A property purchase is usually one of the largest purchases that we make with us subsequently working for the next 20 to 30 years to pay off our mortgage loans. As such, to avoid overwhelming ourselves with a debt that we are unable to handle, it is important that we weigh our finances and make careful calculations before committing to a purchase. Despite condominiums averaging at $700,000 to over a million dollars, more Singaporeans are choosing to purchase condominiums with the proportion of households that are living in condominiums steadily increasing over the years.1 However, do you know the actual cost of a condominium?
(See "How Much Does It Cost To Live In Singapore 30 Years From Now?")
Executive Condominiums vs Private Condominiums
In Singapore, condominiums are generally divided into two categories: executive condominiums (ECs) and private condominiums with ECs being more affordable. This is because ECs are public-private hybrid properties with stricter regulations. For example, there is a minimum occupancy period of 5 years for ECs with them only becoming private after 10 years. As ECs are state-subsidized they are therefore more affordable and thus suitable for young couples who are trapped between not being eligible for HDBs but yet find private properties too expensive. On the other hand, private condominiums come with fewer restrictions and are generally located in prime areas. Free-hold private condominiums are also available for purchase as opposed to the 99 year lease for ECs.
(See "Will You Be 60, Retired And Broke?")
The cost
A recent project showed the prices of ECs starting from just $358,000 for a one bedroom condominium2 with the average price of a 3 bedroom EC being $783,500.3 Conversely, private condominiums outside central region averages at $1.2 million with condominiums at prime estates costing even more.4
Executive Condominium (EC) |
Private Condominium |
|
Estimated Cost Of Purchase |
$783,500 |
$1,200,000 |
Down-Payment Required (20% Of Purchase Price With At Least 5% Paid In Cash) |
$156,700 |
$240,000 |
Stamp Duty Fees |
$18,105 |
$30,600 |
Legal Fees |
$2,500 |
$2,500 |
Valuation Of Property |
$500 |
$500 |
Minimum Cash Required Upfront |
$50,010 |
$75,000 |
Total Cash + CPF Required Upfront |
$177,805 |
$273,600 |
Amount Loss To Interest Rates Of Mortgage Loan From Banks* |
$386,460 |
$591,898 |
Actual Cost Of Your Property |
$1,191,065 |
$1,825,498 |
Price Difference Between Cost Of Condominium And Actual Cost |
$407,565 |
$625,498 |
*Cost is calculated based on a medium-term interest rate (3.5%) for a maximum tenure of 30 years.5
However, as shown in the table above, purchase prices have yet to account for stamp duty, legal fees, property tax, home insurance, renovations and the monthly maintenance fees. Furthermore with a mortgage loan taken up for the purchase of your house, the amount paid to banks in the form of interest rates then have to be added into the actual cost. This therefore makes the costs of owning a condominium even higher with the price of an EC going up to $1,191,065 and a private condominium having more than $600,000 of additional incurred costs. Furthermore, as these figures are calculated based on a first property purchase, it therefore does not include additional buyer stamp duty (ABSD) that could result in an even heftier price tag. As such, it is important that you obtain adequate mortgage insurance to ensure that neither you nor your spouse would be burdened with the remaining mortgage loan should either of you meet with a mishap.
(See "The 3 Best Policies For Every Life Stage")
The 5 year plan
Take for example a scenario where you aim to purchase a condominium by the age of 30. To achieve this goal, it is likely that you will then begin your planning 5 years prior to this purchase. As such, we illustrate the amount required in cash as well as the combined income required so as to adhere to the debt servicing ratios.
Executive Condominium (EC) |
Private Condominium |
|
Combined Monthly Income** |
$9,500 |
$7,500 |
Monthly CPF-OA Contribution |
$2,185 |
$1,725 |
Amount Available In CPF After 5 Years |
$131,100 |
$103,500 |
Cash Required*** |
$50,010 |
$170,100 |
**Income reflects the minimum amount required to fulfil the respective Mortgage Servicing Rate (MSR) and Total Debt Servicing Ratio (TDSR).6
***The minimum cash required for down-payment and other fees are $50,010 and $69,000 for EC and private condominiums respectively.
As shown in the table above, in order to purchase a $783,500 EC, a couple would require a minimum combined monthly salary of $9,500. This therefore works out to be a monthly salary of approximately $4,750 each. Alternatively, while private condominiums only require a minimum combined monthly salary of $7,500 in order to fulfil the Total Debt Servicing Ratio (TDSR), it is important to note that they would then be required to fork out a large sum of cash in order to make up for the shortfall of their CPF. Moreover, the minimum combined monthly salary to adhere to the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) are calculated based on the assumption that the couple has no outstanding debts and/or loans. This includes any outstanding mortgage, credit card, car and/or any personal loans.
(See "The Secret To Financial Planning (Pst, Coffee Helps!)")
Achieving Your Goal
Theoretically, a 5 year plan to save up for your condominium may seem feasible. However, the reality may differ as couples may not be able to earn a combined monthly income of $9,500 by the age of 25. Additionally, it is also important to note that your CPF allocation into your ordinary account (OA) would also decrease as you grow older.7 Furthermore, choosing to use your CPF to finance your house would then mean having less funds for retirement in your CPF. As such, it may not be wise to solely rely on your CPF-OA contributions to finance your house.
Therefore, it is important to have proper financial planning before making your purchase as this allows you to determine your finances and devise a realistic saving plan. This may either include the partial use of your CPF or the use of a financial instrument to help with the down-payment. For example, consider using FSM MAPS, Unit Trusts, Fixed Income Bonds or other investment instruments to help achieve your goal.
(See "Should You Compare Endowment Policies With Fixed Deposits?")
How FSMOne can help you get on track
Our team of friendly advisers are able to help you review your financial objectives, long term commitments, and offer you investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan,
Available Products on FSMOne Insurance |
Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment from Manulife, NTUC Income and Tokio Marine Life Insurance *Please check with our advisory team if the product you want is available on FSMOne Insurance |
2Source: http://www.solacres.com/sol-acres-ec-price-list/
3Source: https://propertynet.sg/list-executive-condominium-prices/
4Source: https://sg.finance.yahoo.com/news/salary-earn-afford-homes-singapore-234540919.html
5Source: https://www.dbs.com.sg/personal/landing/loans/homeloans/calculate-loans.html
6Source: http://www.straitstimes.com/business/property/changes-to-tdsr-rules-6-things-you-need-to-know
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