How much should you save to buy your first flat in Singapore

The numbers below are just close estimations as properties in different locations will be priced differently and according to their condition, above or below valuation.

According to the median resale HDB flat prices in the third quarter of 2022, 3-room flats cost between SGD320,000 and SGD460,000 while four to five-room flats cost around SGD460,000 to over SGD894,000. The price of a flat varies depending on the location, size and of course, condition. Condominiums and more luxurious properties can easily cost more.

While it seems like a hefty sum, you only need to pay between 15% to 25% of the property price as a down payment depending on the loan type you go for: HDB loan or bank loan.

1. Work out the down payment

If you opt for an HDB loan, the maximum Loan-To-Value (LTV) ratio is 85%. This means you only have to pay 15% of the purchase price for your down payment either through cash or your CPF Ordinary Account (OA). Note that if your CPF and grant monies can cover the entire 15% down payment, it’s possible to buy a flat without having to pay out of your pocket at all.

If you opt for a bank loan, the maximum LTV ratio is only 75%. The first 5% of your flat must be paid in cash. The remaining 20% can be paid in from CPF OA.

Important things to note about down payments:

In some cases, you won’t be able to get the full LTV. This typically happens if you have a bad credit score, which means you may have to pay more in cash or via your CPF.

If you are purchasing a flat above valuation, you will have to pay the additional sum outside of your home loan, as it is only limited by the valuation of the property. Similarly, if you purchase a home below valuation, you cannot take a home loan up to the full valuation. You will still have to pay 10% or 25% of the purchase price as your down payment depending on the type of home loan you choose

Note that you can also qualify for housing grants of up to SGD80,000 when buying a BTO or up to SGD50,000 when purchasing a resale HDB flat. The amount you receive also depends on factors such as citizenship status and your family’s income ceiling. For the full list of grants, visit the HDB website.

2. Work out any additional costs for taxes and administration

You’ll need to pay a few other added costs at the time of purchase. The most notable of these are the Buyers Stamp Duty (BSD), the conveyancing fees and legal fees. The BSD is based on the purchase price of the flat, or the current market value – whichever is higher.

As such, the BSD for a flat that costs SGD320,000 is SGD4,600. This can be paid with cash or your CPF. The conveyancing fee is paid to the law firm to handle the legal paperwork. For HDB loans, check their website for the appropriate legal fee.

3. Work out the monthly cost

The interest rate on the HDB loan is always 0.1% above the prevailing CPF rate, which is currently 2.5%. As such, the HDB loan rate is 2.6%.

Compared to the interest rate on an HDB loan, the fluctuating interest rate of a bank loan is more complicated and can comprise an entire article on its own. For simplicity, many loans will average around 1.2% per annum today.

Note that bank loans are typically cheaper for the first three years but they can jump substantially afterwards. You should refinance or reprice your home loans after two to three years to keep the home loan rates competitive.

For our example SGD320,000 flat, we’ll assume the maximum loan amount of SGD288,000 from HDB, and SGD240,000 from the bank. We’ll also assume a loan tenure of 25 years, which is typical for many Singaporeans.

The monthly home loan repayment on an HDB home is much higher mainly because you can take a bigger home loan and pay a smaller down payment, but you will need to pay a higher interest rate for this benefit.

The Mortgage Servicing Ratio (MSR)

According to the Mortgage Servicing Ratio (MSR) framework by the Money Authority of Singapore (MAS), the monthly repayment of your HDB home loan cannot exceed 30% of your monthly gross income.

For example, if you have a monthly income of SGD3,875, the MSR cap means your total monthly repayments cannot exceed SGD1,162 per month. Of course, your spouse can also contribute to the home loan repayment with his or her income.

If you are purchasing a private property, a different scheme called the total debt servicing ratio (TDSR) applies to you instead.

Other monthly costs include property tax, conservancy charges and insurance.

• Property tax is based on the Annual Value (AV) of your flat. This is how much it could theoretically be rented out for. The AV is determined by IRAS. To find out more about the valuation of your flat, check the IRAS website. For our example SGD320,000 flat, the property tax comes to SGD736 per annum or about SGD61.30 per month.
• Conservancy charges vary in different districts in Singapore. But for a three-room flat, it’s normally in the range of SGD62.00 to SGD73.50 per month.
• Home contents insurance can help provide payouts if your house catches fire, burglary, or if your burning house damages your neighbour’s. This can cost about SGD106.32 a year or less than SGD10 a month depending on the insurer and plan you opt for.

4. Work out the cost of renovations and furnishing

A typical renovation of a resale HDB flat will cost around SGD65,000. If you want to take out a loan for renovations, the bank’s interest rate is usually in the range of 4% to 7% per annum. Note that you will also need to consider your monthly home loan on top of these costs.

How are you going to pay for all this?

While the financial investment for a new house can seem exorbitant, one way to afford the down payment is to start planning and working towards your financial goal early. An investment-linked plan or an endowment plan could help accelerate your savings and achieve your financial goals faster.

To find out more about savings and investment plans, leave your details below to get in touch with one of our financial planners.

Sources:

• www.hdb.gov.sg
• www.mas.gov.sg
• blog.moneysmart.sg

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of HSBC Life (Singapore) Pte. Ltd. and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.

Information is correct as at 1 February 2023.

This advertisement has not been reviewed by the Monetary Authority of Singapore.