5 Things Singapore’s Millennials Need To Know Before Buying Their First Homes
Everyone has things they wish they had known beforehand. When it comes to buying a home, you may make a few mistakes you’ll come to regret. Occasional blunders are to be expected, but you’ll want to limit them – buying a home is, after all, a major financial transaction that will impact the way you live for years to come.
If you are a millennial in Singapore who’s been itching to move out from Mum and Dad’s, buying your first home can be even more daunting.
Fortunately, we can use our collective experiences to help each other. HSBC’s global study on homeownership – Beyond the Bricks – surveyed thousands of people last year. The insights gained from the study can help guide the rest of us through the process.
Here are five things you need to know before moving into your first home:
1. What are you eligible for?
The first step to homeownership is knowing what you’re eligible for. If you’ve been eyeing a HDB flat to purchase as your first home, you’ll need to be aware of Singapore’s stringent controls on who can buy public housing. You must fulfil at least one of these eligibility schemes in order to purchase a new or resale public property:
- Public Scheme
- Fiancé/Fiancée Scheme
- Single Singapore Citizen Scheme
- Joint Singles Scheme
- Non-Citizen Spouse Scheme
- Non-Citizen Family Scheme
- Orphans Scheme
Assuming you’re a Singaporean citizen, you’ll need to meet one of the following conditions if you want to buy a new or resale public housing flat:
- 21 years or older (if married, widowed or orphaned)
- 35 years or older (if unmarried or divorced)
Millennials below the age of 35 who are not married are generally not eligible for public housing in Singapore. If you don’t meet any of the eligibility schemes, you’ll have to spring for a private residential property instead – but be prepared to pay a premium for it. Private residential properties can be much pricier than public housing flats. The median price of a 3-room HDB flat in Yishun, for example, is S$268,000, but a private condominium of similar size in the same district can cost around S$900,000.
2. How much home can you afford?
Before you start home-shopping, you’ve got to figure out how much home you can actually afford at your current income level. Here’s how you can use the Total Debt Servicing Ratio (TDSR) and the Mortgage Servicing Ratio (MSR) to determine the maximum size of home loan you are eligible for:
3. How much do you have to save to pay for the upfront costs?
Knowing the upfront costs of your desired home purchase is important to help you set your savings goals. After all, it’s hard to start saving for a home when you don’t know how much you should actually save.
Generally, the upfront costs of buying your first home may include:
|Private property||HDB flats|
|Down payment||Minimum 25%* of the purchase price||10% of the purchase price (or minimum 20%* of purchase price if you’re taking out a bank loan instead of a HDB loan)|
|Stamp duty||1% for the first S$180,000
2% for the next S$180,000
3% for the next S$640,000
4% for the remaining amount
|Legal fees||S$2,000 onwards||First S$30,000: S$0.90 per S$1,000
Next S$30,000: S$0.72 per S$1,000
Remaining amount: S$0.60 per S$1,000
|Valuation fees||S$200 onwards||S$156.45 onwards|
4. How do you save for your first home?
According to those surveyed under Beyond the Bricks, one of the biggest barriers to millennial homeownership is insufficient savings: 69% of millennials who intended to buy a home had not done so yet because they do not have enough funds for a deposit.
Here are two things you can do to save for your first home:
- Put aside money every month. Setting a minimum to put aside every month not only gets you closer to affording your home, but helps you set a time frame. For example, if you plan to save S$50,000 for the upfront costs of purchasing a home, putting aside S$1,100 every month means that you’ll roughly need four years of savings.
- Cut back on day-to-day expenses. Cutting back on unnecessary everyday expenses will certainly help divert more cash into your new-home fund. If you don’t want to live a completely spartan lifestyle, consider a compromise – for instance, treat your fancy morning coffee as a once-a-week luxury instead of an everyday must-have. Cutting back on little recurring expenses will add up to big savings over time.
5. How much does renovation and furniture cost?
HSBC’s Beyond the Bricks research found that 56% of the respondents who bought a home in 2016 and 2017 overspent their budget. The most common reasons given for overspending were renovation costs (47%) and buying furniture (42%).
In fact, in the same survey, home renovation was the most popular change that homeowners believed would make them happier with their homes. So even if you’re not planning on renovating your home, budgeting for its possibility in case you change your mind could save you a lot of headache in the future.
So how much does home renovation cost? It’s hard to put a definite price tag, as it is subject to your specific needs and taste. According to renovation platform Qanvast, moderate renovation on a 4-room HDB flat (90 square metres) could cost around S$44,700 to S$53,640:
|Hacking||S$1,900 – S$3,700|
|Masonry||S$4,800 – S$14,400|
|Carpentry||S$14,500 – S$23,800|
|Ceiling and partition||S$1,600 – S$2,800|
|Plumbing||S$600 – S$1,100|
|Electrical||S$800 – S$2,000|
|Painting||S$1,500 – S$1,600|
|Glass and aluminium||S$2,900 – S$5,600|
|Cleaning and polishing||S$1,000 – S$1,300|
|Total||S$44,700 to S$53,640|
These prices are based on moderate renovation for an entire 4-room HDB flat (i.e. the living and dining area, the kitchen, three bedrooms and two bathrooms). If you’re just planning on doing light renovation in specific areas of your home, you’ll incur much lower costs. However, keep in mind that the average value of a renovation contract last year was S$11,711.
If you’re springing for completely new furniture for every room, you could be forking out an additional tens of thousands of dollars. While budgeting for your first home, it would be a good idea to make a list of the furniture you’ll need and their approximate costs.
Planning early is key
A sizeable fraction (36%) of millennial respondents received financial support from their parents in order to afford their first home. Among millennials homeowners who exceeded their budget, 26% borrowed from family to manage the costs. While there’s no shame in receiving help from your parents (if they’re willing, that is), you may not want to (or may not be able to) financially rely on them.
Early planning and disciplined spending can help you afford your first home on your own, as well as avoid unexpected costs. It’s going to take some effort, but turning your homeownership dream into reality will be worth it.
This article was originally published on June 22, 2018.