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Picking the Perfect Love Nest: Navigating the Maze of Matrimonial Properties

As you embark on the journey of marriage, finding the perfect matrimonial property becomes a significant milestone. Choosing the ideal love nest involves a delicate dance of budget balancing, lifestyle matching, and long-term financial wizardry. This week, we will explore different alternatives to Built-to-Order (BTO) flats, ranging from resale HDBs to condominiums and Executive Condominiums (ECs). We delve into the debate of freehold versus leasehold properties and uncover the perks of owning a home versus being perpetually trapped in the renting rat race.

Resale HDBs: Traditional and affordable

Resale HDB flats offer a wide range of choices in terms of location, size, and design. These properties are readily available in established or mature neighbourhoods too, providing proximity to amenities such as schools, shopping centres, and public transportation. Resale flats also offer flexibility in terms of customization and immediate occupancy. Furthermore, they are generally more affordable compared to the below property types, making them a popular choice among newlyweds looking for a cost-effective option.

Condominiums: Upscale living and amenities

If you desire a more upscale and luxurious living experience, purchasing a condominium might be the right choice for you. Condos offer an array of facilities such as swimming pools, gyms, and security services. They are typically located in prime areas and offer a higher level of privacy and exclusivity. However, it’s important to note that condo living comes with additional costs, including monthly maintenance fees. Considering your long-term financial goals and budget is crucial when deciding whether a condominium is the right choice for your matrimonial property and combined finances.

Executive Condominiums (ECs): The best of both worlds

Imagine a delightful housing option that perfectly fits the needs of middle-income Singaporeans caught in the ‘sandwich class’. They find themselves exceeding the income ceiling for a HDB flat, while the extravagant world of private condominiums seems out of reach. Enter the wonderful Executive Condominiums, affectionately known as ‘sandwich flats’ due to their unique blend of public and private housing.

Compared to their lavish private condominium cousins, ECs proudly wear a more modest price tag. They provide an enticing option for those seeking a home that not only suits their financial constraints but also guarantees a lifestyle that doesn’t compromise on quality. With ECs, it’s a tale of getting the best of both worlds — living comfortably within one’s means while enjoying a range of amenities on par with private condos.

ECs come with certain eligibility criteria and government subsidies, such as the CPF Housing Grant. These subsidies can significantly reduce the financial burden and make owning an EC more accessible to eligible buyers.

One of the unique features of ECs is their transition from a hybrid of public and private housing after 5 years, to fully privatised properties after 10 years. This potential privatisation unlocks opportunities for capital appreciation and increased property value over time.

Over time, ECs have shown the potential for capital appreciation as the properties gain fully-privatised status. The increasing demand for ECs, coupled with the limited supply, contribute to value appreciation, making them an appealing long-term investment option.

Read more: How to Decide Between an Executive Condo and Private Condo

Freehold or leasehold: weighing the pros and cons

Freehold property grants indefinite ownership in Singapore. It comes in two types: “Estate in Fee Simple” and “Estate in Perpetuity.” Estate in fee simple represents an unrestricted form of freehold ownership, whereas estate in perpetuity is bound by conditions stipulated in the State Lands Act, including the state’s authority over the land.

Leasehold property provides temporary ownership through a lease agreement. Lessees hold the right to use and hold the property until the lease expires. Once the lease ends, ownership reverts to the state.

Freehold properties command higher prices due to limited supply, potential for capital appreciation, and greater owner autonomy. The choice between freehold and leasehold is subjective, with leasehold properties being more affordable and appealing to those seeking lower financial commitment.

The primary distinction between freehold and leasehold condos is that freehold condos offer indefinite ownership, while leasehold condos have a limited duration tied to the lease. Leasehold condos have a countdown timer, gradually diminishing their market value over time.

Banks offer higher loan-to-value ratios for freehold properties, considering them safer investments than leasehold properties. This allows freehold buyers to borrow more against their property value compared to leasehold buyers.

There is a prevalent misconception that freehold properties are immune to government acquisition and can be held indefinitely, passing down through generations. However, it is important to recognize that the freehold status of a condo does not guarantee its permanence. In Singapore, limited land space necessitates constant adaptation and change.

Freehold developments are also not exempt from being put up for en bloc sales. If a developer seeks to acquire your freehold condo through an en bloc sale, the sale can proceed if a majority of residents agree to it. As a homeowner, you will be compelled to sell your property.

Another point to note is that while freehold properties usually command higher prices due to higher perceived value, they do not always translate to higher market value. In the same location with similar amenities, a freehold condominium typically commands a higher value than a leasehold condominium, but this is true only when the leasehold property has less than 78 years remaining on the lease.

If the leasehold condo has more than 78 years remaining, its value is typically on par with a freehold condo. However, once the lease reaches the 78-year mark though, its value begins to decline.

The difference becomes more pronounced when the lease has only 40 years remaining. At this point, banks impose restrictions on financing the sale of the unit, and with 30 years left, potential buyers cannot use their CPF to fund the purchase.

Rental yield is the annual rental income divided by the total property cost. This means that with the same rental income, a more expensive property results in a lower rental yield.

Tenants typically seek factors like price, location, and comfort when choosing a rental unit, rather than focus on the property’s lease. Hence, leasehold and freehold condos in the same area with similar amenities often command similar rental prices.

For investors seeking better rental returns, opting for a leasehold condominium in a good location may be a more favourable choice.

The prudence of buying over renting

Buying a matrimonial property offers several financial advantages over renting. Firstly, homeownership allows you to build equity over time, providing a valuable asset and potential source of wealth. Additionally, fixed-rate mortgage options can offer stability in housing costs compared to fluctuating rental prices.

Owning a home also grants you the freedom to personalise and modify your living space according to your preferences. Furthermore, various government schemes, such as the CPF housing grants and housing loans, can significantly ease the financial burden of purchasing a property.

Assessing your financial capability is crucial when determining the affordability of your matrimonial property. This involves carefully considering factors such as your combined income, existing financial commitments, and the eligible loan amount.

It’s important to establish a realistic budget that accounts for down payment requirements, monthly mortgage repayments, property taxes, and maintenance costs. Seeking guidance from a professional property agent can be beneficial in this process.

Read more: The Complete Guide to HDB Grants for Couples

This article was originally published on Ohmyhome.

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