Monday, April 7, 2014

The affordability of housing in Singapore and the various housing grants available

I'm at an age where many of my friends who are attached, are planning for their marriages. One concern i've heard many many times is the affordability of housing in Singapore. As most of my friends are still studying, they are worried that they would not have enough money to buy a house. What happens if they want to get married but cannot afford to pay for the house? No money, no house? Are these your concern too?


The government of Singapore have said that they will make housing affordable for most Singaporeans. They will make sure every couple can afford a house as long as they are working. Actually, in Singapore, everything is planned out for us to buy a house. Let's see if housing is really affordable in Singapore for different income level groups.


Different income levels and their eligible housing grants


A couple who wants to purchase their first home will most probably apply for a Built To Order (BTO) flat. The government has subsidized these flats and this is especially so for first time buyers. There are various grants available such as the additional housing grant and the special housing grant. The special housing grants of up to $20,000 was initially given to low income families but now it is extended to middle income families. Let's take a look at the cost of housing for 2, 3, 4 and 5 rooms flats in Singapore. What are the grants you will be eligible for your income bracket?

1) A family income of less than $2000 (2 Room flat)


Can a family with a combined income of less than $2000 still own a house in Singapore? Yes they can. With reference to the latest March 2014 BTO flat price in Yishun, a 2 room flat cost around $94,000 to $118,000. This is a 47sqm house with one bedroom, one bathroom, one kitchen and one living/dining room. 

Let's say the couple has a household income of $1700 monthly and they buy the 2 room flat at $105,000, they will be eligible for an additional CPF housing grant(AHG) of $35,000 and a special CPF housing grant of $20,000. After deducting the grants, the net cost of the house is $50,000. If they take a loan for 25 years, the monthly housing loan payable is $182. This is quite affordable for their income of $1700.  

2) A family income of more than $2000 but less than $4000 

(3 Room flat)


With a family income at the above range, this couple can afford to buy a 3 room flat in Singapore. The March 2014 BTO 3 room flat price in Yishun is in the range of $150,000 to $186,000. This is a 68sqm house with 2 bedrooms, 2 bathrooms, one kitchen and one living/dining room.

Let's say the couple has a household income of $2600 and they buy the 3 room flat for $170,000, they will be eligible for an additional CPF housing grant of $25,000 and a special CPF housing grant of $20,000. After deducting the grants, the house now cost $125,000. If this couple takes a 25 years loan, their monthly housing loan payable is $490. Again, this is quite affordable for their income of $2600. It's only about 19% of their monthly income.

3) A family income of more than $4000 but less than $5000 

(4 Room flat)


With a family income of more than $4000, a couple can afford a 4 room flat in Singapore. A 4 room flat price in Yishun according to the March 2014 BTO launch is in the range of $252,000 to $302,000. This is a 93sqm house with 3 bedrooms, 2 bathrooms, one kitchen and one living/dining room. 

Let's say the couple has a household income of $4400 and they buy the 4 room flat for $275,000, they will be eligible for an additional CPF housing grant of $10,000 and a special CPF housing grant of $20,000. After deducting the grants, the house now cost $245,000. If this couple takes a 25 years loan, their monthly housing loan instalment payable is $987. 

5) A family income of more than $5800 (5 Room flat)


To buy a 5 room flat, a couple should have a combined income of more than $5800. The price of 5 room flats in Yishun is $316,000 to $386,000 in the March 2014 BTO. This is a 112 sqm house with 3 bedrooms, 2 bathrooms, one study room, one kitchen and one living/dining room. 

If the couple with a household income of $5800 buys the 5 room flat for $350,000, they will not be eligible for any grants. Any couples with combined income of above $5000 will not be eligible for any grants. If they take a 25 year housing loan, the monthly repayment amount is $1430. This is already 25% of the couple's gross monthly income.


Additional CPF Housing Grant at a glance
Source: HDB Website

Special CPF Housing Grant at a glance (From July 2013)

*Only for 2 to 4 room flats in non mature estates
Source: HDB Website

*For more information on the various housing grants for your income level, refer here: http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/BuyingNewFlatCPFHousingGrant?OpenDocument


Buying a house with your CPF

Most couples will be able to buy their first house after working just 1-2 years. The down payment for a BTO flat is 5% of the house price on purchase and another 5% after the flat is completed.

For CPF, you can only use the money in your ordinary account for housing loans. For persons age 35 years and below, CPF contribution rate to ordinary account is 23%.


Here's a rough guide on how you can afford your house just using your CPF:

For Combined Income of $1700. 
CPF contribution in ordinary account is $391 monthly.
More than enough to pay the housing loan of $182 monthly for a 2 room flat at $50,000(after deducting grants).

For Combined Income of $2600
CPF contribution in ordinary account is $598 monthly.
Enough to pay the housing loan of $490 monthly for a 3 room flat at $125,000(after deducting grants).

For Combined income of $4400
CPF contribution in ordinary account is $1012.
Enough to pay the housing loan of $987 monthly for a 4 room flat at $245,000(after deducting grants).


As you can see above, most of us do not even have to pay extra cash for a house. The government has planned it out for us. As long as our monthly loan instalment payable is below 23% of our gross monthly income, we do not have to fork out any extra cash for the instalments.

For most of us, we can all afford a house. There is no need to worry about not being able to afford one because housing prices are so expensive now. The affordability problem therefore lies with us individually. If you buy a house more than what you can afford, then it becomes unaffordable. The truth is this, if you have low income, buy a small house. If you have higher income, then you can consider buying a bigger house.

I hope the above 5 scenarios of different income levels will be a rough guide for you to consider which type of house you can afford to buy. Take advantage of the various grants available and it will certainly lessen your financial burdens.

Share it with your friends who are planning for their new life too.

Enjoyed my articles? 
You can Subscribe to SG Young Investment by Email 
or follow me on my Facebook page and get notified about new posts.

Related Posts:
1. A couple should buy a 3 room HDB flat if combined gross income is less than $4000
2. How much money is needed to get married and start a family in Singapore?
3. How much money does a couple need to earn in order to afford a $300,000 HDB flat?

11 comments:

  1. Very nice breakdown.
    I think it is good to clarify that such a scenario is useful only if both are Singaporeans or PRs.
    Sadly, it doesn't work out as nicely for people who have a foreign spouse who has yet to obtain PR status.
    Married but having no place to call home, even renting direct from HDB is a problem.
    That's the only issue that I struggle with.

    ReplyDelete
    Replies
    1. Hi SIM,

      There are various other criterias which I did not include. I guess the government wants to give the privilege to Singaporean couples. Even if a Singaporean marries a foreigner, they want to encourage him or her to become citizen too. Maybe you can get your spouse to get the PR first? It'll makes things easier.

      Delete
    2. To add on, a Singaporean with a non citizen spouse can apply for a 2 room flat in non mature estates only.

      Delete
    3. Also, if the couple are PRs, they are not eligible to buy BTO, and not even getting the grant. They can only buy from Resale market after waiting 3yrs since becoming PR. Not mentioning COV and ABSD which Sporean will not experience.

      Delete
    4. Hi,

      I guess the government wants more people to convert to citizenship. In every country, citizens should have the advantage.

      Delete
  2. You are assuming everybody gets a BTO and at those prices. However, that is not the case. Family size and needs doesn't fit with the salary as well. Do people decide to get married and buy a flat or do people get married to buy a flat?

    ReplyDelete
    Replies
    1. Hi,

      There are more and more BTOs being launched now. 3 years ago there was really a shortage but now seems like most of my friends have already got their BTO flats.

      With the salary range, a family can only afford the size that I wrote above. If want a bigger flat, then try to earn more money for it. Most couples apply for a BTO 2 years before they get married. If they dont have money now, then no choice have a to get a smaller flat first.

      Delete
  3. Hi Sim,

    Even if your wife becomes a PR, you will still have to pay additional $10,000 above the BTO pricing.

    However, if you have a child who is a Singaporean, then you can apply for BTO just like any other Singaporean couple. Because you have fulfilled their criteria of family nucleus and 2 Singaporeans.

    You child will not loss the first timer status.

    ReplyDelete
    Replies
    1. Thanks.
      I guess in the meantime I need to figure out a place to stay until my wife is a PR and has a baby.
      Sighs~

      Delete
  4. Dear blogger, Do you have any inputs on using bank loans compare to hdb loans. I was talking to my colleaugue the other day. He mention that if you are confident in paying promtply to the bank, there should be no problem. You can also use your cpf to pay to the bank and that interest rates are much much lower compare to hdb loan. Hope that you can clarify this.

    ReplyDelete
    Replies
    1. Hi,

      Bank loans indeed do offer lower interest rates than hdb loans currently. They are in the range of 1.2-1.5% while hdb loan is at 2.6%.

      The difference is hdb loans are fixed while bank loans are floating. This means if interest rates were to increase, the interest rates on your bank loans will increase as well. There is a possibility that interest rates on bank loans can increase more than the hdb loans in the future.
      3-4% is the normal range we see in the past.

      If you want to take a bank loan, the banks will calculate the monthly repayment based on a 3% interest rate for your reference. This will help you to see the difference between the 1.2% they offer currently and what will happen if interest rates rise to 3%. This is mandated by MAS.

      I'm of the view that interest rates will increase very soon. Singapore do not adjust our own interest rates but seek to follow the interest rates of major economies such as US. If the US increase their interest rates which they are doing soon, then Singapore's rates will increase gradually as well.

      Hope the above clarifies.

      Delete