Homeownership is a cornerstone of Singapore’s public housing policy, with close to 90% of resident households in Singapore owning their homes. At the key handover ceremony for the Pinnacle@Duxton in December 2009, founding Prime Minister Lee Kuan Yew said that “Home ownership helped to quickly forge a sense of rootedness in Singapore. It is the foundation upon which nationhood was forged.”
Regardless of income level, everyone needs a place to live, and owning a home is a significant milestone for many in Singapore. However, as most of us know, buying a home is also a major financial decision that requires careful consideration. This applies whether one is a high-income household looking to purchase private property or a low-income household aiming to buy a modest 2-room flat.
Housing grants, such as the CPF Enhanced Housing Grant (EHG), provide subsidies for lower and middle-income households purchasing their first HDB flat in Singapore. The EHG offers a grant of up to $120,000, with households earning an average monthly income of less than $1,500 receiving the maximum amount. For households with a monthly income of $1,500 to $2,000, the grant amount is $110,000.
While the EHG grant is substantial, an important question is whether this and other available grants are sufficient to help a low-income household with a monthly income of $1,500 purchase an HDB flat.
How Much Grants Can First Time HDB Flat Buyers Potentially Get?
According to Singstat, about 6.2% of Singapore households with an employed person have a household income of less than $2,000 monthly.
Data from Singstats
Let’s consider a Singapore household with an average monthly income of $1,500 who are first-time buyers. They would be eligible to receive $110,000 in EHG.
How Much Do 2-Room BTO Flats Cost
During the June 2024 BTO launch, a 2-room Flexi flat (Type 2) at Tampines with a floor area of about 46 square metre (about 495 square feet) cost a median price of *$152,500 ($67,000 – $238,000). With the EHG amount of $110,000, the price reduces to just $42,500. If financing is done through an HDB housing loan of 2.6% taken over 20 years, the monthly repayment is $227 a month.
Assuming the household takes an HDB housing loan at 2.6% over 20 years, the monthly repayment would be $227. Based on their monthly income of $1,500, the household would receive $345 in CPF Ordinary Account (CPFOA) contributions each month. This amount is sufficient to cover the monthly repayment of $227, meaning no additional cash outlay is required.
Affordability Analysis
From an affordability perspective, this household can borrow up to around $64,000. Based on this calculation, they can afford a flat price of up to $174,000 without any cash outlay.
For reference, here are the median prices for some of the 2-room flats (Type 2) in the June 2024 BTO Launch. We omitted the PLH locations.
*Jurong East: $122,500 ($45,000 – $200,000)
*Tampines: $152,500 ($67,000 – $238,000)
*Woodlands: $116,000 ($43,000 – $189,000)
*Yishun: $107,500 ($45,000 – $170,000)
Based on the price shown above, flat buyers with a monthly household income of $1,500 can still afford a 2-room flat in most BTO locations.
*The price range shown above includes differing lease tenures, including leases of less than 99 years. The median price may not reflect the cost of a 2-room flat with a 99-year lease.
Buying An HDB Resale Flat With A Monthly Household Income Of $1,500
First-time buyers of resale flats will be eligible for a $80,000 CPF housing grant for a 2—to 4-room flat. In addition, they may receive $20,000 in Proximity Housing Grant (PHG) if they live within 4km of their parents/child’s home or $30,000 if they intend to live with them.
Assuming a first-time household buys a 2-room resale flat within 4km of where their parents live, they would be eligible for the CPF housing grant of $80,000 and the PHG of $20,000. In addition to the $110,000 EHG, they will receive $210,000 in housing grants.
Affordability Of 2-Room Resale Flats
Based on the same housing loan assumption, a household can afford a 2-room resale flat of about $274,000 (borrowing $64,000 over 20 years at 2.6%) without any monthly cash outlay.
However, the median price of 2-room resale flats tends to be higher. As of 2Q2024, the median price of a 2-room resale flat in Yishun was $327,500. A quick search on PropertyGuru indicates that a buyer would likely need around $300,000 to find options on the resale market.
To purchase a flat priced at $300,000, the homebuyer must borrow approximately $90,000. This would result in a monthly repayment of about $481 over 20 years, assuming a 2.6% interest rate. With the household’s CPF Ordinary Account (CPFOA) contribution of $345 per month, a cash outlay of $136 per month would be required to cover the difference.
The advantage of choosing a resale flat is the broader selection of locations available and the shorter waiting time compared to new BTO flats.
For a low-income household earning an average of $1,500 a month, the BTO route is the more viable option to ensure affordability due to the lower price point.
Although resale flats offer more grants, the higher prices typically associated with resale flats mean that home buyers may still pay more and require a larger loan. This could result in higher monthly repayments and potentially stretch the household’s finances, making the BTO option a more prudent choice for long-term financial stability.
Top photo by Moo Kar Ming, DollarsAndSense
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.
