Private property is often seen as an unattainable goal by a fair number of Singaporeans, but in reality it doesn’t have to be that way. In fact, private housing in Singapore may be more affordable than you imagine, and here are seven reasons why:
Reason #1: Due to high leveraging and your CPF, the minimum cash payment is low
How much would you say you’d need in a downpayment to buy a $1 million condo?
Assuming you have a good credit score, the mandatory cash downpayment is only 5%, according to the current loan-to-value (LTV) limit. That means $50,000 for a million-dollar house. If you start saving just five years in advance, you could attain this amount by setting aside an extra $833 a month.
For bank home loans, the total downpayment is 25% if you do not have any outstanding home loans. Aside from the 5% cash, the rest (20%) can be paid using your CPF Ordinary Account (CPF-OA). For a home costing $1 million, 20% comes up to $200,000. Most people will not have this amount in their CPF account until they are in their 40s.
To get to your savings goal for your condo faster, you may consider investing your money, including up to $20,000 in your CPF-OA under the CPF Investment Scheme.
Reason #2: Are you a Singapore citizen and a first-time home buyer? Cooling measures actually help you
Cooling measures primarily target multiple home buyers. For a Singapore Citizen, there is no Additional Buyers Stamp Duty (ABSD) for the first home (it’s 12% for the second home, and 15% for the third home). ABSD also applies to foreigners and Permanent Residents.
And if you’re intending to upgrade by selling your first home, you’ll be eligible for ABSD remission, meaning that you pay the ABSD upfront, and then get a refund from IRAS when you sell your home within six months of buying your new one.
There have also been instances where an upgrader sells his/her current home first, and rent while looking for a property to buy so as to avoid paying the remissible ABSD.
In any case, the ABSD is beneficial to Singaporean buyers of private property, as long as they intend to own just one home. By forcing foreigners and PRs to pay a premium, ABSD keeps prices low enough that private housing is an attainable goal for locals.
In Q1 2019, for example, non-landed prices in the Core Central Region (CCR) fell 2.9 per cent – the sharpest dip since around the time of the Global Financial Crisis (prices in the OCR slipped over five per cent in Q2 2009). This was prompted by new cooling measures in 2018.
But these are still early days – the effects of the cooling measures are likely to be more pronounced as the year goes on, which is good news for buyers.
Reason #3: It’s strangely easier to qualify for a bank loan than for an HDB loan
You probably think an HDB loan is easier to get. But what if we told you that, in a way, you can actually borrow twice as much using a bank loan?
For HDB loans, you must pass a restriction called the Mortgage Servicing Ratio (MSR). This caps your loan repayment maximum to 30% of your monthly income (not inclusive of other loans). For bank loans, you need only meet the Total Debt Servicing Ratio (TDSR), which caps your monthly repayments to 60% of your monthly income.
This means that, assuming you have no debt, it’s strangely easier to meet the requirements for a bank loan than an HDB loan.
Reason #4. Executive Condominiums (ECs) offer a great first step into private property
One advantage you have today is Executive Condominiums (ECs) . These are condos launched by HDB, and designed and built by private developers just like regular condos. ECs are priced more cheaply, and CPF grants are available for the buyer. The catch is that there’s a Minimum Occupation Periods before they can be respectively sold to Singaporean/PRs (5 years) and everyone including foreigners (10 years).
Now you may think this is similar to schemes like DBSS, but there’s a big difference. ECs are full suite condos, wholly built by private developers. They have all the amenities of a private condo, such as a pool, gym, BBQ pits, etc. There’s no practical distinction between an EC and a condo, when it comes to comfort.
Many ECs are affordably priced, at below $1 million for a two-bedroom unit or even larger. This makes them a great “entry level” property for first time private home buyers.
Frankly, earlier generations would have killed for an opportunity like this. You can see all the ECs currently on sale here.
Reason #5. There are private properties priced at $600,000 or below
We’re talking about shoebox-sixe units in projects such as The Jovell–basically developments in the surburbs of Singapore.
Buyers who just want to own a condo and are fine with the size (400-500 square feet) will realise that these homes offer a great entry point to a condo lifestyle.
There are two common strategies around buying a $600k condo:
The first is to live with parents and rent out the unit, thus covering most of the costs. In the meantime, you can also pay for the home loan using your CPF, while collecting cash from the tenant. By the time you’re ready to move in there on your own, you’d have offset most of the cost with the rental income.
The second is to live there for a time (say 10 years or so), and then resell and upgrade later. If the unit is in a desirable location, its value is likely to appreciate regardless of its smaller size.
You can browse new launch condos priced at $600,000 or below here.
#6: If you and your spouse are co-borrowers, the monthly repayments are affordable to most Singaporeans
Say you buy a condo or an EC priced at $800,000, with the maximum loan of $600,000. At 2% home loan interest over a 30 year period, this translate to a monthly repayment amount of $2,218.
Split between you and a spouse, this can drop the monthly repayment to around $1,100 a month each. The median household income for Singaporeans stands at $9,293, so that works out to roughly 25% of the a working couple’s mothly income. It’s enough to still have cash left over for savings, and other investments, or kids.
Also, note that a savings of just around $13,300+, such as in your CPF-OA, will cover your home loan repayments for six months. This gives you sufficient time to respond to any emergencies.
#7. Schemes like the Deferred Payment Scheme (DPS) help with affordability
Under the PPS, you’re only required to pay 20% upfront, after which you have as long as two years before you need to pay the remaining 80%.
During this two years, you can already move into the property, or rent it out for income. On top of that, there’s no interest charged for these two years, as you only need to get the bank loan going once the remaining 80% is due.
Also, notice that down payment of 20% is cheaper than the usual down payment of 25%. For a mass market condo at $1 million to $1.5 million, this five per cent can mean a cash outlay that’s $50,000 to $60,000 lower.
[Check out the FULL list of new launch condos in Singapore this year!]
Before you assume that a private property is unaffordable, understand how the loans work and take time to choose the optimal unit.
Truth be told, most Singaporeans overestimate the money they need to buy a private property. Home ownership, even for private residential units, is surprisingly affordable for first-time buyers and upgraders. If you’re still unsure of whether your finances is adequate, speak to a qualified financial consultant before making a home purchase decision.
Do you think private property can be ‘affordable’ in Singapore? Share your views in the comments below!
Looking for a property? Find the home of your dreams today on Singapore’s most intelligent property portal 99.co! You can also access a wide range of tools to calculate your down payments and loan repayments, to make an informed purchase.