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The recent rise in the property market has added worry to those who has yet to own a home. To many people, especially the young families, will find it increasingly challenging to save enough for the downpayment of a house. If you belong to this category and wonder what can you do to put yourself closer to the reality of owning a house, I have a few suggestions in this article.

You cannot afford to do away with the discipline of saving

Like it or not, you have to save. You must be thinking this is obvious. But I must say it is easy to say then to do it. In today’s consumerism world, everyone has to battle against the urge to spend money to buy material goods to satisfy one’s desires. There are more advertisements to take away your money than to put more into your pocket. Especially for the young working adults who are empowered with a little bit of purchasing capability, it is easy for them to neglect the importance of saving, and with the proliferation of the alluring credit cards, it is too easy to spend more than what one earns. What I want to emphasize is that young adults must have the discipline to save the moment they receive the paycheck, so that they can have enough to put down a downpayment for a flat in the future. It would be too late to start saving when you want to buy a house.

How to pay yourself first?

If you find yourself difficult to save money, you can employ automatic contributions to a savings account. You can open a Save As You Earn (SAYE) account to force yourself to save. It works by using GIRO to deduct a fixed amount from your salary account on a monthly basis. There are similar programs from other banks. Do not expect much interest to be paid, the objective is to get you started and improve your discipline to save.

How to save and invest at the same time?

For people who accept market fluctuations, I would recommend you to sign up for POEMS’s Share Builder Plan and buy Straits Times Index Exchange Traded Fund (STI ETF) on a monthly basis. It works off the same concept as the SAYE account but instead of leaving the cash idling in the bank, POEMS will buy stocks in STI ETF for you. You can start with a minimum monthly contribution of S$200. This strategy is known as Dollar Cost Averaging (DCA). The advantage of this method is that you do not need to know how to time the market. You just put in a fixed sum every month, say S$200, when the stock price is low, you will buy more stocks and when the stock price is high, you will buy less. In this way, you will enjoy the discount over time. Simple and easy without the need to monitor the market. Do this for a few years and you should have enough for the downpayment. Thereafter, you find a time to sell, which is when the market is doing well. Even if the market is flat, you should be able to realise a small profit. Another good thing is that you have to understand the stock market usually leads the property market by 3 months to 1 year. Hence, if you sell the stocks during the boom time for stocks, you should be happy to sit on your cash while the stock market crashes. Soon, the property market should follow with a downturn, and this is when it would be a golden opportunity to pay for your house at a cheaper price with the cash you have made in the stock market.

What to do if I have some capital but I only want to buy a house a few years later?

If you do not want to risk your capital but would like to make some small profits, you can consider investing in UK Traded Endowment Policies (TEP). TEPs are second hand endowment policies sold in the market. The UK TEPs are regulated by the UK authorities and under the Financial Services Compensation Scheme, it offers capital guarantee up to 90% of the policy’s cash value should the insurer go bankrupt. You can expect 4-8% return per year by purchasing a policy with 4 years to maturity (better than fixed deposit!). This allow you to time your purchase of your house. The only risk turns out to be the currency risk (UK TEPs are denominated in pounds). However, given the low pounds to Sing dollar currently, the risk is mitigated. There may also be a potential for additional gains when the pounds strengthens.

The above are not the only solutions and you may have other ways to build up your capital for downpayment. I must also emphasized that these are just my opinions and not investment or financial advice to you. Your situation may not be suitable for employing these methods. When in doubt, please seek professional help.

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