New Reporter
28-06-23, 11:29
Can young couples attain the condo dream? Yes they can, but they should weigh the costs
Leslie Yee
Jun 26, 2023
PRIVATE housing prices rose 8.6 per cent in 2022 and 10.6 per cent in 2021, outpacing income growth for many households.
Private home buyers now pay higher home loan rates. The three-month compounded Singapore Overnight Rate Average rose from under 0.2 per cent per annum at early 2022 to over 3.6 per cent per annum at value date Jun 23, 2023.
Households are further being squeezed by higher inflation, which erodes disposable income.
https://i.imgur.com/WMcDunh.png
Is buying a private home now an impossible dream for many locals? Maybe, people will work less hard if the condo lifestyle is beyond reach. After all, chasing a higher bonus or a pay increment may not be worth the extra hours spent at work should the higher pay be unable to translate to being able to buy a condo.
Within reach
However, my analysis shows that the condominium ownership dream is within reach for local couples comprising two university graduates.
Take a couple who applied for a four-room Build-To-Order (BTO) flat from the Housing and Development Board (HDB) at age 26. After 12 years – to give time for getting a BTO unit, construction of the flat and fulfilling the minimum occupation period of five years – the said couple now aged 38 wants to upgrade to a condominium.
This couple can afford a S$2 million home based on assumptions shown below.
At S$2 million, the couple can buy a three-bedroom new 99-year leasehold condominium in the suburbs of over 900 square feet. Alternatively, the couple can buy a similarly sized freehold resale unit in a more central location or a larger leasehold resale unit in the suburbs.
First, the couple may be able to raise around S$500,000 in cash and CPF savings to be used in buying their condo, after netting off principal repayment on home loan, from selling the four-room HDB flat.
As it is, the prices of comparable resale flats nearby may be 40 or 50 per cent more than BTO units, which are sold at subsidised prices. Moreover, some BTO flat buyers receive housing grants.
Second, over 12 years, we can assume that the couple may have savings of over S$400,000 to help pay for a condo unit. This sum can be built up based on saving S$2,000 per month or S$24,000 a year for the first six years and a higher S$2,750 per month or S$33,000 a year for the next six years as income rises. Amounts saved are assumed to generate annual returns of 3.5 per cent.
To accumulate the savings may require sacrifices, of course, such as not buying a car or splurging on fancy holidays or spending less on dining out.
Third, assume the couple takes up a home loan of S$1.1 million. Based on a 25-year tenure and interest rate of 4 per cent per annum, the monthly repayment amount is S$5,806. Some fixed-rate home loans offer sub-4 per cent interest rates.
As at June 2022, the median gross monthly income including employer CPF contribution of full-time employed residents aged 35-39 was S$9,424 for male degree holders and S$8,352 for female degree holders. A couple in their late 30s comprising two graduates in full-time employment earning median income will have a combined monthly income of S$17,776.
In the above scenario, the monthly home loan repayment amount is under 33 per cent of gross monthly income. And a large portion of the home loan repayment can be serviced out of CPF savings.
Indeed, a graduate couple in their mid to late 30s may feel confident about taking up a multi-year loan to fund a private home buy because their peak earning years are ahead of them.
Based on data as at June 2022, the median gross monthly income including employer CPF contribution of full-time employed residents for male degree holders were S$11,020 and S$11,120 for those in their 40s and 50s respectively. For female degree holders, the figures were S$9,020 and S$9,044 for those in their 40s and 50s respectively.
Private homes in Singapore are sold at market prices. Still, Singapore citizens buying their first home enjoy tax advantages over other groups of buyers, as they pay no Additional Buyer’s Stamp Duty (ABSD). The ABSD rates are 5 per cent for a permanent resident buying his first home, 20 per cent for a citizen buying a second home, and 60 per cent for a foreigner buying any home.
Alluring lifestyle
A condo lifestyle is alluring to many. Some condos boast many facilities, luxurious fittings and biophilic designs. Some people may enjoy the sense of exclusivity associated with condo living, or the social status of being a condo owner.
Nevertheless, a couple should not rush to sell their HDB unit and buy a private home.
First, retaining ownership of the HDB flat can make sense. The range and quality of amenities in many HDB estates is good. And, service and conservancy charges for HDB homes are generally much lower than management fees of condominiums.
Existing rules permit eligible HDB flat owners to buy private homes. On the other hand, owners of private homes who want to buy HDB homes would need to sell their private homes first. And wait-out periods apply before an ex-private homeowner can buy an HDB home.
Second, while peak income years for degree-holders may be in the 40s or 50s, there are risks of job losses. Where jobs are lost because of skill sets becoming obsolete, there may be painful periods of having minimal income as one re-trains to take up other opportunities. Moreover, some of those who lose their jobs may find difficulty in securing well-paying full-time roles.
Also, if condo ownership depends on two pay cheques, there is limited flexibility for one partner to stop working, in order to care for children or elderly parents.
Third, while putting money in private homes may yield potential capital gains, there is the opportunity cost of using a large part of one’s earnings to fund a home buy. One may end up with much lower CPF savings to fund retirement needs or forgo the opportunity to build up an investment portfolio of high quality stocks and bonds.
The condo dream is still within reach of many graduate couples. However, they need to carefully evaluate the trade-offs involved in realising their private homeownership aspirations.
https://www.businesstimes.com.sg/opinion-features/can-young-couples-attain-condo-dream-yes-they-can-they-should-weigh-costs
Leslie Yee
Jun 26, 2023
PRIVATE housing prices rose 8.6 per cent in 2022 and 10.6 per cent in 2021, outpacing income growth for many households.
Private home buyers now pay higher home loan rates. The three-month compounded Singapore Overnight Rate Average rose from under 0.2 per cent per annum at early 2022 to over 3.6 per cent per annum at value date Jun 23, 2023.
Households are further being squeezed by higher inflation, which erodes disposable income.
https://i.imgur.com/WMcDunh.png
Is buying a private home now an impossible dream for many locals? Maybe, people will work less hard if the condo lifestyle is beyond reach. After all, chasing a higher bonus or a pay increment may not be worth the extra hours spent at work should the higher pay be unable to translate to being able to buy a condo.
Within reach
However, my analysis shows that the condominium ownership dream is within reach for local couples comprising two university graduates.
Take a couple who applied for a four-room Build-To-Order (BTO) flat from the Housing and Development Board (HDB) at age 26. After 12 years – to give time for getting a BTO unit, construction of the flat and fulfilling the minimum occupation period of five years – the said couple now aged 38 wants to upgrade to a condominium.
This couple can afford a S$2 million home based on assumptions shown below.
At S$2 million, the couple can buy a three-bedroom new 99-year leasehold condominium in the suburbs of over 900 square feet. Alternatively, the couple can buy a similarly sized freehold resale unit in a more central location or a larger leasehold resale unit in the suburbs.
First, the couple may be able to raise around S$500,000 in cash and CPF savings to be used in buying their condo, after netting off principal repayment on home loan, from selling the four-room HDB flat.
As it is, the prices of comparable resale flats nearby may be 40 or 50 per cent more than BTO units, which are sold at subsidised prices. Moreover, some BTO flat buyers receive housing grants.
Second, over 12 years, we can assume that the couple may have savings of over S$400,000 to help pay for a condo unit. This sum can be built up based on saving S$2,000 per month or S$24,000 a year for the first six years and a higher S$2,750 per month or S$33,000 a year for the next six years as income rises. Amounts saved are assumed to generate annual returns of 3.5 per cent.
To accumulate the savings may require sacrifices, of course, such as not buying a car or splurging on fancy holidays or spending less on dining out.
Third, assume the couple takes up a home loan of S$1.1 million. Based on a 25-year tenure and interest rate of 4 per cent per annum, the monthly repayment amount is S$5,806. Some fixed-rate home loans offer sub-4 per cent interest rates.
As at June 2022, the median gross monthly income including employer CPF contribution of full-time employed residents aged 35-39 was S$9,424 for male degree holders and S$8,352 for female degree holders. A couple in their late 30s comprising two graduates in full-time employment earning median income will have a combined monthly income of S$17,776.
In the above scenario, the monthly home loan repayment amount is under 33 per cent of gross monthly income. And a large portion of the home loan repayment can be serviced out of CPF savings.
Indeed, a graduate couple in their mid to late 30s may feel confident about taking up a multi-year loan to fund a private home buy because their peak earning years are ahead of them.
Based on data as at June 2022, the median gross monthly income including employer CPF contribution of full-time employed residents for male degree holders were S$11,020 and S$11,120 for those in their 40s and 50s respectively. For female degree holders, the figures were S$9,020 and S$9,044 for those in their 40s and 50s respectively.
Private homes in Singapore are sold at market prices. Still, Singapore citizens buying their first home enjoy tax advantages over other groups of buyers, as they pay no Additional Buyer’s Stamp Duty (ABSD). The ABSD rates are 5 per cent for a permanent resident buying his first home, 20 per cent for a citizen buying a second home, and 60 per cent for a foreigner buying any home.
Alluring lifestyle
A condo lifestyle is alluring to many. Some condos boast many facilities, luxurious fittings and biophilic designs. Some people may enjoy the sense of exclusivity associated with condo living, or the social status of being a condo owner.
Nevertheless, a couple should not rush to sell their HDB unit and buy a private home.
First, retaining ownership of the HDB flat can make sense. The range and quality of amenities in many HDB estates is good. And, service and conservancy charges for HDB homes are generally much lower than management fees of condominiums.
Existing rules permit eligible HDB flat owners to buy private homes. On the other hand, owners of private homes who want to buy HDB homes would need to sell their private homes first. And wait-out periods apply before an ex-private homeowner can buy an HDB home.
Second, while peak income years for degree-holders may be in the 40s or 50s, there are risks of job losses. Where jobs are lost because of skill sets becoming obsolete, there may be painful periods of having minimal income as one re-trains to take up other opportunities. Moreover, some of those who lose their jobs may find difficulty in securing well-paying full-time roles.
Also, if condo ownership depends on two pay cheques, there is limited flexibility for one partner to stop working, in order to care for children or elderly parents.
Third, while putting money in private homes may yield potential capital gains, there is the opportunity cost of using a large part of one’s earnings to fund a home buy. One may end up with much lower CPF savings to fund retirement needs or forgo the opportunity to build up an investment portfolio of high quality stocks and bonds.
The condo dream is still within reach of many graduate couples. However, they need to carefully evaluate the trade-offs involved in realising their private homeownership aspirations.
https://www.businesstimes.com.sg/opinion-features/can-young-couples-attain-condo-dream-yes-they-can-they-should-weigh-costs