How much should your first home cost?

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by ValuePenguin

You've been working for quite a few years, saving money to buy your home one day. You are getting married, and now you've finally saved enough to make it happen. However, with homes easily costing close to a million dollars or more, you won't be able to do it without the help of some bank financing. But, how much should you really borrow?

While it's rather easy to figure out how much you are allowed to borrow by the government and banks in Singapore, it's a whole another issue when you are trying to assess how much home loan you should be getting. If you are one of those people, this guide can help you get started in getting to your answer.

How much should you expect to pay for your home?

In order to help you understand the approximate cost of a home these days in Singapore, we collected the median price of 4-Room HDB Flat resales by town. According to the data released by the Housing & Development Board, you can expect to pay anywhere between S$350,000 and S$900,000 for a 4-room HDB flat, depending on which town you are residing. Given that most 4-room HDBs are generally around 1,000 sq ft, this translates to around cost of S$350 to S$900 per square foot.

Town Q4 2014 Q4 2015 Q4 2016 Q1 2017 % chg
Ang Mo Kio 418,000 464,000 469,000 460,000 -1.90%
Bedok 497,500 415,000 419,800 410,000 -2.30%
Bishan 420,000 535,000 602,000 547,500 -9.10%
Bukit Batok 455,000 402,000 405,000 411,000 1.50%
Bukit Merah 425,000 640,000 604,000 630,000 4.30%
Bukit Panjang 435,000 350,000 345,000 358,000 3.80%
Central 451,000 835,000 845,000 811,500 -4.00%
Choa Chu Kang 418,000 353,000 345,000 343,000 -0.60%
Clementi 610,000 535,000 518,000 530,000 2.30%
Geylang * 500,000 550,000 513,800 -6.60%
Hougang 391,000 398,000 380,000 390,000 2.60%
Jurong East 667,500 416,000 403,800 410,000 1.50%
Jurong West 380,000 380,000 376,900 375,000 -0.50%
Kallang/Whampoa * 546,000 518,000 574,000 10.80%
Pasir Ris 425,000 397,000 400,000 395,000 -1.30%
Punggol 515,000 420,000 450,000 452,500 0.60%
Queenstown 525,000 699,000 680,000 702,500 3.30%
Sembawang 375,000 360,000 361,500 365,000 1.00%
Sengkang * 402,900 408,000 415,000 1.70%
Serangoon 430,000 428,000 465,000 443,800 -4.60%
Tampines 400,000 420,000 430,000 423,000 -1.60%
Toa Payoh 368,000 530,000 565,000 631,000 11.70%
Woodlands 583,500 365,000 350,000 350,000 0.00%
Yishun 357,000 354,000 369,000 356,000 -3.50%

Cost of a private residences, on the other hand, was much higher than cost of HDBs, as one would expect. The median transaction price for all private properties ranged from S$800,000 to S$2,700,000, depending on the town, a much bigger variation than that of HDBs. Because the size private residences vary a lot more than HDBs, we also calculated the median price per square foot of all private residence transactions, which ranged from S$750 to S$2,000 depending on the neighborhood.

Postal District 2014 2015 2016 2017 YTD % chg
1 2,220 2,118 2,027 2,008 -1%
2 2,005 1,914 1,812 1,824 1%
3 1,666 1,625 1,639 1,682 3%
4 1,475 1,383 1,368 1,602 17%
5 1,248 1,182 1,200 1,282 7%
8 1,956 1,300 1,205 1,448 20%
9 3,072 N/A 3,577 1,924 -46%
10 1,331 1,484 1,520 1,858 22%
11 1,417 1,481 1,553 1,593 3%
12 899 2,056 912 1,267 39%
13 1,191 1,200 1,130 1,373 22%
14 1,131 1,055 1,087 1,557 43%
15 1,335 1,290 1,161 1,678 45%
16 1,002 968 903 1,384 53%
17 846 929 802 834 4%
18 790 960 780 1,015 30%
19 1,174 1,116 1,039 1,046 1%
20 1,194 1,239 1,099 1,258 14%
21 1,297 1,263 1,178 1,140 -3%
22 897 858 723 821 14%
23 1,031 916 904 791 -13%
25 867 788 708 761 7%
26 1,136 1,085 1,046 1,040 -1%
27 874 757 489 812 66%
28 1,150 1,133 901 870 -3%

 

Latest Real Estate Price Trends: Property Prices Are Generally Falling in Singapore, But Mostly in Central

What was also interesting was that property prices have been falling in central, but not everywhere in Singapore. According to ValuePenguin's study, the median price of 4-room HDBs (the most common type of housing in Singapore) has fallen by -4% in Central so far in 2017 compared to its level in Q4 of 2016. In contrast, the resale price of 4-Room HDBs in areas like Toa Payoh and Bukit Merah actually increased.

This trend of property price was even clearer for private residences. Data from Urban Redevelopment Authority shows that the median private property price per square foot in central declined by -46% to S$1,924 so far in 2017 from S$3,577 in 2016. However, there were meaningful increases in private property prices in non-central districts, as shown in our map below. While the overall market was in an overall decline on average, the most of the decline was concentrated in the central area (i.e. postal district #9).

Don't Maximise Your TDSR or LTV Limit

Given these high prices, it's almost a necessity get some bank home loans when you are purchasing your first home. For instance, Singaporeans have been borrowing about 53% of their home value to fund their purchases in Q1 of 2017. What's concerning is that this average loan-to-value (LTV) ratio in Singapore has risen from 48% in 2014.

We think borrowing an increasing amount to fund your home purchase might not be the best idea, especially in face of a declining real estate market. It is good to borrow while interest rates are still at historically low levels, but rising SIBOR coupled with declining property prices can really hurt you when your home loan's fixed rate resets to floating rates in a few years time. Given this, make sure you don't borrow too much more than 50% of your home value, so that you can still manage to pay your interest when rates are higher in 3 years.

This article was first published at ValuePenguin