How much must you earn to afford a property in Singapore?

Currently, 9 out of 10 residents already own their homes and the trend is anticipated to continue.

However, buying a home is never easy – especially when Singapore is one of the places in the world with exorbitant property prices.

The costs you will have to bear for your first property acquisition will further skyrocket if you are contemplating buying a private property in Singapore.

Apart from being costlier than public housing, prices of private properties have risen by 1% in the second half of 2017 for the first time in four years, climbing out of 15 quarters of decline.

In the first half of 2018, property prices increased by almost 9.1%! This is partly due to pent-up demand from buyers, and the recycling of capital from residents undergoing collective sales (En Bloc). It was only a matter of time before the government had to step in to prevent the overheating of the market.

See more: Gilstead Mansion lowered asking price for second collective sale attempt

Hence, we had our latest cooling measures introduced on the 6th of July 2018.

Nevertheless, owning a private property on the island republic is not unachievable. With the right financial planning and foresight, you can figure out how much you really need to earn in order to afford a private home here.

This article will reveal how much you should earn to afford condominiums in different regions of Singapore.

To facilitate calculations in subsequent segments, here are some basic assumptions:

  • Buyer is a Singapore citizen purchasing property for the first time
  • The standardized size of property: 2 bedrooms, 900sqft
  • Down payment: 25% of the property price
  • Loan tenure: 30 years
  • Total Debt Servicing Ratio (TDSR): 60% of gross monthly income
  • Buyer has no other debt commitments (i.e. credit card bills, car loans etc.)

See more: Government tightens property cooling measures by raising stamp duties

Core Central Region (CCR)

Dubbed as the most opulent region in Singapore, the CCR consists of neighbourhoods in districts 4 (Sentosa), 9 (Orchard, River Valley) and 10 (Holland Road, Tanglin). Based on Collier’s report, a two-bedroom unit of 1,098 sqft already costs a hefty SGD3.8 million.

Here is a simplified calculation to determine how much you need to earn to be able to afford a condominium in the CCR:

Source: Redbrick Mortgage Advisory

With reference to the table above, assuming a price per square foot (psf) of S$2,428, your 2 bedroom, 900 sqft unit would cost S$2,185,200. Your monthly mortgage payment would be S$7,360 if you obtain a 75% loan with a tenure of 30 years at an interest rate of 3.5%.

Banks do not use the prevailing interest rates to calculate your TDSR; instead, they use a “stress test” interest rate set by MAS. For residential properties, your TDSR is calculated based on a stress test rate of 3.5%.

To satisfy the TDSR of 60%, the minimum monthly salary you would need to earn is S$12,266 or S$147,192 per annum. However, this is assuming that you do not have any other debt obligations!

At the higher end of the non-landed private residential market spectrum, psf for units in the CCR can go up to S$3,500 to S$4,000.

For a 900sqft unit at $4000psf, this indicates that to cover a monthly loan instalment of say S$12,125, it is necessary for you to earn at least S$20,207 a month or S$242,484 a year to meet the TDSR requirement.

See more: Jurong Lake District’s development to continue notwithstanding HSR project

Rest of Central Region (RCR)

The RCR comprises of mid to upper-tier neighbourhoods like Bukit Merah, Tiong Bahru and Toa Payoh. Non-landed private residential properties in this area can range from S1,697 to S$2,611 psf based on a report produced by Colliers International.

Below is a rough calculation of the minimum monthly income you should draw to afford a unit in this region:

Source: Redbrick Mortgage Advisory

Similar to the CCR analysis above, taking a 30-year loan, your monthly mortgage payment would amount to S$5,090. Based on this, the average household income would have to be S$8,484 a month to meet the TDSR requirement of 60%.

Outside Central Region (OCR)

Bedok Residences. Picture: iProperty

Lastly, areas in the OCR includes neighbourhoods such as Clementi, Bedok and Yishun. Condominium units in this region are generally more affordable and psf ranges between S$761 to S$1,283.

See more: Clementi: The West’s Residential Star Keeps Rising

Based on the median psf of a condominium in Yishun, the financial breakdown is as follows:

Source: Redbrick Mortgage Advisory

For a 75% loan of 30 years, the monthly mortgage payment amounts to S$2,307. Hence, you would need to draw a monthly salary of S$3,845 to stay within the TDSR limit.

In addition to the costs above, it is also necessary for buyers to consider the following fees and duties:

Source: Redbrick Mortgage Advisory

There are many other costs that need to be factored in besides the monthly mortgage instalments.

For example, property taxes, fire insurance, mortgage insurance and monthly Management Fees are some of the other costs that you need to take note of.

Hence, before you make an offer to obtain the Option To Purchase (OTP) on your property, it is crucial that you examine your finances to ensure that you are able to meet all the requirements.

Poolside, Silversea condo. Picture: iProperty

Finally, check out our TDSR calculator to find out your affordability on that property you’ve been eyeing on!

Other than TDSR, you can also have a go at our other calculators:

  • Mortgage Repayment
  • Seller Stamp Duty
  • Buyer Stamp Duty
  • Return on Investment

This article was first published in Redbrick Mortgage Advisory.