Recalling how Minister of Home Affairs & Minister for Law, Mr. K Shanmugam mentioned about the unrealistic real estate goals of young Singaporeans, we pondered about what is the dream home we can afford given our current wage levels.
With the Mortgage Servicing Ratio (MSR) being brought down from 40% to the current level of 30%, we have to consistently be mindful of how our wage levels will determine the type of dwelling we are able to afford.
Though it may seem unbelievable, the cheapest HDB apartment costs only $17,500, once you factor in deduction from government grants.
How Much Does The Average HDB Cost?
Using the HDB's May 2015 Sales Launch as reference, here's the average price (excluding government grant) of the brand new flats at Northshore Residence I & II, EastLink I & II and Tampines GreenWeave:
Exhibit 1: Average Price of Each Type of HDB
|HDB Type||Average Price|
Source: Housing Development Board
We will assume that applicants are first-timers who are eligible to enjoy the Additional Housing Grant (AHG) and Special CPF Housing Grant (SHG).
Grants amount ranges from $0 to $80,000 depending on household income. As such, average HDB prices will differ depending on income levels
Exhibit 2: Cost of An Average HDB Type After Allocation of Grants
|Up to $1,500||17,500||24,625||110,000||219,500||366,000||373,500|
|$1,501 to 2,000||22,500||29,625||115,000||224,500||371,000||378,500|
|$2,001 to 2,500||27,500||34,625||120,000||229,500||376,000||383,500|
|$2,501 to 3,000||32,500||39,625||125,000||234,500||381,000||388,500|
|$3,001 to 3,500||37,500||44,625||130,000||239,500||386,000||393,500|
|$3,501 to 4,000||42,500||49,625||135,000||244,500||391,000||398,500|
|$4,001 to 4,500||47,500||54,625||140,000||249,500||396,000||403,500|
|$4,501 to 5,000||52,500||59,625||145,000||254,500||401,000||408,500|
|$5,001 to 5,500||62,500||69,625||155,000||264,500||406,000||413,500|
|$5,501 to 6,000||67,500||74,625||160,000||269,500||406,000||413,500|
|$6,001 to 6,500||N.A.||N.A.||165,000||274,500||406,000||413,500|
|$6,501 to 7,000||N.A.||N.A.||170,000||279,500||406,000||413,500|
|$7,001 to 7,500||N.A.||N.A.||175,000||284,500||406,000||413,500|
|$7,501 to 8,000||N.A.||N.A.||180,000||289,500||406,000||413,500|
|$8,001 to 8,500||N.A.||N.A.||185,000||294,500||406,000||413,500|
Note: Households earning more than $6,000 are not eligible to purchase HDBs Studio apartment and 2-Room flat.
Source: Housing Development Board
As you can see, a higher income household will encounter more expensive average HDB prices. This is because they enjoy lower grants. In other words, average HDB prices do vary depending on your income level due to the reduction in grant as a household income increases.
How much do I need to pay for my monthly mortgage?
First of all, you will need to make at least a 10% down payment if you intend to take a HDB housing loan. We assume homeowners will make a 10% down payment and borrow the rest at an interest rate of 2.6% per annum for 25 years.
Exhibit 3: Monthly Mortgage For Each Household Income and HDB Type
|Up to $1,500||71||101||449||896||1,494||1,525|
|$1,501 to 2,000||92||121||470||917||1,515||1,545|
|$2,001 to 2,500||112||141||490||937||1,535||1,566|
|$2,501 to 3,000||133||162||510||957||1,556||1,586|
|$3,001 to 3,500||153||182||531||978||1,576||1,607|
|$3,501 to 4,000||174||203||551||998||1,596||1,627|
|$4,001 to 4,500||194||223||572||1,019||1,617||1,648|
|$4,501 to 5,000||214||243||592||1,039||1,637||1,668|
|$5,001 to 5,500||255||284||633||1,080||1,658||1,688|
|$5,501 to 6,000||276||305||653||1,100||1,658||1,688|
|$6,001 to 6,500||N.A.||N.A.||674||1,121||1,658||1,688|
|$6,501 to 7,000||N.A.||N.A.||694||1,141||1,658||1,688|
|$7,001 to 7,500||N.A.||N.A.||715||1,162||1,658||1,688|
|$7,501 to 8,000||N.A.||N.A.||735||1,182||1,658||1,688|
|$8,001 to 8,500||N.A.||N.A.||755||1,202||1,658||1,688|
Note: Calculation using a mortgage calculator with interest rate of 2.6% paid monthly for 25 years
The lower your household income is, the lesser you need to pay each month for your monthly mortgage. Incredibly, a household with less than $1500 income per month, will only need to pay $71 for a studio apartment.
The largest HDB (3Gen) is still affordable for the higher income bracket. They pay about $1,688 per month, which represents about 20% of their monthly wage for those in the $8,001 – $8,500 bracket.
Which HDB type should I be getting based on my monthly wage?
So the golden question is "which type of HDB should I buy based on my monthly wage?"
Using the MSR as a guideline, we take the monthly mortgage payment and have it divided by 30% to obtain how much you would need to earn in order to purchase the type of HDB you aim to get, and still be within the MSR.
As long as the amount is above your household income bracket, we would locate it as N.A. That means you will not be eligible to make the purchase of that HDB type because your monthly income would be insufficient to sustain the mortgage based on not using more than 30% of your monthly income for mortgage repayment.
Exhibit 4: Minimum Household Income In Order To Purchase A Specific HDB Type
|Up to $1,500||238||335||1,497||N.A.||N.A.||N.A.|
|$1,501 to 2,000||306||403||1,565||N.A.||N.A.||N.A.|
|$2,001 to 2,500||374||471||1,633||N.A.||N.A.||N.A.|
|$2,501 to 3,000||442||539||1,701||N.A.||N.A.||N.A.|
|$3,001 to 3,500||510||607||1,769||3,260||N.A.||N.A.|
|$3,501 to 4,000||578||675||1,837||3,328||N.A.||N.A.|
|$4,001 to 4,500||646||743||1,905||3,396||N.A.||N.A.|
|$4,501 to 5,000||715||811||1,973||3,464||N.A.||N.A.|
|$5,001 to 5,500||851||948||2,110||3,600||N.A.||N.A.|
|$5,501 to 6,000||919||1,016||2,178||3,668||5,526||5,628|
|$6,001 to 6,500||N.A.||N.A.||2,246||3,736||5,526||5,628|
|$6,501 to 7,000||N.A.||N.A.||2,314||3,804||5,526||5,628|
|$7,001 to 7,500||N.A.||N.A.||2,382||3,872||5,526||5,628|
|$7,501 to 8,000||N.A.||N.A.||2,450||3,940||5,526||5,628|
|$8,001 to 8,500||N.A.||N.A.||2,518||4,008||5,526||5,628|
Note: Take the monthly mortgage from Exhibit 3 and divide by 30% to obtain the minimum monthly household income required in order to obtain the figures in this exhibit
As you may have noticed, 3-room HDB would be eligible for most household income categories. It also shows that the 5-room HDB and above should only be targets for those earning a minimum household income of $5,500 or more.
Are you intending to make your first HDB purchase soon? Feel free to share with DollarsAndSense on Facebook your preferred repayment strategy, (1) using only CPF Ordinary Account monies, (2) Cash, (3) or a mixture of both.
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