The Great HDB Resale Flat Hunt – Part 2: The Noobs Guide 2013

HDB Concrete Jungle

Somewhere lies your perfect home

Lorong Cat - Singapore's Literate FelineBy Lorong Cat

The Great HDB Resale Flat Hunt is a 3-part blog post tracking the trials and tribulations of a first time flat buyer in her search for an affordable abode in Singapore. Part 1 stitches together the journey, sometimes bewildering and exhausting, of the search process. In part 2,  the author shares her two cents worth of advice and lessons learned to anyone who might fancy it. In part 3, she spills the beans on some quirks of HDB living.

Part 2: The Resale HDB Flat Noobs Guide 2013

I was living for a dream, loving for a moment

Taking on the world, that was just my style

Then I exercised the OTP, I could hear you whisper

The search is over, lovely flat right before my eyes

– Lyrics from The Search is Over by Survivor

I hope you’ve stayed with me in Part 1: The Search Begins where we learnt from Shakespeare that a good location not only inspires creativity but is also good for romance. I also promised to dish out some pearls of wisdom picked up from my own little drama of flat hunting The Bard would have found useful for one of his comedies. Like our literary hero, I live in a humble abode so this largely applies to HDB resale flats.

1. Dreaded Acronyms

I was totally bamboozled by the myriad of acronyms when planning the purchase of a resale HDB flat. Here’s a glossary to help you get started.

HLE – HDB Loan Eligibility Letter

This is the housing loan approval letter from HDB given to the buyer. It is valid for 3 months during which you must submit the resale application. The advantage of a HDB loan vis-a-vis a bank loan is that you do not need to put out the 5% cash downpayment required by the latter. It will instead come from your CPF account. Interest for HDB loan is fixed and is currently higher than floating bank interest rates. You can work out the pros and cons.

Tip: Prepare the application for HLE or bank loan in advance. We heard of cases where deals have failed to go through after buyers failed to obtain a loan.

COV – Cash Over Valuations

This is the dreaded cash outlay sellers require on top of the valuation of their flats. This also represents the component of the total sales price that is elastic to prevailing economic conditions. For example, with the spate of cooling measures introduced by the government, COVs have reportedly dropped in some estates.

Tip: This is cold hard cash payable to seller. Negotiate wisely and study the prevailing COV amounts for similar flats. Some sellers expect a higher COV to justify expensive renovations — I disagree with this. I pay for the flat, not someone else’s extravagant tastes which may not be inline with mine.

OTP – Option To Purchase

Once you have decided on a flat, you first place up to $1,000 cash with the seller in return for an Option To Purchase which can be exercised any time in the next 14 days. This is provides the buyer time to consider the purchase and back out with the forfeiture of the $1,000 if necessary, and also to make sure his loan is pre-approved. Put simply, it is some kind of buyer protection. During this 14 days, the seller cannot sell the flat to another buyer.

Tip: $1,000 is insignificant in the grand scheme of things when you are talking about a property worth hundreds of thousands. Do not be afraid to let go should there be doubts or uncertainty regarding the purchase.

TOP – Temporary Occupation Permit

This is a permit to allow owners of new flats to move into the property. It marks the beginning of the occupancy period. TOP is relevant with regards to the calculation of a flat’s age and first owner’s fulfilment of the Minimum Occupation Period (MOP).

Tip: Say “When is the TOP for this flat?” in front of agents and flat owners to gain some street cred. Also appear in the know when someone says “This flat TOP in 2008” (means the flat is 5 years old in 2013)

MOP – Minimum Occupation Period

Under existing HDB rules, owners need to fulfil a Minimum Occupation Period of 5 years before they can sell the flat or rent it out.

Tip: You are going to live with the flat for 5 years! Choose wisely but it is 5 years, not 50 years. Don’t spend a lifetime agonizing over it.

2. Use of an agent

Some buyers choose not to work with an agent. Agents typically charge buyers 1% of sale price. For a property worth $500,000, that is $5,000, not an insignificant sum.

Agents can help buyers source for flats, arrange viewings and in some cases, provide advice during viewings with their trained eyes. Those experienced in negotiations may help work out a better deal with seller than if you handle the sale yourself. Agents also handle all the paperwork, a godsend if you are pressed for time and cannot afford any screw-ups.

On the flip side, agents have the incentive to push buyers towards a quick decision to save themselves further work.

We used an agent because we are greenhorns with buying property and also because it is easier to have a proxy to help us locally when we are based in London.

During flat viewings, our agent provided us with useful advice concerning orientation, quality of renovation (did you know there are like 10,000 types of floor tiling?), western sun and wind direction effect and fengshui. Of course the quality of such advice varies from person to person.

Our agent was also able to suss out the selling agent and tell us his confidence level of clinching a deal given our offer. This removes the emotional element from the picture and increases the efficiency of the negotiation process.

3. Negotiations

I read some books on negotiations prior to The Great HDB Resale Flat Hunt. Rule number 1: Everything can be negotiated. Rule number 2: A win-win situation should always be the aim. If both parties walk away from the negotiation table, it does not serve either party any good and each is left worse off. Negotiating parties should try to meet in the middle. Rule number 3: Do not get emotional. Bargain on interest, not position.

So on and so forth. Every US President’s administration has a negotiator qualified in game theory, statistics and probability studies.  Negotiation is not BS but a science and an art. Get someone on your side who is experienced and not emotionally attached to the situation to help you negotiate with the seller. Agents are good but some get help from their parents too.

We have had offers rejected and our initial reaction was to go nostrils flaring and screaming “Up yours” to the sellers who demanded a much higher COV than what we thought the flats are worth. On hindsight, that was immature and I will continue to be a student in the art of negotiations for other matters in my life.

4. Mind Games a.k.a. “Bring Check!!”

Some selling agents can be aggressive. Before a viewing, they call to issue an ultimatum:

“Bring your $1,000 check and be prepared to offer on the spot, or risk losing the property to my last offer of $XXX.”

Once you are there, the agent proceeds to show you a chat message on his phone which says “I would like to offer $XXX for this flat at blk XX, unit YY” and threatens to let go of the unit unless you provide a higher offer on the spot.

Frankly, this pisses me off and I have held back from considering the apartment favourably because of that. Right, we shouldn’t get emotional while assessing a property for purchase but at the same time, many first time buyers also rely on their intuition and “feeling” when evaluating a unit. How does aggressive pressurizing help to attract buyers?

Tip: Agents who do that could well be bluffing. Call their bluff. Do not yield to mind games.

5. Should we wait for prices to fall?

During The Great HDB Resale Flat Hunt, I keep getting well-meaning advice from friends to “wait for prices to fall”. My dad has this story to tell. One of our neighbours sold off his property in 2010, moved his whole family into a smaller place as he felt the bubble was going to burst. Three years on, prices for the cluster of units in the vicinity has gone up another 30%. On the other hand, in 2011, I had the same advice from seemingly well informed friends who forewarned of a property market crash.

Whilst I cannot predict whether property prices will fall or not in the next year, I can share real stories of how sellers of flats I made offers for pulled out of the sale entirely due to the depressed prices resulting from the recent property cooling measures. In London, post 2008 recession, number of property sales sank to an all time low as property owners choose to rent their houses out instead of selling for the same reason.

When prices are depressed, you cannot expect to always swoop in and grab good units at cut-throat prices. Seriously motivated sellers in dire need to sell will bite the bullet but not those who have holding power.

Elderly figures who have bought and sold properties multiple times advised me that shrewd timing may bring some gains from small cycle variations. Over the long term, asset prices in a politically stable country such as Singapore will almost always rise. If your financial situation allows, just go for it!

6. Ah Long and other dangers which may lurk in HDB resale flats

Many HDB resale flat buyers worry about inheriting a flat with unexorcised Ah Long grievances. You can only minimize the risk of falling into this trap. Visit the targeted unit at different times of the day and at night to look out for harassment activities. Watch out for fresh paint coatings along the corridors, smells of turpentine and sticky tape marks. Look for a chance to greet and observe next door neighbours although that may make you look like a stalker.

What I like to do is to chat with the current owners and find out more about them. Some owners are chatty and tell you a lot about themselves. Heck, some even honestly tell you how warm the rooms get from the western sun! (I appreciate the honesty). It helps if you hit it off with them and have common topics to talk about. Others keep to themselves and may be difficult to read. Rely on your own judgement.

7. No two units are the same with numerology, orientation, feng shui and sixth sense!

This is my personal opinion: no two units are worth the same even if they are next to each other on the same floor with the same interior design and furnishings. Why? Every unit has different facing (maybe a matter of degrees but still different), unit number, height, orientation and neighbours. Most importantly, some people claim to be able to “feel” vibes when stepping into an apartment for the first time. I do not dispute that.

Therefore, do not blindly compare COVs or valuations between units across blocks, levels or on the same floor. Even valuation reports which are supposedly unbiased sometimes throw up different figures for adjacent units!

Your perceived value largely depends on the factors important to you. Some people do not like the number 4 in the unit number. Others insist on a certain direction facing of the unit. If you have particular personal concerns, do price it in and allow for some flexibility in the COV to accommodate your preferences.

Bringing advisors to lend opinions during flat viewings can be helpful but in my experience, can lead to issues as well. How are you going to deal with feedback from a relative who tells you that an innocuous lamppost facing the unit brings bad luck? You cannot ignore such advice especially if it comes from someone you respect. It might also cause offence if you choose to overwrite his or her concerns raised. My advice is to rely on your own judgement and inform any advisers beforehand that you have budget and time constraints and might or might not take in their recommendations.

In Part 3, I share some quirks of HDB living observed from all these flat viewings!