A Comprehensive Guide For First Time Home Buyers In Singapore

young couple planning to buy a home

Buying property in Singapore is probably one of the most significant decisions for most Singaporeans.

As a first time home buyer, it is essential to know what and how the property market works in Singapore – so you don’t end up paying a premium for your first home.

In this post, we will be talking about what you should look out for when you purchase your first home.

 

The Property Landscape In Singapore

Overview of the Current Singapore Property Market

Singapore’s property market had been mostly stable in 2019. Even in the face of trade tensions between the United States and China, property developers were still able to sell 29 per cent more new homes than they did before the trade tensions escalated to an all-time high.

However, despite such huge success, Singapore is facing a property glut that could take years to clear.

According to the Straits Times, an estimated four years are needed to clear this oversupply of private homes.

This might threaten to push down the prices of private properties for developers.

But, this is good news for us Singaporeans – especially for those who are looking to upgrade their HDBs to private homes.

If you’re interested in upgrading your HDB to your dream home, you can contact me @ 9762 1726 or email to leo@privatehome.sg.

What About HDB Buyers?

So, if private homes are decreasing in prices, does this mean that the prices of HDBs are going to become affordable for the average Singaporean?

Not exactly.

To understand why this does not change the game for HDB buyers, we must look at the historical data to get deeper insights.

For simplicity’s sake, we’ll use the HDB resale flats as a point of reference – since many BTO flats are now built in non-mature estates (which are less popular compared to mature estates).

According to statistics provided by data.gov.sg, the HDB resale price index was just at 105 in Q3 of 2009. In a short span of four years, the index peaked at 149.4 in Q2 of 2013.

“For example, if the index increases from 100 to 108 in 1 year, that means that on the whole, HDB resale flat prices increased by about 8% over that year.”

Although the HDB resale price index has been dropping steadily from 149.4 in Q2 of 2013 to 130.8 Q2 of 2019, this does not override the increase in HDB resale prices from 2009 to 2013.

If you’re a math person, you’ll know that every increment in the HDB resale price index indicates an exponential increase in prices.

Example

  • Price of 3-room HDB flat is S$350,000 in 2017 ⇒ an increment of 1% ⇒ becomes S$353,500 in 2018
  • Price of 3-room HDB flat is S$353,500 in 2018 ⇒ an increment of 1% ⇒ becomes S$357,035
  • 2017 ⇒ Prices increased by S$3,500
  • 2018 ⇒ Prices increased by S$3,535

Though the prices of resale HDB flats have indeed fallen since 2013, this only means that HDB is becoming relatively more affordable for home buyers – but it is still not considered affordable if you take into consideration the high cost of living in Singapore.

To put things in perspective, an average 4-room HDB resale in Bishan now goes for S$561,000 (you can find this data at the official HDB website.)

This is not considered affordable for some households.

Hence, if you’re a first time home buyer, you need to know the intricate details of purchasing a property so that you can make the best financial decision for your family.

Read on to find out what you need to know about purchasing your first home in Singapore.

 

Cost Of The Different Housing Types In Singapore

The first thing to look at is the price of the different types of housing in Singapore.

This is the most crucial step to determine which house you will most likely be purchasing as your first home, given your financial capabilities.

BTO HDB Flats (Non-Mature Estates)

  • Three-Room: S$150,000 to S$200,000Four-Room: S$295,000 to S$350,000
  • Five-Room: S$390,000 to S$500,000

BTO HDB Flats (Mature Estates)

  • Three-Room: S$200,000 to S$300,000
  • Four-Room: S$290,000 to S$320,000
  • Five-Room: S$400,000 to S$550,000

HDB Resale Flats

  • Three-Room: S$245,000 to S$410,000
  • Four-Room: S$300,000 to S$550,000
  • Five-Room: S$550,000 to S$750,000

Executive Condominium

  • One-Room/Studio Apartment: Approx. SS$420,000 to SS$560,000
  • Two-Room: Approx S$650,000 to S$720,000
  • Three-Room: Approx S$750,000 to S$1,093,000
  • Four-Room: Approx S$1,110,000 to S$,1594,000
  • Five-Room: Approx S$1,600,000 to 1,800,000
  • Penthouse: Min. S$1,900,000

Private Condominium

  • One-Room/Studio Apartment: Approx. S$600,000 to S$700,000
  • Two-Room: Approx S$800,000 to S$900,000
  • Three-Room: Approx S$1,000,000 to S$1,200,000
  • Four-Room: Approx S$1,400,000 to S$2,000,000
  • Five-Room: Approx S$2,000,000 to 2,400,000
  • Penthouse: Min. S$3,000,000

Landed Property

  • Terrace Houses: Approx S$1,900,000 to S$4,000,000
  • Semi-detached Houses: Approx S$3,400,000 to S$6,100,000
  • Detached Houses: Approx S$6,900,000 to S$16,500,000
  • Good Class Bungalows: Min. $10,000,000

After you have a rough idea about the prices of the different kind of houses in Singapore, you’ll be able to better plan out your finances and make realistic goals.

 

What To Consider As A First Time Home Buyer?

Location Matters

Researching on the location of your property is the very first step anybody should take when it comes to buying a home.

Although you might already be aware of this step, it is often overlooked by many buyers – especially first time home buyers.

As a rule of thumb, before you jump into a property transaction, first consider:

  • The desired area of your home
  • The type of property you wish to purchase
  • Neighbouring schools for your children

You are highly encouraged to recce the place of choice before making any further decisions.

Legwork does pay off when we’re talking about the most significant transaction for most Singaporeans in their lifetime.

Dig Deeper Into The Market History

If you’re already approaching property agents to look for your first property, you’ll realise that most of them are very gung-ho about the subject on property.

Some of them might even misrepresent the truth about the current situation of the property market just to entice you to buy.

It is not uncommon for them to tell you that there’s no bad timing in buying property – after all, the Singapore property market is one of the strongest in the world.

Unfortunately, it couldn’t be further from the truth. Timing plays a huge role in whether you get to enjoy capital appreciation when you decide to sell your home.

Remember the HDB resale price index mentioned previously? If you had bought your resale flat in 2013, you’d most likely be making a loss if you sell it now.

In May 2019, a 2,336 sq ft three-bedroom unit in Sentosa cove was sold for SS$3.1 million, which is SS$3.2 million below its original purchase price of SS$6.27 million in 2010.

Although the example shown is a private property, it does show that even private properties in prime locations such as Sentosa Cove are greatly affected.

So how would you know when the property market is not doing well?

For home buyers, you can look out for the following:

  • When there are news reports of decreasing property prices as well as the number of transactions
  • When interest rates rise
  • When the cost of housing increases faster than income levels

Be Realistic About The Type Of Home You Can Afford

You’ve already decided on the area and done your primary research. The next thing on the list is to calculate where you stand financially.

When calculating the type of house you can afford, always consider the following:

  • Age
  • Type of residency
  • Income level
  • Cash on hand
  • Amount of Money in CPF Ordinary Account
  • Outstanding debt
  • Loan tenure
  • The choice of property

Of course, the list isn’t complete as there are other fees that you need to include in your computation (which will be discussed later), but it will give you a rough idea of where you currently stand and which housing type you should be looking at.

Save For DownPayment

It is vital to prepare for the downpayment because it is a considerable sum of money you need to pay upfront when purchasing your home.

When you’re purchasing property, there are two options to choose from:

  • Take a housing loan from HDB (Only for BTO or resale HDB flat)
  • Take a housing loan from a Bank

Here’s a table showing the difference in downpayment between an HDB loan and bank loan for the purchase of HDB flat.

a table showing the difference between hdb loan and bank loan

 

Fortunately for HDB buyers, you can get a loan from HDB and pay the downpayment using only your CPF.

However, when you purchase a private property, you’re only eligible to take a housing loan from the bank.

You must pay a minimum of 5% of your purchase price as part of your downpayment.

When you’re considering taking a housing loan from the bank, do be aware that your credit rating will affect your maximum loan amount.

This, in turn, affects the amount of money you have to pay in cash. So, pay your bills on time!

Take Note Of Property Valuation

Property valuation an estimate of how much a property is worth. It determines how much you will pay for the property.

It is important that you take note of the indicative valuation, which are simple estimations of the value of a property. This is because it can limit the amount of housing loan you can get.

When you have found your desired home to buy, you can always use free online valuation tools or simply go to the HDB or URA website to look at the historical transactions data of a particular property if there is any.

If you’re a first-time home buyer applying for a housing loan, take note of these two points:

  • Loan-to-Value limit is 75% – which means that you can only get a loan up to 75% of the property value.
  • Loan-to-Value limit becomes 55% if the loan tenure exceeds 30 years or the loan period exceeds your age of 65.

Research On The Types Of Mortgage That Suits Your Situation

Albert Einstein famously said that compound interest is the most powerful force in the universe. And that is precisely the reason why home buyers have to understand what type of mortgage best serves them given their own set of circumstances.

When you pick the wrong mortgage, the amount of interest you’ll end up paying in the next 25 years is astronomical.

If you’re not sure about which mortgage is the best for you, consider looking for an experienced agent to help you map out your options.

Ask Your Seller About The Property Rental Yield

When purchasing a property, it is advisable to consider your house’s rental yield.

Even if you have no intentions of renting it out in the next ten years or so, you never know how your plans will change in the future.

Nowadays, many homeowners no longer stay in the same place for the rest of their lives.

Therefore, if you need to sell your home in the future, you will have to consider your future potential buyer.

And your future potential buyer might be looking to purchase for rental and will consider your house’s rental yield.

You can find out from here the market rental rates of whole HDB flats.

You can find out from here the rental contracts of private residential properties or download URA’s Property Market Information app.

When purchasing a brand-new home, you can always compare the rental prices of the same type of house in the surrounding area.

If you were to rent out your property later in your life, the rental yield helps you cover the mortgage of the rented property and a portion of your monthly expenditure.

Still unsure about how to calculate the rental yield? Ask your property agent to help you derive the final yield number!

Look For A Reliable Property Agent

These days, with over 30,000 registered property agents to pick from in Singapore, it is not easy to find an agent who will be able to meet your needs and provide meaningful insights that will help you make better decisions and avoid costly mistakes.

Here are a few signs that the property agent is right for you:

  • The property agent is registered with CEA on CEA’s Public Register
  • Prioritises your needs and works with your budget
  • Knowledgeable about property financing and the landscape of Singapore’s property market
  • Gives regular updates on their progress
  • Does not hard sell you on the property listings you’re not interested in

Sure, you might be paying a little extra to hire an agent, but you can leverage their expertise to find better deals that you might not have been able to find on your own.

Purchasing your first home in Singapore can be a long and dreadful process.

A good agent can help you cut down the time and effort needed to be spent on tedious paperwork, and give you peace of mind while shopping for a property.

 

Things You’re Paying For When You Buy Your Home

Buyer’s Stamp Duty

As a home buyer, you are required to pay BSD for documents (i.e. Option to Purchase / Sale & Purchase Agreements) that are prepared and signed for the sale and purchase of property in Singapore.

buyer stamp duty for residential property

 

As you can see, the BSD does add up to quite a significant amount of your total purchase value. It is a form of progressive tax that gets more expensive, especially when the price of your property is above S$1,000,000.

Conveyancing fees

Cost: S$1,800 to S$2,500

These are legal fees that cover a few components like mortgage stamp duty, CPF Legal Fees (if you’re using CPF to pay), Professional Fees of Lawyers, etc.

Such fees are usually in the range of S$1,800 to S$2,500 for HDB and private properties, depending on the purchase price and type of property purchased.

Valuation Fees

Cost: S$120 to S$500

If you are taking a housing loan for the purchase of an HDB flat, the valuation fee is $120 (GST inclusive).

For the purchase of private property, the cost of the valuation fee is depending on the type of property. It may be absorbed by the bank issuing the loan as a benefit in some loan packages.

Property Agent Commission

Cost: 0 to 1% of Purchase Price

If you decide to engage a property agent to help you with the transaction, you might need to pay a service fee to the property agent.

The fee is entirely negotiable. The typical commission rate for the purchase of a resale HDB flat is 1% of the purchase price.

If you’re purchasing a private property, you don’t have to pay any commission as your property agent will receive a co-broke fee from the seller’s agent.

Home Owner Insurance

Cost: S$100 to S$250 per year 

A typical home insurance policy in Singapore protects the policyholder’s home contents (i.e. Furniture, gadgets, and other valuables in the property).

Home insurance’s price and coverage vary based on the size and type of property, ownership status, and home valuation.

 

Grants & Schemes (For Government Housing Only)

One good thing about buying a house in Singapore is that most people are eligible for the housing grants and schemes offered by the government.

Depending on the level of income and housing type, these grants can help offset a considerable portion of the financial burden that comes with the purchasing of a property.

There are two types of grants, namely:

  • CPF Housing Grant
  • Proximity Housing Grant

How Do The Grants Help?

The grants can be used to:

  • Offset the remaining downpayment for the HDB/DBSS/EC flat
  • Decrease the mortgage loan for the HDB/DBSS/EC flat purchase

However, you cannot use the grant for:

  • The minimum cash downpayment of 5% if there are any
  • Monthly mortgage instalment payments.

First-Timer Applicant

First-timer families can receive up to $160,000 in grants when buying a resale flat, and up to $80,000 when buying a new flat.

But before you can qualify for any of these schemes, please check that you must not:

  • Be the owner of a flat bought from HDB
  • Have sold a flat bought from HDB
  • Have taken the CPF Housing Grant to buy an Executive Condominium (EC) unit, DBSS flat or an HDB resale flat, or taken over ownership of such a flat or EC unit
  • Have transferred the ownership of a flat bought directly from HDB, or an HDB resale flat bought with a CPF Housing Grant
  • Have taken other forms of housing subsidies, such as the Selective En-bloc Redevelopment Scheme benefits or privatisation of HUDC estates

Otherwise, you will not be considered as a first-timer applicant – this means that you’re not eligible for the CPF housing grant.

CPF Housing Grants for HDB Flats

Grant amount: Up to $80,000, depending on household income

To be eligible, you must meet the following criteria:

  • Average gross monthly household income for the 12 months before flat application must not exceed income ceiling of $9,000
  • Co-applicant and essential occupiers are all first-timers
  • You and your spouse must have worked continuously for 12 months prior to the flat application, and must still be working at the point of flat application.
  • You and the other flat applicants must not own any of private residential real estate whether locally or overseas. Or have disposed of any such properties 30 months before your new flat application.
  • Remaining lease of flat must be 20 years or more, and have sufficient lease to cover the youngest buyer to the age of 95 to qualify for the full Enhanced Housing Grant (EHG). Otherwise, the EHG will be pro-rated. 

CPF Housing Grants for ECs

Grant amount: Up to $30,000, depending on household income

To be eligible for the grant:

  • Household income ceiling must be 12,000 and below (11,000 and below for PRs)
  • Applicants are first-timers

Proximity Housing Grant (PHG)

Grant amount 

Family PHG: Up to $30,000

Singles PHG: Up to $15,000

The PHG is only available for HDB resale flat buyers.

It’s a grant provided to resale flat buyers who plan to live with their parents or want to purchase a property near their parents’ home.

To be eligible for the PHG:

  • Age 21 years or above
  • Must be a Singapore Citizen
  • Family Nucleus must comprise of at least another PR or Singapore Citizen
  • Have not received the PHG before
  • Remaining lease of flat must be 20 years or more

You can check if your dream home qualifies for the PHG through the HDB’s Distance Enquiry Service.

 

Conclusion

When buying a home in Singapore, there are a lot of rules and regulation to know and follow.

It is not a small decision for many households – after all, it isn’t that cheap to afford one.

First-time home buyers need to be aware of the intricacies of the property market so that you don’t end up in a sticky situation.

The Singapore property market is a tricky subject. Still unsure about how you should go about to purchase your first home? Contact me @ 9762 1726 or email to leo@privatehome.sg for an obligation-free consultation!

Are you looking to buy a new condo? Read my guide on how to buy a new launch condo!

 

Frequently Asked Questions (FAQ)

1. How do I know if I am ready to buy a property?

The idea of making a large ticket purchase as a first time home buyer can be daunting. This checklist allows you to self-evaluate whether you are prepared to make a home purchase:

  • Do you have a stable paycheque?
  • Do you have a good credit score?
  • What is a sustainable budget plan for you in the long term, such that you will be able to save up for down-payment?
  • Clear as much of your outstanding debts as possible to improve your Total Debt Servicing Ratio
  • Understand what you need VS what you want. Decide whether you have the financial capability to finance your wants.
  • Based on your finances, decide on the type of home you wish to purchase
  • Decide your location preferences and research for future developments in these districts.

 2. I am ready to make my home purchase, and I wish to sign a bank loan that helps me finance my home purchase. What affects my maximum loan amount and loan tenure?

There are two factors that affect loan amount and loan tenure: Age and Financial Commitment.

Age

Generally, the younger you are, the longer your maximum loan tenure possible. Maximum loan tenures are capped at 30 years for HDB flats and 35 years for private properties.

For loan tenure exceeding 25 years for HDB flats, or 30 years for private properties, the maximum loan amount could be reduced to 55% of the property purchase price as well.

Therefore, it is important to consider and budget prudently for long-term instalment payments to get the best loan most suited for your needs.

Financial Commitment

To calculate your maximum home loan amount, banks will take into account the ratio of your debt to your income. This is called the Total Debt Servicing Ratio (TDSR), which is capped at 60% of all borrowers’ gross monthly income. This means that the total amount of your debt (including home loans, study loans) cannot exceed 60% of your gross monthly income.

Therefore, it is crucial to clear off as many outstanding debts as possible within your means and consider what other loans you might wish to take (for instance, car loans).

If you are seeking to upgrade your home, you are exempted from TDSR requirements if:

  • You will sell their existing property
  • You own no other properties
  • You hold no other property loans
  • You meet your financial institution’s credit assessment criteria

If you are purchasing a HDB flat or Executive Condominium, banks also have to calculate your Mortgage Servicing Ratio (MSR) based on loan amount and combined monthly gross income. This is capped at 30% of all borrowers’ gross monthly income, which means that mortgage repayments must not exceed 30 per cent of a borrower’s gross monthly income, even if you have no other debt obligations.

3. Can I use CPF to finance my home loan?

Yes! You can use the funds in your Ordinary Account to:

  • Pay for down-payment of your new home
  • Repay your monthly housing loan instalments
  • Pay for stamp duty fees and legal fees.

 4. What should I know about property loan refinancing?

Refinancing means replacing your current home loan package with a new one from another bank, usually with improved terms to lower your mortgage payments.

However, take note of the following:

  • Legal fees incurred will usually amount up to $2000-$3000. If the refinancing package saves you less than that, reconsider.
  • Make sure the lock-in period for your original loan is over; otherwise, you will incur a penalty fee

As an alternative to refinancing, consider repricing your home loan with your existing bank.

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