With the comprehensive rise in property prices, many young Singaporeans may be wondering if they can afford a home and what their options are.
The good news is that Singapore’s homeownership rate remains one of the highest in the world, at nearly 90%. This is thanks to the government-supported public housing policy, which aims to provide affordable homes for Singaporeans, and the generous grants available for first-time buyers of Build-To-Order (BTO) flats. Many millennials also receive financial support from their parents when buying their first home.
Since most Singaporeans will eventually own their own property, and it will be the most expensive asset they own, it’s wise to start learning about property as early as possible.
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Table of Contents
What Type of Singaporean Home Should First-Time Homebuyers Consider?
According to data from the Department of Statistics, approximately 78% of resident households lived in Housing & Development Board (HDB) flats in 2022, another 17% in private condominiums and apartments, and 5% in landed properties.
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For first-time homebuyers, especially young people, a BTO flat may be the most cost-effective option.
First-time homebuyers should choose the property they can most afford, and BTO flats are considered the most affordable housing option on the market today. BTO buyers must meet the HDB income ceiling and eligibility criteria. Singapore Citizens or Permanent Residents (PRs) buying a four-room or five-room flat with a fiancé(e), spouse, or family member must have a combined income not exceeding S$14,000 and must not own any private property.
For property types other than BTO flats, there are fewer restrictions, but buyers will need sufficient cash and funds in their Central Provident Fund (CPF) accounts to cover the down payment (and Cash-Over-Valuation, or COV, for HDB resale flats), as well as a sufficient budget for monthly mortgage payments.
Over the past decade, many HDB flat owners have upgraded to condominiums, finding it easier to afford a more upscale property by leveraging the capital gains from their first HDB flat. Due to low purchase costs and high subsidies, almost all BTO flats turn a profit, with most owners earning a gross profit of at least S$100,000.
In recent years, many young professionals, especially those with high incomes or financial support from their families, have opted to buy private property as their first home. They often purchase a mid-sized suburban condominium as a long-term investment or a smaller apartment in the city fringe for rental income.
How Much Should You Spend on Your First Home?
Before finalizing a deal or paying a high price for a unit, first-time homebuyers should assess their financial capacity and consider whether the total debt servicing required will significantly drain their savings.
A homebuyer’s budget is determined by the Total Debt Servicing Ratio (TDSR), which dictates how much they can borrow. For those purchasing new HDB flats and Executive Condominiums (ECs), there is also a limit on their Mortgage Servicing Ratio (MSR), which is capped at 30% of the borrower’s gross monthly income.
Even if buyers pass the debt servicing assessments, it is not advisable for them to max out their loan amount. Buyers should set aside some liquid funds as a buffer for economic downturns, potential job loss, or emergencies. They should also maintain an emergency fund equivalent to about six months of expenses and mortgage payments. To ensure these funds are readily accessible when needed, they should be kept in low-risk forms, such as cash or highly liquid investments. Young couples with children should also budget for home repairs and maintenance, insurance premiums, utilities, childcare, tuition fees, and medical expenses for their children, which can often be substantial.
BTO flats are typically priced about S$150,000 or more below comparable resale flats. After subsidies, about 80% of first-time BTO buyers can fully cover their monthly mortgage installments with their CPF savings.
Before purchasing a new home, it’s advisable to get pre-approval for a loan from a bank or apply for an HDB Loan Eligibility (HLE) letter to determine your borrowing capacity.
Mortgage Advisory:
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In 2022, the price of new four-room BTO flats in non-mature estates ranged from S$248,000 to S$418,000. In comparison, the median price for similar flats on the resale market between January and February 2023 was about S$515,000. New four-room flats in mature estates were priced from S$381,000 to S$695,000, while their resale counterparts sold for around S$600,000.
In addition to budgeting for the down payment and monthly installments, buyers must also remember to account for transaction costs such as stamp duty, legal fees, and other miscellaneous expenses, which can amount to as much as S$10,000. Property tax is also mandatory and can range from a few hundred to several thousand dollars annually.
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Next, let’s look at four possible scenarios, excluding available grants and subsidies.
Four-room BTO flat in a non-mature estate for S$350,000: A four-room BTO flat in a non-mature estate priced at around S$350,000 would require a down payment of S$70,000, based on a 25-year HDB loan. The monthly repayment would be approximately S$1,270. A couple who has been working for about four years after graduation, each earning around S$3,500 per month, would be able to afford the down payment and use their CPF to cover the monthly installments without any cash outlay.
Four-room BTO flat in a mature estate for S$500,000: For a S$500,000 four-room BTO flat in a mature estate, a S$100,000 down payment is needed, with monthly repayments of about S$1,815 on a 25-year HDB loan. The couple would need to have been working for about five years, each earning over S$3,950, to fully cover the mortgage with their CPF.
Four-room resale flat in a non-mature estate for S$515,000: A buyer purchasing a four-room resale flat in a non-mature estate at the median price of S$515,000 would need to pay a S$103,000 down payment. Based on a 25-year HDB loan, the monthly repayment would be about S$1,870. A couple would need to each earn around S$4,100 per month, or a combined income of S$8,200, and have worked for four to five years to save enough for the down payment and monthly installments, and to be eligible to cover the mortgage fully with their CPF.
Eligible first-time buyers can receive up to S$190,000 in resale grants, which includes up to S$80,000 in CPF Housing Grants. If they live within 4km of their parents, they can get an additional S$20,000 from the Proximity Housing Grant (PHG), or S$30,000 if their parents live with them. The Enhanced CPF Housing Grant (EHG) also provides up to S$80,000 based on household income and eligibility.
Three-bedroom Executive Condominium (EC) for S$1.3 million: A first-time homebuyer couple looking to buy a three-bedroom EC worth about S$1.3 million would need to apply for a bank loan and make a minimum down payment of 25%, which is S$325,000. Of this, 5% of the total value (S$65,000) must be paid in cash, while the rest can be paid using CPF. Assuming a 30-year loan at a 4% interest rate, the remaining S$975,000 loan balance would require a monthly mortgage payment of about S$4,655. EC buyers must meet the 30% Mortgage Servicing Ratio (MSR) criteria (mortgage payments cannot exceed 30% of gross monthly income), meaning the couple would need a minimum combined monthly income of S$15,520, or S$7,760 per person, to qualify for the loan. Additionally, there is an income ceiling of S$16,000 for EC buyers.
If the couple has a lower income, say S$5,000 each or a combined S$10,000 per month, they could only afford monthly installments of up to S$3,000 under the MSR. Therefore, they could borrow a maximum of S$630,000. For a couple buying a S$1.3 million EC, their down payment would exceed S$670,000.
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How to Reduce Purchase Costs
Buyers should research available grants and take full advantage of existing financial assistance. According to the Singapore Budget 2023 announcement, more help will be provided to first-time homebuyers this year. For eligible buyers of four-room or smaller flats, the CPF Housing Grant has been increased by S$30,000 to a total of S$80,000, while buyers of five-room or larger resale flats can receive subsidies ranging from S$10,000 to S$50,000.
Make a Long-Term Plan and Buy a Unit That is Easy to Resell
Carefully weigh all options. Consider the convenience and practicality of the location, and whether the chosen unit has enough space to raise children. With rising property prices and increased replacement costs, buyers should think long-term when purchasing their first home. Choose a home that aligns with your medium-term goals, offers flexibility, and provides long-term value.
Executive Condominiums (ECs) are becoming increasingly popular due to their relative affordability compared to private properties and their high potential for capital appreciation. EC projects are privatized 10 years after completion, after which units can be sold to foreigners.
Some first-time buyers find themselves in a dilemma a few years later, realizing they need a larger home or need to be closer to a desired primary school for their child’s enrollment. Others live too far from their parents or have long commutes, which can cause problems with childcare.
Choose a home that is easier to resell or rent out. Desirable residential areas, such as those with comprehensive amenities and a pleasant environment, often contribute to a higher property valuation. You should buy a home you love and that best meets your needs. If you love your home, it’s likely that subsequent buyers will too.
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