Back to Basics
Hello again!
A lot of times, we look to the internet to find the answers to your questions. This is like one of those times where you might be thinking where do I start if I would like to know more about owning a private property in Singapore.
Well, look no further!
In this article, we will provide a guideline for you that is not only easy to comprehend but with as little technicalities as possible. You will be able to find the most basic knowledge to kickstart your interest to owning a property in Singapore.
Let’s begin!
Why the focus on private properties only?!
Why, you asked?
Well you see, for people who are as single af like me, we fall quite clearly outside HDB’s criteria for the need of having “two names” or at least 35 years old to be even eligible for public housing. That really leaves us not much of a choice but to consider the private property market.
And because of this singularity we never wanted in our lives, it will take us double the amount of time to amass the same amount of wealth and/or loan eligibility amount as compared to people who are in a couple (for instance). Assuming that a couple are earning the same monthly salary, it makes it a lot easier for them to take a higher loan due to a higher combined salary for example. But then again, this is based on a very conservative assumption where everyone (single or not) is earning an average salary.
So we will be looking at things from the angle of a very single person, with a very average salary and hopefully, you will be able to apply the same principles to your earning scenarios from there on. This is to establish a baseline, a control use-case, to determine the bare minimum levels to afford a property in accordance with today’s property market rules.
Public Housing vs Private Properties
Before diving straight into the numbers, let us quickly run through the types of housing in Singapore and some note-worthy T&Cs. Typically, housing options are usually categorised into two broad categories: Public Housing and Private Properties.
| Public Housing vs Private Properties | ||
| Public Housing | Private Properties | |
| Examples | HDB Flats, Executive Condominiums (ECs)* | Condominiums, Landed, Executive Condominiums (ECs)** |
| Lease Period | 99 Years | Freehold, 99 & 999 Years |
| Resale Restrictions | 5 years Minimum Occupation Period (MOP) | None. |
| Resale Levy | S$15,000 ~ S$55,000 | None. |
| Seller Stamp Duty (SSD) | None. | 1st year: 12% 2nd year: 8% 3rd year: 4% More than 3 years: 0% |
| *Executive Condominiums (ECs) are subject to public housing rules as they are considered subsidised flats by the HDB. Owners of ECs are required to serve the Minimum Occupation Period of 5 years and will only be allowed to sell to Singaporeans and Permanent Residents thereafter. **ECs are classified as private properties from the 11th year onward. From the 11th year onward, it is then allowed to be sold as a private property in the open market. | ||
|---|---|---|
Okay damn, let’s stop right here.
As promised at the beginning of the article, we will try to keep things at a very essential, Touch-N-Go, EZ-link type of beep-and-leave, fuss-free approach. So please keep in mind that we are merely scratching the tip of the ice berg at this point of time.
Contrary to popular belief, you might think that you need to command a 5 figure salary in order to comfortably afford a private property such as a condominium in Singapore. A failure to plan is a plan to fail. And to avoid that from happening, here’s a quick and easy guideline on how you can look at where you are financially to be able to afford a private property in today’s market.
How much on average must I earn to be able to afford a property?
I am pretty sure everyone is looking for the answer to the burning question that is how much do we need to be making in order to own a private property in Singapore.
According to the Ministry of Manpower, the median gross monthly income from work of full-time employed residents back in 2019 is at S$4,563.
Lol.
Honestly, my first job back in 2013 paid me a gross monthly salary of S$2,500 as a fresh local university graduate and largely because I had “no prior job experience” in that field. I mean come on, what would you expect from a 26 year old fresh graduate? I was still smelling as clean as freshly cut grass.
Perhaps, let’s look realistically at lower figures and start by the breakdown of CPF allocation rates.
For people who don’t already know, a total of 37% will be contributed to the our respective accounts as of 1 January 2016 for those of ages 35 and below. The portion in which you will be able to use for both public housing and private properties are in the Ordinary Account (OA); which is typically 20% of your monthly salary with the other 3% coming from the 17% of your employer’s contribution.
Do note that there is an Ordinary Wage (OW) ceiling on which CPF contributions are payable per month. According to the CPF Board, the prevailing OW ceiling is currently at S$6,000 per month.
In other words:
| Ordinary Wage (OW) Ceiling – E.g. S$8,000 Monthly Salary | ||
| S$6,000 | S$2,000 | |
| S$6,000 will be liable for CPF contributions | Keep the change | |
The ABCs and the 123s
Right. It has been months since I ventured into property research and all I see nowadays on my social media platforms are too many sponsored posts on properties in SG. Literally, one too many. With many forms of data and cookie tracking used to “observe” user behaviours on websites, said users can then be fed with “relevant” information in the form of ads, pop-ups and more.
Not to call out any particular ad or service, but we often see many misleading ads where it states that it is possible to buy your first property with $X amount of salary. While we are not saying that it is fake news, usually messages like these all come with catch don’t they?
So let’s get down to some specifics.
“You can own your first private property with just S$7,000 combined monthly salary!”When you are in the process of looking for a property online, I strongly believe you will come across similar ads like the one above. To debunk such an assertive claim, first we have to understand the finances required prior to owning a private property. Basically, there are a few components that make up a home loan.
| Private Property Home Loan | |||
| Downpayment | 5% Cash* (1% Option Fee, 4% Exercise Fee) – Resale | 20% Cash and/or CPF | 25% |
| Bank Loan | Maximum 75% | 75% | |
| Bank Loan Tenure | Maximum 30 Years | Total: 100% | |
| *5% cash downpayment is required for all new launch private residential properties | |||
|---|---|---|---|
There are other financial technicalities involved such as the Progressive Payment Scheme involved for Buildings Under Construction, stamp duties and lawyer fees. We will be covering more on that in another post.
So, can we really own our first property just with a total of S$7,000 monthly salary? Let’s do the math by assuming the case scenario of a new launch, 1 Bedroom condominium priced at S$750,000 to illustrate this example.
| Downpayment – 1 Bedroom at S$750,000* | |
| 25% – Cash and/or CPF | |
| 5% – Cash | 20% – Cash and/or CPF |
| S$37,500 | S$150,000 |
| 75% Bank Loan – 30 Years Maximum | |
| S$562,500 | |
| *Other fees are excluded in this calculation for simplification purposes | |
|---|---|
From our experience, taking the full bank loan for the remaining 75% for 30 years is usually not the main factor especially when you are of good “loanable age” (35 and below). According to our friendly neighbourhood bankers, a total combined income of about S$4,400 will make you eligible for a $562,500 loan amount. The assumption made here is that the borrower(s) do not have any existing liabilities such as car or personal loans. With that being said, the 75% of S$750,000 that seems to be the bulk of the problem can be easily overcome when you have a monthly salary of S$2,200 (excluding liabilities) per person. The thing that seemingly bothers most people is the initial outlay of the 25% (S$187,500).
As this is an example of a new launch condominium, 5% (S$37,500) will have to be paid in cash. This amount is presumably easier to obtain as compared to 20% (S$150,000) in cash and/or CPF.
In order to not fork out any cash for the 20% part of the downpayment, you need to have S$150,000 in combined CPF monies in the Ordinary Account. Assuming that you are purchasing this as your first property (and is 55 years old and below), you can use whatever amount that is in your OA. In the event that you do not have sufficient monies in your CPF OA to use for the 20% downpayment, you will have to top-up the difference in cash.
| 25% Downpayment – Insufficient CPF Monies Example | |
| 20% – Cash and/or CPF | S$150,000 |
| Total CPF Monies in OA | (S$100,000) |
| Difference to top-up in Cash | S$50,000 |
| 5% – Cash | S$37,500 |
| Total Cash required | S$37,500 + S$50,000 = S$87,500 |
|---|---|
As shown, if you only have S$100,000 in your CPF OA to offset for the 20% portion of the downpayment, you are required to top-up the difference of S$50,000 in cash. Do note that this excludes the initial mandatory 5% in cash. I know what you might be thinking. Forking out S$87,000 seems quite attainable, especially if you are in a couple with S$7,000 in combined monthly salaries. The math all seems to work out and its definitely affordable! But is it really though?
The following table shows a quick computation of S$7,000 in monthly salary for single or combined incomes aged 35 years old and below.
| Monthly CPF OA Contribution | |||
| Single Income – S$7,000 | |||
| Monthly Salary | Monthly OA Contribution (23% of Monthly Salary) | Annual OA Contribution (incl. 13th Month Bonus) | Average years of work required to have S$150,000 in OA |
| Person A – S$7,000 | S$1,380 (S$6,000 x 23%) OW applies | S$17,940 | 8.36 |
| Combined Income – S$7,000 | |||
| Person B – S$3,500 Person C – S$3,500 | S$1,610 (S$3,500 x 2) x 23% | S$20,930 | 7.17 |
In the ideal case scenario mentioned above where there is no need to pay any part of the 20% in cash, you would have to be working for 7-8 years with a combined salary of S$7,000 to have S$150,000 in your CPF OA account.
And of course, this is also based on the assumption that you are working purely to fund your purchase via CPF monies in your OA. Obviously when taken into account your cash savings, one could afford to purchase this unit much earlier in life. But let’s just stick to what if you didn’t have that kind of cash lying around.
You do know that life will forever find ways to make sure you are eons away from getting what you want as long as you show the slightness of weakness in your resolve. And this may come in many forms such as Michelin star meals, that branded fugly ass pants you see in stores, holidays, shoes, cars, watches, you name it.
I believe by quoting my starting salary of S$2,500 and the increment I got over the years from my first job, it seems like an acceptable middle ground for this example.
| Monthly CPF OA Contribution | Monthly Salary | Monthly OA Contribution (23% of Monthly Salary) | Annual OA Contribution (including 13th Month Bonus) |
| 2013 – 2014 | S$2,500 | S$575 | S$7,475 |
| 2014 – 2015 | S$2,690 | S$618.70 | S$8,043.10 |
| 2015 – 2016 | S$2,820 | S$648.60 | S$8,431.80 |
| 2016 – 2017 | S$2,990 | S$687.70 | S$8,940.10 |
| 2017 – 2018 | S$3,250 | S$747.50 | S$9,717.50 |
| 2018 – 2019 | S$3,440 | S$791.20 | S$10,285.60 |
| 2019 – 2020 | S$3,680 | S$846.40 | S$11,003.20 |
| Total | S$63,896.30 | ||
During my 7 year stint in that role, I have managed the above amount set aside in my CPF Ordinary Account. So, assuming that I would be able to used the entire amount in the OA:
| Downpayment – 1 Bedroom at S$750,000* | CPF Ordinary Account | Total | |
| 20% – Cash and/or CPF | S$150,000 | (S$ 63,896.30) | S$86,103.70 |
| 5% – Cash | S$37,500 | ||
| Total Cash Required | S$123,603.70 | ||
It appears that I am quite far off the affordability scale even after having worked a good 7 years of my time. And unless you have S$123,603.70 in cash lying underneath your tilam at home, you can continue sleeping on the same tilam till you have found that money.
Then how now brown cow?
Reality Check
To be honest, I know many of our readers will find it ridiculous that I have seriously underplayed the entire calculation process by understating one’s earning power. And to be frank, I do not disagree with you guys either. The aforementioned salary is my actual pay scale excluding performance bonuses during my entire stint with that company. (Don’t ask me why I stayed for 7 years. I know, it’s dumb.) On top of that, the above calculations is probably as real as it gets for anyone who has just started working after graduation with little to no savings at all.
My point here is if you were to apply the same principles in calculation to your own scenarios, you will have a good gauge of whether you will be able to afford a particular private property. In addition, you will come to realise that private properties are generally, contrary to popular belief, quite affordable; especially if you are in a couple. Every case differs from one another with possibly unique solutions for each individual cases. What we have covered in this article is merely the first thing one might probably hear when considering a private property in accordance with today’s property market rules.
Like I have previously mentioned earlier, we are by far only scraping the top Mount Ice Kacang. There are many other costs and factors involved that still are yet to be uncovered to the untrained eye and we will be covering that in a separate article. In reality, I am sure there are many people who are caught in between the cracks of Singapore’s property jurisdiction. Although there are many rules that have been revised over the years, the financial basics have yet to deviate too far for private properties. And as we are all ever subtly reminded by our parents and the Singapore Government, it is always easier to do things in pairs.
To good hope.
