It’s common to hear about renting properties with friends, but what about buying a home with friends? Meet Lily*, 33, a single Singaporean who’s decided to buy a house with her friends in the near future! She’s weighed the pros and cons, done her research, and now knows exactly what to look out for when she actually makes the purchase with her friend.
“I don’t have plans to get married, and I have a couple of long-time friends of a similar mindset and wavelength, and we thought that buying a house together might be a viable solution since we want to move out of our parent’s homes… Ultimately, what we are looking for is a home away from our respective families where we will eventually retire and grow old,” Lily explains.
But of course, independence is not the only reason to buy a house with a friend. Buying a property comes with benefits such as earning passive income and passing on your property to your future generations. If you’re single and reaching the age of 35, buying a house with a friend might just be what you need to enjoy these benefits without having to wait for a spouse!
This road, however, is filled with uphill battles. Before co-owning a property with a friend in Singapore, you have to consider the limitations of your chosen co-ownership and property type, as well as how buying a house in a non-couple dynamic might affect your CPF contributions toward the house.
So, should you buy a property with a friend? Today, we’ll take a deep dive into Lily’s story and how buying a home might work for her in the coming future.
Can You Buy Property With a Friend in Singapore?
In order for Lily to purchase an HDB flat with a friend in Singapore, she would need to purchase it under HDB’s Joint Singles Scheme (JSS). Under the JSS, singles can only buy a 2-room Flexi flat in a non-mature estate (with a $7000 income ceiling), or any resale flat (excluding 3Gen flats) in any location. The latter includes up to 5-room houses, depending on eligibility. Of course, Lily could also opt to purchase a private property with her friend, where there are no restrictions on purchase.
Why Buying a Home With a Friend Makes Sense
With this in mind, we can now examine how Lily’s decision to buy, then sell, an HDB flat might see profits in the future.
1. Greater Housing Security (In the Event of Intestacy)
As a single Singaporean, your housing options are limited. Many singles choose to either rent a place or live with their parents. Besides, living with your parents might mean greater stability in the short term – you have a roof over your head without having to worry about housing debt.
However, as your parents grow older and pass, there’s a chance that property allocation could become a contest. This is especially in the event that you have siblings who may not agree to let you have a sole inheritance of the property, or insist on selling their part of the property away to someone else.
Of course, one way to combat this early is to come to an agreement with your siblings or help your parents draw up a will. But not everyone may be agreeable to letting you continue to stay in your parents’ place after their passing – especially if your siblings are part owners of that property. Homeowners who die without a will are subject to the laws of intestacy. If the owners are survived by only their children, the property is split evenly between the children.
“We prefer this (buying a house) to renting out an apartment together partly because our goal is longer-term… Buying is definitely more expensive from the get-go, but there’s also a lot more security, and the money you use to finance it eventually returns to your beneficiaries,” Lily explains.
This means without any prior agreement, or in the case of a contest, your home might be taken away from you. Buying a house then, with your friend and away from your family, may mean greater stability and security in the long term. You won’t have to scramble to purchase a house if something similar happens, and with the combined incomes of both you and your friend, achieving this stability might be much easier.
Once you hit 35 years old, financing your retirement might be one of the main concerns on your mind. Beyond saving up for a comfortable life with a job, asset investment presents a great opportunity for you to earn income in the future. And selling a larger home at a higher price for a cheaper, smaller home later may result in profits.
In Lily’s case, since she and her friends are single, buying a BTO flat only to sell it late might be cause for concern – mainly because according to the JSS, they are only privy to a 2-room BTO flat with an income cap of $7,000. However, should they decide to sell this home later and go their separate ways, this home might be an asset to them. BTO flats bought at subsidised prices are typically sold for high prices at 5 to 10 years old. Its new condition and young age mean it’ll be much more desirable in the market.
Alternatively, Lily and her friend could invest in a private property, since private properties tend to appreciate in value. From 2010 to 2020, private property prices in Singapore rose by a whopping 53.6%. Sure, these figures should be cautiously considered given the volatility of the market, but given the trend, private property owners seem to almost be guaranteed some sort of profit in the future. It’s possible then, that these two housing options may see future profits, depending on the house Lily picks in the future.
“Of course, if an opportunity were to come where we can sell for a higher price and upgrade without having to pay extra, then it’s possible that we would sell the flat. Naturally, other costs like future renovations need to be considered, and also if we are at an age where it’s feasible for us to still physically move house,” Lily explained.
1. Type of Co-ownership and Limitations
As mentioned above, owning a property with a friend can lead to profits for you and/or your beneficiaries in the long term. However, this highly depends on the type of co-ownership both you and your friend choose.
In Singapore, there are two types of co-ownership for any property (public or private): joint tenancy or tenancy-in-common. While you can read in-depth about the two co-ownership types here, here’s a quick breakdown of the main differences between the two (relevant to future profits).
|Each owner is presumed to have an equal share of the property.||Each individual has a distinct share of the property (not always equal)|
|Right of survivorship: If a co-owner is to pass on, the deceased co-owner’s half automatically belongs to the surviving co-owner.||No right of survivorship: In the event that you pass on, you can allocate your shares of the property to your chosen beneficiaries.|
In short, your property goes to either your co-owner or your pre-selected beneficiaries should you pass on depending on your co-ownership type. So it’s important to choose wisely and plan in advance. And Lily is doing just that:
“While we are friends who are choosing to cohabit out of convenience, ultimately we aren’t related. Outside of shared household expenses, whatever we invest into the house comes from our own finances, and so by choosing tenancy in common it’s easier for our beneficiaries to divide up the property should either of us pass on,” she explains.
2. Financing Your Home Purchase: HDB vs Private Housing
Finally, your relationship with your co-owner is important when it comes to using CPF for the purchase of a property.
For Lily and her friend, they would fall under non-related singles. And as individuals purchasing property for the first time under HDB’s Joint Single Scheme, the pair can use their CPF and apply for CPF housing grants.
Fortunately for Lily and her friend, this is a big win. The pair’s ultimate goal is to settle down in the new home, without ever selling it in the future (unless other conditions pop up): “Considering that it’s unlikely that we will sell the flat within our lifetime, whatever CPF funds I use to finance the down payment or mortgage won’t return to me… Ultimately, the bigger waste to me is not having the opportunity to utilise that CPF money, so I wouldn’t deem it a loss if it helps achieve my home ownership goals.”
Had the pair chosen to purchase a private property instead, though, using your CPF would really depend on several factors. According to CPF, you are not allowed to use your CPF to purchase a private property if:
- You are single buying with a non-related single and have used CPF for an existing property.
- You are a married person buying a private property with a non-related single.
You may, however, use your CPF if you are both single, and none of you have utilised CPF for any property.
So, Should You Buy A House With Your Friend?
Ultimately, purchasing a house with a friend involves a minefield of hoops and considerations to leap through. While a great idea on the surface, it’s important to know all possible costs, future development plans and benefits before proceeding.
When asked if she had any other concerns about moving in with a friend, Lily mentions:
“Yeah, what happens if I hate my friend the next day and we have a falling out? Of course, it’s all easier said than done, but if that’s the kind of lemons life gives me, then it’s time to make lemonade!”
Similarly, if you’re unsure of how you can navigate all the considerations of buying a house with a friend, remember that PropertyGuru Finance’s mortgage experts are readily available to advise future homeowners! Book your meeting through WhatsApp or PropertyGuru Finance’s online form for a 1-to-1 consultation – that way you know which path is best for you.
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