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Millennial Money: How much do I need for my first HDB flat?

(PHOTO: Getty Commercial)
(PHOTO: Getty Commercial) (kokkai via Getty Images)

SINGAPORE — Some say that purchasing your own house is the true mark of being an adult. But with the rising costs of housing in Singapore, it is no wonder that young adults feel the financial pressure, even before getting married.

This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and finance. In this seventh part, we speak to financial experts who share more about what young couples need to know before buying their first HDB flat.

BTO or resale?

The first major decision couples need to make is to decide whether to get a new Build To Order (BTO) flat from the Housing and Development Board (HDB), or to buy a resale unit.

Financial experts have suggested new couples try for BTO flats as it is ‘typically a good investment’. However, with the current COVID-19 pandemic causing delays in housing projects, couples may need to wait for up to five years to get their flat.

On the other hand, couples can collect their keys as soon as the transaction is completed if they choose to buy a resale flat. The downside is that resale flats do not come with a fresh 99-year lease unlike brand new BTO flats.

Either way, it is crucial to check for how much down payment or fees to be paid for the house, said Ernest Cai, Director of Client Success of ProsperUs, a digital investment service.

This includes the application fee, option fee (which forms part of the down payment), stamp duty and legal fees. Cai also recommends couples spend some money on home protection schemes and fire insurance.

Price and location constraints

Young couples that Yahoo Finance Singapore spoke to cited high housing prices and location as their main concerns when purchasing a flat. Thankfully, there are many housing subsidies available, including the Additional CPF Housing Grant and Special CPF Housing Grant.

“In addition, there are also grants like the Proximity Housing Grant of up to S$20,000 for couples who are buying a resale flat within 4km of where their parents stay,” said Cai.

Financial experts also advised that couples who are planning to start a family should consider scouting for a property near a primary school of their choice, so that they won’t feel the pressure to move when the time comes to enrol their child for school.

“Location is a big worry for us because we intend to stay there long-term, and depending on future developments in the area, what was an ideal location could potentially become undesirable,” said Andralyn Low, 23.

“The high cost of property here in Singapore is also a big concern, and I estimate we would need as much as S$500,000 which is something we currently can’t afford,” added Low, who will be marrying her boyfriend of seven years in 2023.

“But as we start our working careers, we will plan out our finances which includes looking at investments and savings plans to boost our portfolios,” said Low.

Similarly, Edric Tan, 26, wonders when he and his girlfriend (whom he is marrying in 2023) will eventually be able to pay off their housing loans.

“Aside from the grants, we also have to pay the down payment and basic renovation costs. It's unfortunately very expensive,” said Tan.

“But more than that, as you can tell, houses have gotten smaller over the years. Even though it's only the two of us in the first few years of our marriage, it'll still be nice to have a bigger space to grow over time as a family,” added Tan.

While most Singaporeans tend to rely on their CPF to purchase property, experts suggest that using bank loans concurrently can help ensure that there is sufficient CPF funds for retirement use.

“There is no need to max out the use of your CPF savings. Keeping some money in your CPF can serve as a kind of buffer for future monthly instalments in case your income stops temporarily,” said Chuin Ting Weber, CEO of MoneyOwl, a bionic financial advisor.

“In the long term, every dollar spent towards your home is a dollar less for your retirement needs,” Weber added.

Manage your expectations

Regardless, it is important to strike a good balance between affordability and having that dream first home.

“As a guide, the repayment of all your loans per month should not be more than 40 per cent of your total income and your non-mortgage debt (which includes any renovation loans) should be below 15 per cent of your take-home pay,” said Weber.

“It is also crucial to consider one’s financial situation, family plans and retirement goals before purchasing a flat,” said Eng Thiam Choon, CEO of Tiger Brokers Singapore, a brokerage firm.

Posing a hypothetical scenario, Eng asked: “A young couple earning S$4,000 each might live comfortably in a S$450,000 flat. But what if one were to stop working? Would they still afford the mortgage, especially when a baby is on the way?”

“The last thing you want is to do a monthly repayment amount that leaves you with nothing much to save for the next 20 to 30 years,” Eng said.