We all know that property prices have gone up substantially over the last few years. As a result, people are getting more and more worried about whether they can afford a condominium in Singapore or not. For most people buying a condo means taking out a bank loan. And the words “loan” and “debt” scare everyone. The thought of paying a monthly installment for the next 20 to 30 years can be both convenient and a little bothersome. But with the right planning, owning a condominium can be possible and considered a smart decision. One of the first steps towards doing that is knowing how much money you will need to own a condo in Singapore. Let’s take a closer look at the matter.
Living in a condominium feels different than living in an HDB flat. In a condo you can enjoy things like better security, gym, swimming pool and barbecue pits. Who wouldn’t like the high-end living experience of a condo? And the latest upcoming condos are high-tech with modern amenities like an auto lock door function. Then there is the view. Imagine working out in your building’s gym and looking out of screened windows into the amazing urban scenery.
Of course, all this comes at a price. How much are we talking about? Here are some numbers (starting prices shown):
- 1-Bedroom: $670k
- 2-Bedroom: $895k
- 3-Bedroom: $1.28m
- 4-Bedroom: $1.8m
- 5-Bedroom: $2.2m
- Penthouse: $3+m
Does this seem like a lot? Are you reconsidering buying a condo? Don’t be alarmed. Let’s get into a little detail and see how you can break down these prices so you can own one of these amazing condominiums in Singapore.
If you take out a bank loan, the maximum tenure for the loan is 35 years right now. And the maximum amount the bank will finance is 80% of the condo’s market value. Remember that this is only for a tenure for 30 years. If you want the tenure to be over 30 years, you can only borrow 60% of the condo’s market value. This is known the Loan to value (LTV) ratio.
Another ratio you should consider is the Total Debt Servicing Ratio (TDSR). This currently stands at 60%. What this means is that you can only use a maximum of 60% of your gross monthly income for paying all your loans. In addition to the loan you plan to take for the condo, this includes others like car loans, student loans, credit card debts, personal loans etc.
So assuming you don’t have any other loan, you can use the complete 60% ratio. You can also enjoy the maximum LTV 75% for 30-year loan tenure.
Here is how the calculation for the $900K condo would go:
- Condo Price: $900K
- Loan tenure: 30 years
- Loan amount: $675k (75%)
- Down payment: $225k (25%)
Using a 2% interest rate, the monthly repayment comes out to be $2,661.
Under TDSR you can use only 60% of your gross income towards the loans. So to pay the $2,661 per month installment, you would need a monthly gross income of $4,435.
Keep in mind that based on the policy of Monetary Authority of Singapore (MAS), financial institutions have to charge a higher interest rate of 3.5% to calculate monthly loan repayments. So at this rate, you would need a gross monthly income of $5,389 to qualify for a loan of $720k over 30-year tenure.
If you have a degree and work at a manager level, a monthly income of $5,389 doesn’t seem like a big deal. But you also need to make a 20% down payment. In this case that is $180K. Now the situation might seem a little less manageable. Moreover, you can only pay 15% to 20% down payment by CPF. The rest 5% you will need to pay by cash or cheque. This means a $45k cash payment.
If you can manage the down payment, you will not want to use 60% of your income to pay the monthly installment. You will have nothing left at the end of every month. It can also be dangerous to have a high debt-to-income ratio. If you lose your job, you will be under a lot of financial (mental) stress. So a monthly income of $8,870 would be more comfortable for owning a condo in Singapore. This figure means you will be using only 30% of your income to pay for the condominium.
At any rate, don’t underestimate the importance of the right information, planning and professional advice. If you’re planning to buy a condominium in Singapore, take a look at our listing. Your dream condo might be a few clicks away.