Buying your first home is the rite of passage for every Singaporean adult. And it’s the kind of thing that seems to go straight from 0 to 100. One minute you’re buying a flat white, the next minute you’re buying a flat. A F-L-A-T, y’all!!!
If you’re looking at the cost of a HDB flat in Singapore in its entirety, it definitely sounds impossibly difficult to reach – $400,000 for a 4-room HDB flat? Does that mean you’ll need to save up just about every cent of your salary for the next decade before you can finally afford a house?
In reality, 91% of Singaporeans own their own homes. Which means homeownership is probably actually super achievable, even for the average Singaporean, right? You might even know a newly minted adult who already bought their HDB flat within their first few years of starting work. Which makes you wonder…
Their money come from where one?
Here’s a handy guide to break down what it takes to own a HDB flat in Singapore. We promise you’ll find the idea of home-buying a lot less daunting by the end of this article!
“I thought my friend was broke, but he just bought his first HDB flat. How?!”
Friend gets married. You first see a photo announcing their engagement on social media. Then photos of their wedding. Then photos of them collecting their keys to their new HDB flat – wait, what?
We get why you’d be surprised, it just seems impossible to fork out that huuuuge sum of money. Well, the short answer is that you don’t have to. Not that huge a sum, at least.
Basically, you’re not paying for the entire HDB flat at one go (unless you want to…). If you take up a home loan, you’ll be paying it off in a staggered way over a number of years, and it’s very possible to work out a comfortable repayment plan. This leaves you with a smaller, more manageable amount of money to foot upfront.
Here’s how it works. With a home loan (a HDB loan, to be exact), you can borrow up to 90% of your HDB flat’s value, leaving you only 10% left to pay upfront.
And this down payment is often the biggest hurdle for first-time homebuyers in particular. Take for instance a $400,000 HDB flat. If you were to take up a HDB loan of $360,000 (90% of $400,000), the initial down payment will work out to $40,000.
No doubt it’s still a big sum, but compared to a whooping $400,000 (*shudders*), $40,000 is obviously a LOT more achievable.
Note that you can choose between a HDB loan and a bank loan to finance your HDB flat. Apart from the difference in interest rates, there’s also considerations like the maximum loan amount you can take up, the loan tenure and other factors. Here’s a guide on which loan to use to finance your HDB flat!
How do I start saving for the down payment?
Let’s continue from the example of a down payment of $40,000. This can be paid in cash and/or CPF. You might have heard of people who pay for the down payment entirely with their CPF, which means they don’t even have to fork out a single cent in cash upfront. (Fact: Although Singaporeans tend to associate CPF with retirement, our CPF contributions up till age 35 are actually allocated in a way to best support our first home purchase!)
And remember that in addition to the 20% of your monthly salary that goes into your CPF, your employer also has to contribute an additional 17%, so you might be actually more financially ready for your HDB flat purchase than you think!
Still, it helps to start saving for your home purchase as early as possible. If you and your partner each put aside just $200 a month for 3 years, you’d have saved $15,000 as a couple, which is a substantial amount to put into your house fund! Start small, and you won’t have to worry about the big numbers.
How do I decide how much loan to take up?
Nobody wants to be in debt, so should you be emptying all of your savings into the down payment to minimise your loan amount?
Before you do that, work out how much extra cash you’ll need for other big ticket expenses like your home renovation. It wouldn’t make sense to empty all of your cash savings into your HDB flat’s down payment, only to have to take up another home renovation loan after that. Interest rates on home renovation loans typically hover around 4-5% per annum, which is much higher than that of home loans. So after doing the math, you might find that it’s more financially sound to take a larger home loan, so you can comfortably pay for your home renovation in cash.
How do I decide which is the best home loan?
There isn’t really a “best” home loan out there. The biggest factor most people look out for first is the interest rate, but the loan offering the lowest interest rate might not suit your preferences. That’s why it’s crucial to compare all of the terms of your home loan in terms of how they fit your lifestyle and long-term financial plan, including:
The most important thing is not to pay off your home loan ASAP, but to pay it off in a way that’s comfortable for you. And if that means paying off your home loan in smaller monthly instalments over a longer period of time, that’s totally fine!
For instance, these are the common considerations of a young couple getting their first home:
- If you’re planning to have a child, will you be able to handle the expenses of another mouth in your family, on top of repaying your home loan?
- And when the little one comes along, will one of you become a full-time stay-home parent? How much will your finances tighten if you go from a dual income to single income household?
- Don’t forget other recurring expenses like Service and Conservancy Charges (S&CC) and utilities.
The lock-in period refers to the period of time during which you’ll incur a penalty if you wish to pay off your home loan prematurely.
This matters because you’ll want to look at refinancing your home loan (basically taking another loan to pay off your existing loan) every 3-5 years. A long-term home loan should never be a sign-and-forget kind of thing – there are new home loans in the market all the time, and a loan that was great 5 years ago might be, well, not-so-great now.
So if you refinance your existing loan with one that offers a lower interest rate, you’d have saved big-time by the time you complete your loan repayment. Pick a loan with a comfortable lock-in period to allow you to make the switch when it’s time.
How do I know I’m paying a reasonable price for this particular HDB flat?
There are just sooo many factors that contribute to a HDB flat’s asking price, such as its age.
HDB flats are built with a 99-year leasehold, and when the lease expires, your HDB flat is returned to the government.
So there’s this thing about lease decay, the older the HDB flat, the less it’s worth because it’ll have a limited number of years left on its lease. For instance, the average price of a 4-room resale HDB flat in Ang Mo Kio built in 1980-1989 is $395,000, while those built from 2000 onwards average $635,000.
Even within the same HDB block, prices differ. Units on high floors tend to fetch higher prices, for instance. Or, you might penalize a unit with a west-facing orientation because this means you bear the brunt of the afternoon sun. Not cool (literally).
Or was the unit recently renovated? Perhaps you found a HDB flat that’s already everything you’ve ever wanted. If it’s slightly pricier than other options on the market but you get to save big on renovation, the premium price tag might be worth it.
Ok, our point is, it’s important to shop around when flat-hunting – even if you’ve got your eyes set on The One, check out other similar HDB flats for sale on platforms like Carousell to get a rough idea of the property prices in the market.
Another method is to check for transactions of resale HDB flats on the HDB website. Simply indicate your preferred number of rooms and location (it could be as broad as an entire neighborhood or as specific as a particular HDB block), and you can see how much these HDB flats were transacted for:
Funding your HDB flat
Hopefully, this answered some of your burning questions about how to afford a HDB flat in Singapore. Now that you’ve got a better understanding of your CPF savings, how paying for your HDB flat works, and all that stuff, you’re probably thinking, omg, I’m more ready for homeownership than I thought!
And that’s mission accomplished for us 🙂 Time to start home-shopping?