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How Much Do You Really Need To Afford Your First Flat

You’re a millennial, you’re a couple of years into your budding career, and you’ve been dating your significant other for a couple of years. If this sounds like you, you’re probably about to make two life-changing decisions at this stage in your life: getting married and buying your first house. Two very petrifying and possibly not cheap decisions. Ok we can’t help you with bridezilla/groomzilla, but we’re here to calm your nerves about purchasing your first HDB flat.

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Your starting point: pool together what you have in the Ordinary Account (OA) of your CPF, and whatever cash savings you think you can set aside for your house. This amount, which is what you can use as the downpayment for your flat, coupled with the maximum loan you are eligible to borrow from either HDB or a bank, will determine the maximum budget you have for your flat.

According to our back-of-the-envelope calculation, if your monthly household income is $4,500 and both you and your partner been working for four years, you together should have accumulated approximately $50,000 in your OA (CPF).

According to the HDB Loan Calculator, your estimated loan amount would be just shy of $300,000. Assuming you want to save all your cash savings for that photobooth at your wedding and not use any for your house, $350,000 would be the maximum price of a flat your budget allows for.

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An artist's impression for Northshore Residences in Punggol. Source: Today Online

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An artist's impression for Tampines Greenweave. Source: The Straits Times


Now, on to the best part! To us, what make HDB flats even more affordable than what they seem to be are really the various additional housing grants available, on top of the subsidised prices. Specifically, first-time homebuyers can receive grants of up to:
- $80,000 for BTO flats
- $90,000 for resale flats - inclusive of $20,000 Proximity Housing Grant

That’s more than 25% for a $300,000 home, and perhaps the biggest red packet you would receive in your life! So do remember to check out your eligibility and apply for your HDB grants. According to statistics, more than 80% of first-time 2/3/4-room new BTO buyers received grants.

So you ask, “How much cash do I actually need to fork out?” Sticking to the above income of $4,500 and flat price of $300,000, and also assuming that you pick a 4-room or smaller flat in a non-mature estate, you’re likely to be entitled to a grants totaling $50,000, which would help to bring down the cost of your home significantly.

Your monthly mortgage payments (assuming you opt for a 25-year loan tenure), would also be fully covered by your monthly CPF contributions, just like the more than 80% of people who pay no cash for their monthly loan repayment!

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Location, Location, Location

So, the terms 'mature' and 'non-mature' are often thrown around when the location of towns or estates are discussed. The distinction is simple. Amenities and infrastructure are more prevalent in mature towns.
Consequently, flats in these areas are heavier in demand. Having said that, as the dynamics of demand and supply would dictate, flats in mature estates (Bishan, Tampines) often come at a premium while flats in non-mature (Punggol, Sembawang) estates are considerably cheaper.

Remember, affordability is really as much about price as it is about choice. The preference for a mature vs. a non-mature location is yours to make. But remember, mature towns were non-mature at some point in time, and many non-mature towns such as Punggol and Woodlands are up and coming.

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Source: Punggol Waterway.com

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Source: Surbana.com

Another thing to consider is that you have a much higher chance of getting a flat in a non-mature estate. For example, in the November 2015 BTO exercise, there were less than 2 applicants for every 4-room flat offered in Punggol, compared to more than 4 applicants for every 4-room flat in Bidadari, a mature estate. With the greater supply of flats in non-mature than mature locations, they are a good choice for young couples who wish to secure a flat more quickly.

The development of more amenities, shopping centres, MRT lines and such, will accompany towns as they progressively become more populated. While non-mature towns may be a tad more inconvenient than mature towns, they are definitely more affordable and easier to secure.

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Editor’s Note

Bear in mind that we have also been fairly conservative in our estimates. The starting prices for a 4-room flat in non-mature estate during the Nov 2015 BTO exercise was $197,000. We did not factor in the wait for your flat (typically about four years), which would help you to build up more money in your CPF to use as your downpayment. To keep things simple, we also didn’t factor in a rise in income, annual bonuses and other bounties that could be used to pay off your principal loan amount and shorten your loan tenure.

Affordable homeownership is a distinct possibility in Singapore, that is why we have managed to achieve more than a remarkable 90% homeownership rate. All it takes is some measure of financial planning and responsibility.

This article is done in collaboration with the Ministry of National Development.

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