrian city located about 25 km from the Austria-Slovakia border. Before the fall of the Berlin Wall, that would've been where the free West met the iron curtain and that border with Czechoslovakia would have been impenetrable. However, as Slovakia is now in the European Union, loads of Austrians have invested in much cheaper property just on the Slovakian side of the border which is still within 25 to 35 km of Vienna city centre. Why pay so much for a tiny flat in central Vienna when you can get a big house with a garden less than an hour's commute away across the Slovakian border?

Wien (Vienna) is 25 km from the Austria-Slovakia border. 

There are people who actually commute into London from Northampton (by train or by car). Typically, the working parents would wake up early in the morning and make their way into town whilst the children will go to school locally in Northampton and only see their parents when they return from London in the evening. Yes they probably have to spend quite a bit on that commute - but in exchange, they are able to get on the property ladder with ease at 20% of central London prices. I've been to Northampton, it's alright, it's a sleepy little town without much going on. It's not like any tourists ever visit it because there's really not much of interest there to visitors. But that's part of the reason why it is so cheap to buy property in Northampton.

If Singapore is really too expensive for you, then think about Johor - the train connections are good and once you get beyond Johor Bahru, property is so ridiculously cheap. You're merely doing what people in other countries like Britain, Germany, America, Australia etc have been doing for decades - moving into the commuter belt. Perhaps this is an untapped market - I'm sure you could create a little Singapore somewhere just beyond Johor Bahru. You could build a Singaporean style condominium around a decent primary school and secondary school staffed by Singaporeans, teaching the Singapore syllabus. The parents could commute to Singapore for work everyday whilst the children can study locally in "Little Singapore". I imagine that a small, sleepy town like Yong Peng or Ayer Hitam would appreciate an influx of big spenders from Singapore to bring prosperity to their town?

Can we build a "little Singapore" in Johor? 

There you go, that is my ten points for you to consider. I shall finish with a point that is such basic common sense that I wondered if it was worth saying at all, but I shall anyway. Recently, I saw an interview on the BBC about a young couple who were complaining about how hard it was to get on the property ladder and how the government was doing nothing to help people like them fulfil their dreams. The interviewer asked, "What do you do for a living?" The husband replied, "I am unemployed, on benefits. My wife is a full time mother, taking care of our baby."

At which point I'm like, great - so you are unemployed, yet you want to dream about owning a beautiful house? Get real. You don't have a job, yet you want to live like the Beckhams and you expect the government to give you everything you desire instead of working for it yourself? Gosh, this is when I am so pissed off by the fact that my taxes are paying for his unemployment benefits. There's a saying in Chinese: 不劳而获 which translates as "Reap without sowing; profit by other people's toil". I get the feeling that there are so many people out there with a 不劳而获 attitude when it comes to getting onto the property ladder. Property is expensive and it is only going to more and more expensive in a place like Singapore where land is finite - short of trying to reclaim land all the way out to Pedra Branca (now that's a thought), one is literally running out of space to build new flats.

More land for new homes in Singapore? 

So if you are simply not in a position to buy your first property now, perhaps you need to think about how you can change that equation. Either, you have to find a way to earn more money; or you have to find a way to change your lifestyle so you will have more spare cash to put aside for investment. Either way, there's really no point in complaining that you can't afford the more expensive things in life when you are simply not making enough money. I'm sorry if it sounds unsympathetic but such is life - if I had stayed in media, I could've had a lot of fun but there would've been no way I could've afforded a second property. It was only by moving back into finance that I was able to make enough money to afford a second property. In life, we make choices: from how hard we study at school to how far we're prepared to go to get ahead at work - all these choices determine our earning power.

Rather than blaming the government or economic conditions - it is time to take a long hard look in the mirror and evaluate where you stand in terms of your financial situation. The good news is that there is plenty you can do to take control of your financial situation and there are always options open to you - but the more money you have, the better your options. What do you think? Are you looking to get on the property ladder? Or are you already on the property ladder? As usual, leave a comment, let me know what you think. Thanks!

Update! Part 2: http://limpehft.blogspot.co.uk/2012/10/property-season-part-2-get-real.html