Affordable Housing

This month will mark the 2nd year since I applied for my BTO. Having just visited the location and seeing the building at mid-stage of completion, I wanted to pen down some thoughts regarding my financial housing journey.

For us, our future home was in a mature estate with a good location and was thus “expensive” for a BTO. I remember being quite anxious about the overall quantum we had to pay, since we had only just started working.

I had calculated that based on our combined salary then, even after CPF deductions we would be facing a negative cash outflow when the house arrived. Yikes!

Desperate to avoid this, I formed a plan to rein in our mortgage by increasing our down payment. Our goal was to bring the monthly mortgage payable to under our monthly CPF-OA contribution.

During this time I read many commentaries online that advocated either paying down as much as possible or paying down as little as possible and investing the rest. There are well written pros and cons to both, but like any advice, you have to tailor it to your own situation and personal circumstances.

For me the second strategy made more sense, as a fully paid off home has no cash flow, and there are many ways to save on interest in the future including partial payments. Besides, the interest savings on a BTO is not as significant, especially if you intend to flip it at some point. Thus, I had to strike a balance between paying down and reducing the mortgage and keeping enough dry powder to constantly invest.

To do so, my rule was to treat only the asset price of the house as the investment component. Thus we paid for the option fee, stamp duty and optional components in cash. I remember at the time this meant a having to make difficult decisions for fund allocation.

Looking at our finances right now, our combined CPF-OA balances equate to about 13% of listed value of the home. Which should mean that we are on track to paying off close to 25% of the value of the house when it arrives (including 5% already paid). Based on this figure, it would also bring our monthly mortgage to below our CPF-OA contribution with some change to spare.

Along the way, it really did help that we experienced wage growth which allowed us to grow the CPF-OA contribution, but this does not detract from the fact that we had a plan and stuck to it.

While I always advocate for couples to buy homes within what they can afford, I think it’s also important to have game plan on how to afford something and looking at the value of the item rather than the absolute price.

Understanding the value of what you are buying is also very important. I know of couples who bought relatively cheaper flats but are dragging their feet moving in as the location is not as prime and with fewer amenities in the vicinity.