How Can Singaporeans Buy A House Without The Bank’s Help

Buying a home is probably one of the most significant investments one can make. It is a critical step into building the family life you have always dreamed of. With the introduction of cooling measures, Singaporeans may need to prepare for a hard time when purchasing their desired homes. This, however, should not deter anyone from becoming a homeowner in the next few years as there are a number of alternatives available like co-investing which could go a long way towards helping millennials or unmarried couples in Singapore.

Many Singapore residents do not enjoy purchasing or making huge investments through bank loans; some fear not managing to pay the lump sum amount while others simply don’t like the idea. Well, these individuals always have to seek alternative means of getting the funds to buy the property. If you’re lucky to have enough in cash, the better for you, but if you don’t have, there are other dubious ways of going about it like borrowing from friends and family. If still not lucky, this article will help you discover various economy friendly methods that could work for you.

Private contract

A private contract is a fancy way of agreeing that you have come to a particular agreement with the seller. It is a form of a deal that you make with the house owner or seller regarding payments that is drafted by the lawyer to become a formal or legal agreement. Landlords looking to purchase properties so that they can sell or rent it out primarily use this strategy. For instance, say you’re a landlord who found an advertisement of a home that has only 25 years to go for the lease to expire. The house costs about S$300,000. You don’t have the whole amount, but the seller is willing to sell it through a private contract.

If you agree to pay S$5,500 each month for five years, you may only need to pay in cash for the first month as your tenants start renting the apartment. After the five years, you’ll have the opportunity to earn a pure profit for the remaining time. However, keep in mind that you won’t evade taxes like the Additional Stamp Duty.

When should you opt for a private contract?

Aside from the example provided above, there are other situations where one may prefer to use a private contract. Such reasons include:

• When the buyer of the home has the cash but has a poor credit rating

Dealing with individuals with poor credit rating is a significant risk. This only means that they’re always delinquent with credit card payments which make the banks decline to offer them loans or may need to pay a huge amount of down payment. This buyer could agree to pay the first 20 percent of the total price and then pay the rest in small installments through the private contract.

However, problems may crop up when the buyer starts defaulting on the installments. Remember they have a poor credit score. If they could fail the banks, why wouldn’t they fail you too? It is therefore imperative that you consult a wealth manager or lawyer before taking such risks.

• When the buyer is a family member or a close relative.

Sometimes, the person who may be interested in buying your home could be your aunt, your parent or your children. Similarly, they may lack the money to offset the cost right away and also not able to take a bank loan or don’t want to, but promise to pay some little amount and give the rest later probably after a few years.

In such a case, a private contract would go a long way towards assisting both parties as verbal agreements are never reliable in a court of law. Emails and text messages cannot serve as enough evidence. A private contract helps you feel secure that the money is paid and that you don’t have to keep nagging them about the settlement—we know how difficult it can get to ask relatives to pay up for something they owe.

• When the buyer does not have the cash but he or she has no problem paying more than the valuation.

Typically, the banks fund up to 80 percent of the entire price, whichever is lower. This means that if the cost of the property is higher than the actual value, the buyer has to fill up the difference in cash. If the buyer is looking to buy a home to live in, that means he or she is not interested in the profits; maybe they’re just blown away by the location and view of the home and willing to pay above the actual valuation.

However, the chances are that they may not be able to come up with the required amount immediately. As a smart seller, you wouldn’t want to lose such a lucrative deal. If you trust the buyer, a private contract will be the easiest way out. Some little background check and research about the buyer could be needed as well to determine the authenticity of the buyer. Some deals may be too good to be trusted, so make sure there are no pseudo before signing the official documents.

Co-investment strategy

If your seller does not like the idea of a private contract then co-investing can be a good deal. Co-investing simply means sharing the cost or joining your funds to make it a lump sum. Individuals can combine their money including the CPF savings and starts investing, rather than wait for several years to have accumulated substantial savings while facing the prospect of the short loan tenure.

The only limitation with this method is that it can only work for the unmarried. If one gets married, they may not be in a position to apply for an executive condominium unit or build-to-order flat unless they get rid of their investment property two and a half years prior. This method also works for close friends or relatives as you will need to seek consent to sell the property in the future. Moreover, if you intend to dispose the investment and marry within the next few years, you must pay for the Sellers Stamp Duty. Therefore, it’s crucial to be careful with this technique.

You may also like to read:

Property Cooling Measures 2018 – 6 Most Important Things You Should Know

Singapore Property Market Trends To Watch Out For In 2019

Getting a resale property without an agent – what you need to know

(By Molly Joshi)

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