Commentary: Before you decide to BTO, have you had the money talk?

SINGAPORE: “Will you BTO with me?” In Singapore, this phrase is a well-known albeit pragmatic and unromantic equivalent of a marriage proposal.

Over the years, the government has released various initiatives to help married couples and families find a flat faster and more easily. Unmarried couples can also apply for flats under the Fiance-Fiancee Scheme but must solemnise their marriage within three months of collecting the keys to their flats.

In an effort to encourage young couples to settle down and start their families earlier, Minister for National Development Mr Desmond Lee earlier this month announced that eligible applicants, including students and full-time national servicemen (NSFs), will soon be able to apply for new flats with a lower initial down payment of 2.5 per cent.

This compares with the prevailing first down payment of 5 to 10 per cent that couples currently must pay under the Staggered Downpayment Scheme, depending on the type of loan taken. The second down payment is due only when they collect their keys.

The move, which will take effect in the next Build-to-Order (BTO) sales launch in June, has generated much chatter online.

Considering that most applicants eligible for this scheme might be in their early 20s, some commentators have voiced concerns about whether they are equipped to make such a major life decision and commitment at such a young age.

Would the lower barrier of entry incentivise them to tie the knot for the wrong reasons? Would they have the financial acumen to navigate the complexities of mortgage loans, down payments, renovations and other housing decisions? Would they have enough savings to do so?

IS S$12,000 AFFORDABLE FOR A YOUNG COUPLE?

Let’s put the numbers into perspective first.

Taking February’s BTO exercise as an example, the selling price for 4-room flats before grants ranged between S$300,000 and S$451,000. This excludes the Queenstown prime location project, where the selling price for a 4-room flat starts higher at S$565,000.

With the 2.5 per cent rate, this means couples might have to fork out between S$7,500 and S$11,275 for the initial down payment.

It would not be surprising if full-time students or NSFs do not have that kind of savings considering their lack of employment history. Some might even need to turn to their parents for help with the down payment.

But as someone who managed to save S$16,000 by tutoring and freelancing to fund my university exchange studies at 19 (my parents stopped giving me pocket money after my GCE A-Level exams), I believe that the amount is achievable as long as the couple work together towards it.

Since the down payment is due within 9 months after the couple has booked the flat, this leaves them with ample time to work and save up the amount needed.

Assuming each individual aims to save S$6,000, they could work several side hustles to accumulate the money. Here are some ideas:

Earning S$20 per hour on a side hustle means they will need to put in 300 hours of work to earn S$6,000 each. If they can teach tuition or edit social media content, that can reduce their hours down to around 150 or even less.

Assuming they work 10 hours a week, it should take them about four to eight months to accumulate the amount.

With enough planning and effort, the couple can realistically pay for the down payment without having to turn to their parents for help.

THE COST OF GETTING A BTO WHEN YOU’RE NOT READY

Now that the money is out of the way, the bigger question is, are young couples ready to make - and commit - to such a major decision?

Even if the couple feels ready enough to apply for a BTO together, their feelings and attitudes may change later on – especially as they enter the workforce and meet new people.

At every step of the BTO process, the stakes are raised and the amount one stands to lose escalates. If the relationship ends after the couple has chosen a flat and signed the Agreement for Lease, they stand to lose their application fee, option fee, stamp duty and legal fees, and their down payment.

Financial losses aside, the couple will also lose their First-Timer applicant privileges (such as CPF grant eligibility and priority) and may get barred from buying or balloting for another BTO flat for a year.

According to a previous report citing HDB, around 1,700 home buyers cancelled their BTO flat bookings in 2020. The annual average cancellation was 2,500 in 2018 and 2019, and 2,300 a year between 2010 and 2019.

While it is unclear how many were surrendered by young couples, HDB said the main reasons for cancellations included “a break-up of their fiance-fiancee relationship, a change in housing plans, or a change in financial circumstances which affected the flat purchase”.

WHEN SHOULD COUPLES HAVE THE MONEY TALK

We each know of at least a few friends or acquaintances who have applied for a BTO with their school flame, only to go separate ways after.

Within my closer social circle of 10 school friends alone, this happened to three of them. Why?

Part of this comes down to how the conversations and relationship dynamics shift significantly after a couple has applied for a BTO. Once such a huge financial commitment gets locked in, the couple inevitably have to start discussing their finances and how to manage the household together.

If the couple had not discussed this beforehand, this is often when the cracks in the relationship start to appear.

Most people don’t realise this, but the biggest financial decision one makes in life is not which property to buy, but who they choose to marry.

Make sure your partner is financially compatible with you. That compatibility is not measured based on your salary or savings - these things can change over time as your career develops - but rather, both of your attitudes towards money and how you deal with the differences.

For instance, my husband is a spender who used to live pay check to pay check. I, on the other hand, am a saver. I learned from young the importance of having emergency funds stashed aside for rainy days after witnessing the financial turmoil my family was plunged into after my mother was retrenched during the Asian Financial Crisis.

When my husband and I discussed our opposite attitudes towards money, we recognised the value of each other’s perspective and realised that we could work together to complement each other’s strengths and weaknesses.

I ensure our household spending does not exceed our budget, while he encourages me to spend on things that frees up time for us (for example, outsourcing our household chores).

As a personal finance blogger, it’s in my nature to have these conversations early. But I’ve observed from many friends around me that these topics are difficult, and most couples try to avoid talking about it until they cannot run from it any longer.

While the reduced initial down payment certainly makes it easier for young couples to start their home ownership journey, they need to ensure they are on the same page financially before doing so.

Dawn Cher, also known as SG Budget Babe, runs a popular blog on personal finance and has a licence in real estate.