Affording your place to live, whether that be to rent or buy, is a financial goal for most. Our living conditions, how affordable our house is, and the pressure to own property contribute to our well-being. This article will give you a good insight into public and private housing in Singapore, the buying process, and cover the renting vs owning property debate.
There is no straightforward answer when choosing between renting or buying a home. In our opinion, your best bet is to use the knowledge presented in this article to come to a sensible conclusion. Here’s a quick overview of the key differences between the two options.
The Housing and Development Board (HDB) manages Singapore's public housing under 99-year leases. Public housing is not a homogenous product, as HDB flats come in various sizes and layouts.
Private housing complements the widespread public housing to provide another option for Singapore residents. This type of housing includes condominiums and landed property. Unlike public housing, private property owners can be the freeholder of the land.
The OCBC Financial Wellness Index 2022 found that 40% of Singaporeans have problems paying their housing loans on time (amongst those with housing loans), indicating that too many are taking on housing they cannot afford.
Housing experts suggest homeowners or tenants should not spend more than 30-40% of their monthly income on housing to have money available for other essential needs such as food and transportation.
This is the starting point when purchasing any property. Will you need a loan to finance a home, or can you afford to pay in cash? Most people will need a loan. It is crucial to evaluate how much you could comfortably afford to spend every month on a mortgage payment.
Maximum loan periods are capped at 25 years for an HDB flat using an HDB loan, 30 years for an HDB flat using a bank loan, and 35 years for a private property using a bank loan.
Remember: Property is a long-term commitment!
A longer loan tenure means your monthly payment is lower for the same amount of money borrowed, but your overall interest is MUCH larger!
We do not recommend taking out new credit lines, such as a credit card, shortly before you plan on purchasing property, as this will likely impact your credit score.
To see HDB’s budget calculator, click here.
You can borrow money from the Housing Development Board or a private financial institution (bank) to buy your property.
For more information about housing loans, click here.
If eligible, HDB flats can be purchased with a loan from the HDB. You can borrow up to 85% of the property’s purchase or valuation price, whichever is lower. Any loan from a financial institution must be from one regulated by the Monetary Authority of Singapore. You cannot refinance any loan from a financial institution with an HDB housing loan later on.
Use the HDB Flat calculator tool here.
The lender will assess how much you can borrow using the following methods:
If you take out a loan from the HDB, the interest rate is fixed at 0.1% over the CPF Ordinary Account (OA) interest rate. The CPF OA interest rate is amended following the amendment of CPF interest rates. As of September 2023, the CPF OA interest rate is 2.5% (the legislated minimum rate.)
Suppose you take out a loan from a private financial institution. In that case, you have two types of home loans available:
For more information on how home loans work, click here.
Photo by Modern Affliction on Unsplash
You can switch an HDB loan to a bank loan, but you can’t switch a bank loan to an HDB loan.
Though this may seem a good idea, you could be penalised! If you’ve taken out a bank loan, you may incur fees for early repayment, so read the small print carefully or talk to an experienced professional, such as a mortgage broker. Fortunately, HDB loans have no such penalty.
This fee reserves the flat that you wish to purchase and is non-refundable. The fee size depends on the flat:
This is paid when signing the agreement for the lease. The amount will vary depending on whether you are:
Of the down payment sum, the amount paid in cash vs from CPF savings will be contingent on:
The valuation fee is a report on the property being financed.
The legal fee is for processing the mortgage on the property being financed.
The stamp duty is a form of taxation owed to the government for mortgage registration.
The insurance premium covers your property against multiple damages.
There will be ongoing expenses away from monthly home loan repayments. These should be budgeted for accordingly:
HOUSING 101. COMPLETED. ✅
Sources:
.svg)
.svg)
.svg){kind=icon}
