How much do you need to buy a resale flat in Singapore?

So you have been dating for some time with your other half, and would like to get married. Most of your friends around you have gone for a BTO flat but you don't want to wait that long. Somehow, you ponder and think about getting a resale flat, but you are unsure whether you have enough.

Many people like you have the same question. That's why this post was written, to shed more light on how much is actually costs to buy a resale flat, the obligations you will enter into, and what are some potential issues you need to consider. In this post, you will uncover:

  1. The average price for a resale flat (by location, and size)
  2. How much you need in downpayment
  3. How much should you earn to afford the monthly mortgage payments
  4. Rental rates if you want to rent out the space

Prices of resale flats in Singapore

To make the illustration simpler, I will present the average resale prices of flats according to their location and size. For location, I use the district map to categorise the locations from the SRX website. Shown below is a district map taken from the website.

For size of HDB flats, it is slightly more complicated. If you were to go to Property Guru's website, you will see a whole list of different flats such as 3A, 3NG, 3I and so on. For simplicity, I will use HDB's criteria and list them simply as 2 room, 3 room, 4 room, 5 room, 3G and executive flat.

If you want to know more about the differences between the different sub-types, this website is a good resource: here. In gist, the different sub-types are due to the time where HDB constructed them with the newer flats having the A (Model A) while the older flats have S (Standard) or I (Improved).

With this two parameters set up, I went to the SRX website and used the data there. Initially I tried to feed the data manually into a spreadsheet, but chanced upon a report by SRX (link). Here is the relevant information that we need.

Downpayment needed

Let's just use $400,000, which is the average price for a 4-room flat in Singapore.

According to HDB's website, you can either get a HDB loan or a private bank loan for the house. Depending on which financing option you choose, a different amount for downpayment is needed.

Let's assume that we will take a HDB loan since for young couples, we don't have much savings and will want to pay as little in downpayment as possible. With a $400,000 purchase price, it comes up to $40,000 in downpayment, payable in CPF.

The median salary in Singapore is $4,056 per month (inclusive of employer's CPF contributions). This comes up to about $797 per month that goes into your Ordinary Account ($4,056/ 117% x 23%). With a double income couple, this comes up to around 2 years of savings to build up this $40,000 in the Ordinary Accounts of both persons ($40,000 / ($797 x 2) = 25 months).

If you want to take a bank loan instead, up to 15% of the purchase price can be paid by CPF. In the same example, it would take around 3 years to build up the Ordinary Account to pay off entirely through CPF ($60,000 / ($797 x 2) = 37 months).

How much you have to earn to afford the mortgage payments

The general rule is that the loan tenure for HDB flats is 25 years. So how do you calculate the monthly mortgage payments that's needed? Without using a financial calculator, the easiest way is to use HDB's mortgage calculator: here.

I keyed in the numbers - loan amount $360,000, loan tenure 25 years, interest rate 2.60% (HDB's rate). Like magic, HDB gave me the monthly mortgage payment of $1,634.

Assuming again an equal split between you and your spouse, you will need to pay $817 in monthly payments. 23% of your salary goes into the Ordinary Account, so you would need to earn a salary of around $3,552 a monthly (excluding employer's CPF contribution, $817 / 23% = $3,552).

$3,552 translates into $4,156 when employer's CPF contribution is included, which isn't far off from the median salary in Singapore as shown earlier.

If you were to take a bank loan instead, your loan amount would become lower at $320,000, and with a lower interest rate of 1.5% (average rate for bank loan), your monthly payments become $1,280.

If you were to share it equally with your spouse, you would need a monthly salary of around $2,783 (excluding employer's CPF contribution) in order to pay off the mortgage payments using CPF only.

In summary

If you were to earn a median salary, buy an average house, and take a HDB loan, you would need to save 2 years to pay for the downpayment for a resale flat. If you choose to take a bank loan, you will need 3 years instead. In both cases, you can pay off your mortgage payments entirely via CPF.

Rental prices if you were to rent out the flat

Nowadays, property is becoming an investment on top of just being a place to stay. At some point, you will definitely think of buying a second property. I am not exactly sure if you can rent out your HDB flat and stay in a condominium, but it appears so as long as you fulfil the Minimum Occupancy Period of your HDB flat (link: here). 

SRX is becoming a really valuable resource as I take the rental rates directly from their flash report (link: here). The median rent for the entire flat seems to be $2,000 for a 4-room flat.

We have seen that the monthly mortgage payments is at $1,634 for a HDB loan and $1,280 for a bank loan. In a sense, we will be making a little gain from here. Before you get too excited from it, let's check through the yield.

You are making $366 (HDB loan) or $720 (bank loan) on a downpayment of $40,000 (HDB loan) or $60,000 (bank loan). This translates to a yield on investment of 10.9% (14.4% for bank loan), which is a decent investment return.

Do note that this is not the rental yield as this is firstly, this is net income and not gross rental, and secondly, this is downpayment and not purchase price.

Ending thoughts

Having your HDB flat as an investment sure sounds exciting but the main purpose of housing is still accommodation. After all, it is no wonder that the government has been introducing levies to curb speculative buying as the HDB flats are ultimately still for accommodation and not investment.
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29 June 2019 at 12:21 delete

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