Summary
Without holding power, you may be forced to sell before the profitable point.
Having an emergency fund lasting at least 6 months of instalment payments will help you shield against crises like the pandemic.
EC upgraders should take into account the higher instalment payment in the private property market.
Article
During the pandemic, many recent purchases of private property may feel that they have overstretched their budget, especially if they have recently been retrenched. As a self-employed person, my income is never consistent which has spurred me to practise judicious money management. On the other hand, an employed person enjoys consistent income every month which may lead to a higher willingness to pay large instalments.
The most important factor in a property purchase is holding power. Without holding power, you may be forced to sell before the profitable point, just to receive money during an emergency or crisis. As such, it is best to have an emergency fund instead of using your full budget. Emergency funds should usually last at least 6 months of instalment payments.
The new launch involves progressive payments with low, initial instalments. In this case, an emergency fund should last at least 6 months of the future instalment payments.
For EC upgraders, your instalment is 30% of your income. With your instalment kept low for the price you pay, it may seem that you can afford something larger in the private property market with the same income. However, for private property, instalment payment can go up to 60% of your income. EC upgraders often overstretch their budget because they neglect this point.
Understanding affordability is crucial - never max out your TDSR and always prepare for Black Swan events.