Planning for Your First Property – Part 2

May 17, 2020

In the previous article, we examined the 4 main pillars of buying your first property:

 

1. Mortgage  

2. Renovation

3. Furniture and appliances

4. Property tax and insurance

 

Having covered mortgage and renovation already, we now delve into the remaining two pillars. Following a brief description of furniture and appliances, we then discuss the various financing methods available and provide our take on which method is best. Finally, we give a quick 101 regarding the most important bits that you need to know for property taxes and insurance.

 

 

 

 

 

FURNITURE AND APPLIANCES

Furniture and appliances are household essentials – they are absolutely necessary for us to live comfortably and efficiently in our homes. They are household essentials that turn your house into a home for living. Apart from serving functional uses, the right design and combination of furniture and appliances will accentuate the aesthetic appeal of your house.

 

So, what are the various methods of paying for them?

 

 

1. Bank Loans

For this purpose, a bank loan can come in two forms – a furnishing loan or a personal loan. It is necessary to highlight that a furnishing loan is distinct from a renovation loan, that is, you cannot use the funds disbursed from the latter to purchase that Milo Baughmann-esque swivel chair from luxury Italian brand, Marioni.

 

Furnishing loans are not offered by all banks, for it may be deemed superfluous. Personal loans, as do furnishing loans, provide quick and effective relief for negotiating a tight financial corner, but typically come at higher interest rates. Ultimately, bank loans, though effective, are forms of debt only taken on after careful consideration of your current and predicted financial health.

 

 

2. Financing (installments)

Payment in installments allow a purchase of furniture or appliance to be paid for in tranches over the course of months (or years). Some merchants, in order to increase their competitive advantage, even offer interest-free arrangements, all in an attempt to entice you to breaking your budget. Make no mistake, if your furniture budget is $5000 and you spend $7000 instead, it is still breaking the budget whether you pay upfront or $700 per month for 10 months.

 

An installment plan is a double-edged sword that is effective if used as part of a thought-out financing plan, but downright hazardous if used to “afford” a frivolous purchase. To put it simply, breaking down a $5000 bill into a longer period is beneficial if for the management of cash flow, and if it does not burst your budget.

 

3. Cash

This simple form of transaction is useful for those who have a substantial form of liquid assets and savings. The idea here is simple – why take on more debt if not absolutely necessary? That being said, do ensure that you have a significant emergency fund too before committing to upfront payment, and the last thing you’d want is to be unprepared for life’s inevitable curved balls.

 

 

So, which is the best method of the 3?

Ultimately, as with most things in life, the cliched “it depends” surmises. Each method holds its own merits but is suited for differing preferences as well as financial situations.

 

Bank loans are useful for those who want to improve their credit score and have comprehensively considered their future inflows/income to be sufficient to pay off the debt. They may benefit from rewards and points that come with doing business with the bank, and this could even constitute as “rebate” to offset a hefty furniture/appliances bill.

 

Installments can be beneficial for those who do not have a healthy credit score, or for those who prefer the repayment and installment structure of the particular plan (as opposed to that offered by banks).

 

Cash, as mentioned above, is most suited for those who are highly liquid and have deep emergency funds prepared. Paying for cash can have implicit benefits too in that it forces one to be more prudent in his/her choices – it is easier to get someone to think twice about a $7000 QLED television set when he needs to cough out cold, hard dollars!

 

 

PROPERTY TAX AND INSURANCE

 

Property Tax

As of the latest information found on iras.gov.sg, all residential properties shall be taxed on a progressive scale, that is, higher tax rates with higher annual property values. We will use the case study of a 5-room HDB flat to study the tax calculation method.

 

The following is an example of the breakdown of a particular annual value band (www.iras.gov.sg)