A rising home price is both a boon and a bane in a country like Singapore, where home ownership stands at around 90%. Existing property owners stand to gain from the asset appreciation, while first-time home buyers feel they are being priced out of a rising property market.
While we should look at home affordability holistically from a borrower’s capability to finance the property, in this article we attempt to look at it from a salary perspective.
We have calculated how much a couple theoretically needs to earn to afford the different types of residential properties in Singapore.
Getting The Assumptions For Our Calculations Out Of The Way:
Before we delve into the assumptions, we remind readers that the figures presented are an approximation. We urge readers to do their own sums before committing to a property purchase.
- We did not factor in any housing grants that are available for first-time buyers of HDB flats.
- We are taking the minimum downpayment required for the purchase of the residential property regardless of the loan eligibility and financial capacity of the borrowers.
- Based on the latest HDB cooling measures introduced on 16 December 21, the loan to value for HDB loans is 85%. Therefore, the downpayment for HDB flats is calculated based on a 15% downpayment.
- A downpayment of 25% is applied for Executive Condominiums (EC) and private properties as HDB loans are not applicable.
- We assume the borrowers have no other loans other than the property loan they intend to take. Hence, they could maximise the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR).
- The MSR rate of 30% is used to determine the salary required for HDB flats.
- A TDSR rate of 55% is used to determine the salary required for executive condominiums (where the minimum occupation period has been fulfilled) and private properties.
- We assume a 25-year home loan tenure with an interest rate of 2.6% for HDB flats and 1.6% for EC flats and private properties to determine the monthly repayments.
- For the salary required, we assume that both husband and wife are working and earning the same salary.
Lastly, we do not take any other costs into consideration, including agent fees, stamp duty, legal fees, renovation or other related expenses that are typically incurred for a property purchase.
The Salary We Need To Buy Our Dream Home
|Housing Type||Median Resale Housing Price||Minimum Downpayment||Monthly Repayments||Average Salary Per Spouse|
|Executive Condominiums (ECs)||$1,055,000*||$263,750||$3,202||$2,915|
|Semi Detached House||$4,600,000*||$1,150,000||$13,960||$12,691|
|Good Class Bungalow (GCB)||$30,303,000#||$7,575,750||$91,966||$83,606|
*Figures are based on the URA transactions recorded from Jan to Dec 21.
#The figure represents the average price of a GCB for 2021.
The median selling prices for HDB resale flats were derived based on HDB’s 4Q2021 resale statistics. Compared to our article in 2021, the average HDB resale prices have increased by between 7% and 15%. Nevertheless, the minimum salary required to finance any of the three types of HDB flats ranges between $2,615 and $4,467 per spouse. This falls within MOM’s 2021 median income of $4,680.
Similarly, the median Executive Condominium (EC) price has increased by around 5.5% compared to last year. We calculated the median price based on the resale transactions provided by URA for 2021. Interestingly, we find that the salary required to purchase a resale EC flat is lower than that required for an HDB flat that is 4-room or bigger.
The reason for the high salary requirement for HDB flats is due to the 30% Mortgage Servicing Ratio (MSR) that HDB flat buyers are subjected to. While EC buyers are allowed to use up to 55% of their income on loan repayment due to the TDSR rules.
The TDSR rules only apply to ECs that have completed their Minimum Occupation Period. Otherwise, the MSR rules will apply.
You may notice that the salary required to purchase a condominium flat in the Rest of Central Region (RCR) or Outside Central Region (OCR) is lower than the salary required to buy an HDB executive flat. This is again because of the higher debt financing allowed for private property buyers compared to HDB buyers.
Though the salary required to purchase a condominium in the OCR or RCR is less than an 5-room or Executive flat, they cost almost twice as much. Even though it’s theoretically possible for a couple earning the minimum salary of $4,100 each to purchase a condominium, in reality, it may be overbearing on their finances to do so.
The landed properties are categorised in three ways: terrace units, semi-detached units, and detached or bungalow units. We derived the median price based on the past one-year (2021) resale transaction records available on URA’s website.
The minimum monthly salary required to purchase a “dream” landed property is between $8,691 and $26,762 per spouse. The upper-end of this figure is close to MOM’s average monthly household income from work in 2021, which is around $25,425 per landed household.
Again, it is theoretically possible for a couple earning about $17,000 ($8,691 x 2 spouses) to own a landed property, but they may be unrealistically overstretching their finances.
Good Class Bungalows (GCBs)
Lastly, for the crown jewels of residential properties in Singapore, the GCBs, we derived the average price based on CBRE’s report. There was a total of 99 GCBs transacted in 2021, for a total volume of $3 billion. To have any possibility of owning a coveted GCB in Singapore, you need to earn at least $83,606 per spouse.
In reality, most buyers in this category will likely be earning at least 10 to 15 times that to afford a $7.5 million downpayment and a monthly mortgage of nearly $100,000.
Only Buy What You Can Afford
The purpose of this exercise is to bring the possibilities of home ownership to those aspiring to one. Most of us may feel daunted by the rising home prices, and we may feel encumbered from taking any action towards our dream of homeownership. This theoretical exercise may serve as a starting point for determining the salary that is required to afford your desired property.
At the same time, we would also advocate not maximising your gross income on your mortgage loan. Taking the maximum loan leaves little margin for error, especially when unplanned circumstances like job losses or sudden interest rate hikes occur.
As we mentioned at the start of the article, the affordability of any property should be considered holistically. One way of testing for affordability is by using the 3-3-5 rule. You may check your financial position to purchase a property based on the three criteria. This way, you can avoid overstretching yourself.
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