Buying a home is getting expensive – what can you do?
If you’ve only got a minute:
- With the latest cooling measures, cash will continue to play a significant role for home payments.
- Consider factors such as location, size and proximity to public transport carefully as they can add a premium to the cost of your home.
- Make use of DBS MyHome planning tools to help you on your home purchase journey.
Singapore's property market has seen a steady rise in prices, with private home prices increasing by 1.4% in the first quarter of 2024. This growth, although slower than previous quarters, has resulted in a significant 49.6% increase since the market's low point in Q2 20171.
The HDB resale market has also experienced a surge in prices, with a 2.3% rise in the second quarter of 2024, marking the 17th consecutive quarter of price growth. Resale transactions have also increased, with a 4% rise from Q1 2024 and a 12.9% increase compared to the same period in 20232.
One notable trend is the growing number of million-dollar HDB resale transactions. In Q2 2024 alone, 236 units were sold for at least S$1 million, up from 183 in Q1 2024. A total of 516 such transactions had occurred, surpassing the 469 recorded in the whole of 2023 (as of July 2024)3.
To address the rising property prices and ensure housing affordability, the 4th round of property cooling measure (since Dec 2021) was implemented in August 2024 which include lowering the Loan-to-Value (LTV) limit for HDB home loan from 80% to 75%. This will bring the LTV to be on par with bank’s mortgage loan.
While these measures may help moderate price growth, they could potentially lead to higher out-of-pocket expenses for home buyers.
To mitigate the higher downpayment required, the Enhanced CPF Housing Grant (EHG) for eligible first-time buyers were increased.
If you are planning to buy a property, here are 5 points to consider:
1. Affordability
The lowered LTV (80% to 75%) reduces the maximum amount you can borrow with a HDB home loan.
For example, if an HDB flat you are interested in is valued at S$600,000, you can borrow up to S$450,000 (75%), down from the previous limit of S$480,000 (80%). This change results in a difference of S$30,000, which means you will need to come up with an additional S$30,000 in cash or CPF savings to cover the gap.
The LTV limit for home loans obtained from financial institutions remains unchanged at 75%.
You can plan your finances on DBS Home Marketplace using a variety of tools such as the MyHome planner, which lets you work out the affordability of a property you’re interested in.
These tools include a Property Budget function, which helps you plan your finances; a Cashflow Timeline, which lets you manage your cashflow and payments; and a Repayment Calculator, which helps you calculate your home loan repayments.
2. Types of home loans
Home loans primarily fall into 2 categories: fixed rate and floating rate loans.
A fixed rate home loan maintains a consistent interest rate throughout the lock-in period, providing you with stability and predictability in your monthly repayments. This is particularly advantageous in a rising interest rate environment, as it allows you to "lock-in" a rate and avoid fluctuations.
In contrast, a floating rate loan has interest rates that are tied to a reference rate, such as the Singapore Overnight Rate Average (SORA). This means that the interest rate can vary over time, potentially leading to lower monthly payments when rates are low, but also bear in mind, the risk of increased payments if rates rise.
Generally, floating rates offer more flexibility but come with less certainty regarding future repayments.
Read more: Fixed or floating home loan – which is better?
DBS offers a Two-In-One Home Loan that combines both fixed and floating interest rates to provide flexibility and stability. With this hybrid loan, a portion of your total loan amount is allocated to a fixed rate package, while the remaining amount is subject to a floating rate. By splitting your loan between fixed and floating rates, you can enjoy the benefits of both options.
3. Prioritise needs and wants of your future home
As a first-time home buyer, it's easy to get caught up in the allure of luxurious amenities and prime locations, but it's crucial to balance your desires with a realistic budget.
Take the time to carefully consider which factors, such as floor area, proximity to public transport and nearby facilities that are essential (needs) and which ones you can compromise on in exchange for a lower price point (wants).
Be honest about your priorities, and don't be afraid to explore alternative options that may not have all the bells and whistles but still meet your core needs. Remember, striking a balance between your desires and your budget is key to finding a home that you can comfortably afford and enjoy for years to come.
Read more: Steps to finding your perfect home
If you are a first-time HDB home buyer, find out more about the variety of CPF Housing grants which can potentially help you shave a 6-figure sum of your property price!
4. Planning of cashflows is essential
As a property purchase involves the payment of large sums of money, it is essential to know the timeline of the various payments you need to make to manage your cashflow.
Some common payments include:
|
Upfront payments |
Recurring payments |
|---|---|
| Option fee | Maintenance fees, conservancy charges and utilities |
| Downpayment | Property tax |
| Buyer’s Stamp Duty (BSD) | Mortgage insurance and other home-related insurance |
| Additional Buyer’s Stamp Duty (ABSD) – for a 2nd and subsequent property | |
| Legal costs (including stamp fees) | |
| Agent’s commission and fees | |
| Other miscellaneous costs (insurance, valuation fee) |
The biggest cash outlay you’ll need to prepare for is the downpayment of your property. Here’s a look at the amount of down payment you’d need to set aside for either a HDB flat or a private condominium:
Downpayment for property purchase
|
Property type |
Type of loan |
Down payment |
Mode of payment |
|---|---|---|---|
| HDB Flat | HDB Loan | 25% of purchase price | CPF or cash |
| HDB Flat | Bank Loan | 25% of purchase price or property value, whichever is lower | 5% cash, 20% with CPF or cash |
| Private condominium | Bank Loan | 25% of purchase price or property value, whichever is lower | 5% cash, 20% with CPF or cash |
Taking a HDB loan or bank loan allows you to borrow up to 75% of the property value. Put simply, regardless of the loan type, the minimum downpayment is 25%.The main difference is that if you have enough CPF money to cover your downpayment, you’ll not need to fork out cash at all with your HDB home loan.
If you are buying an HDB resale flat at S$500,000 and take a 75% loan from HDB, the downpayment will be 25%, or S$125,000 (cash and/or CPF). If you have sufficient funds, you can pay your entire down payment using your CPF savings.
If you opt for a bank loan instead and borrow 75% of the sales price, then your down payment will be S$105,000 (CPF or cash), of which S$25,000 (5% of the property price) must be paid in cash.
If you’re purchasing a condominium valued at S$1 million (purchase price at S$1.2 million), the valuation of S$1 million (lower of the 2) will be used to calculate how much you can borrow (bank loan).
Assuming you take the maximum 75% loan, your down payment will be S$250,000 + the S$200,000 cash over valuation (CoV). For the down payment, you must pay 5% (S$50,000) in cash and S$200,000 with your CPF or cash. The CoV component must be in cash. This means that the total cash outlay will be S$250,000 and S$200,000 may be used from your CPF Ordinary Account.
Do note that borrowing the maximum amount you can has financial implications – you’d need to pay more interest in the long term.
You can make use of DBS’s MyHome Planner to work out your property budget and map out the cash inflows from your sale of property and outflows for the purchase of your next property.
5. Renovation costs and timeframe
Renovation costs can run up to a large amount, especially for those buying an older property that requires extensive renovation works. If you are tight on cash, you can always do the essential renovations first and work on the aesthetics later. If need be, a renovation loan can help to bridge the cashflow gap.
Sometimes, it can be difficult to match the timing of you taking over your new home with the time you need to move out of your current place. Do take into consideration the extra cost if you need to rent a place in between moving homes.
That said, owning your dream home can be an enjoyable process but it needs to be well planned. Not sure where to start? Make use of DBS MyHome planning tools to help you on your journey to making your home purchase!
Start Planning Now
Check out DBS MyHome to work out the sums and find a home that meets your budget and preferences. The best part – it cuts out the guesswork.
Alternatively, prepare yourself with an In-Principle Approval (IPA), so you have certainty on how much you could borrow for your home, allowing you to know your budget accurately.
Sources:
1 CNA, “Home owners likely to pay higher mortgage rates for a while more, say market watchers". Retrieved 3 Sep 2024.
2 3 CNA, “HDB resale prices increase 2.3% in Q2 of 2024, transactions up 4%”. Retrieved 3 Sep 2024."
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
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