How much can a family that makes $1,500 a month afford for their HDB flat?

Homeownership is a key component of Singapore's public housing policy, with about 90% of resident households owning their homes. During the major handover event for the Pinnacle@Duxton in December 2009, founding Prime Minister Lee Kuan Yew stated, "Home ownership helped to quickly forge a sense of rootedness in Singapore. It is the foundation on which national identity was built."

This commitment to homeownership has been a cornerstone of Singapore's social and economic policies for decades. The government's focus on providing affordable housing options has not only addressed the basic need for shelter but has also contributed significantly to social stability and economic growth. By enabling citizens to own their homes, Singapore has created a unique model of public housing that has garnered international attention and praise.

Everyone, regardless of economic level, requires a place to live, and many Singaporeans consider buying a home to be a great achievement. However, as most of us know, purchasing a home is a significant financial decision that must be carefully considered. This applies whether you are a high-income household trying to acquire private property or a low-income household looking to buy a modest two-bedroom flat.

Housing incentives, such as the CPF Enhanced Housing Grant (EHG), help low- and middle-income households buy their first HDB unit in Singapore. The EHG offers up to $120,000 in grants, with the highest amount going to households with an average monthly income of less than $1,500. The grant amount is $110,000 for households earning between $1,500 and $2,000 per month.

The introduction of the EHG in 2019 marked a significant step in making homeownership more accessible to a broader range of Singaporeans. This grant, combined with other housing subsidies, has played a crucial role in helping young couples and low-income families realize their dreams of owning a home. The tiered structure of the grant ensures that those with lower incomes receive more substantial support, reflecting the government's commitment to inclusive housing policies.

While the EHG grant is large, it is crucial to consider whether it and other available grants are sufficient to assist a low-income household with a monthly income of $1,500 in purchasing a HDB unit.

How Much Grant Can First-Time HDB Flat Buyers Get?

According to Singstat, approximately 6.2% of Singapore households with a working individual earn less than $2,000 per month. Consider a Singapore household with an average monthly income of $1,500 and first-time homebuyers. They would be entitled for $110,000 in EHG.

How Much Do Two-Room BTO Flats Cost?

During the June 2024 BTO launch, a 2-room Flexi flat (Type 2) in Tampines with a floor area of around 46 square meters (about 495 square feet) priced a median of *$152,500 ($67,000 - $238,000). With the EHG amount of $110,000, the price drops to $42,500. If financing is obtained through a HDB home loan at 2.6% over 20 years, the monthly repayment is $227.

Assuming the household takes out a HDB housing loan at 2.6% for 20 years, the monthly repayment would be $227. Based on their monthly salary of $1,500, the household would get $345 in CPF Ordinary Account (CPFOA) payments per month. This sum is sufficient to cover the monthly payments of $227, thus no further cash is necessary.

It's important to note that while these calculations demonstrate the affordability of BTO flats for low-income households, they also highlight the long-term financial commitment involved. Prospective homeowners must consider not just the initial purchase and monthly repayments, but also factor in other costs such as maintenance fees, property taxes, and potential renovations. Financial literacy programs and counseling services offered by various government agencies play a crucial role in helping these households make informed decisions and manage their finances effectively over the long term.

Affordability Analysis

From an affordability standpoint, this household can borrow up to $64,000. According to this computation, they can afford a fixed price of up to $174,000 with no cash investment. For comparison, these are the median costs for some of the 2-room flats (Type 2) in the June 2024 BTO Launch. We omitted the PLH sites.

Jurong East: $122,500 ($45,000-$200,000).

Tampines: $152,500 ($67,000 minus $238,000).

Woodlands: $116,000 ($43,000 minus $189,000).

Yishun: $107,500 ($45,000-$170,000).

Purchasing a HDB Resale Flat with a Monthly Household Income of $1,500

First-time buyers of resale flats will be eligible for a $80,000 CPF housing grant for a two- to four-room flat. Furthermore, if they live within 4 kilometers of their parents' or children's house, they may be eligible for a $20,000 Proximity Housing Grant (PHG), or a $30,000 grant if they intend to live there.

Assuming a first-time household purchases a 2-room resale flat within 4km of their parents' home, they will be eligible for the $80,000 CPF housing subsidy and the $20,000 PHG. In addition to the $110,000 EHG, they will be awarded $210,000 in housing allowances.

Affordability of Two-Room Resale Flats

Based on the same home loan assumption, a household can afford a two-bedroom resale flat for around $274,000 (borrowing $64,000 over 20 years at 2.6%) with no monthly cash outlay.

However, the median price of 2-room resale flats is greater. As of 2Q2024, the median price of a 2-bedroom resale flat in Yishun was $327,500. A short search on PropertyGuru reveals that a buyer will most likely need roughly $300,000 to locate possibilities on the resale market.

To purchase a $300,000 flat, the homebuyer will need to borrow around $90,000. This would result in a monthly repayment of around $481 over 20 years, assuming a 2.6% interest rate. With the household's CPF Ordinary Account (CPFOA) payment of $345 per month, a cash spend of $136 per month is required to make up the shortfall. When compared to new BTO flats, resale flats provide a wider range of locations and a shorter wait period.

The choice between BTO and resale flats presents a complex decision for low-income households. While resale flats offer immediate availability and potentially more desirable locations, they often come with a higher price tag and additional cash outlay. This trade-off between cost and convenience highlights the importance of tailored financial advice for these households. Moreover, it underscores the ongoing challenge for policymakers to balance affordable housing options with the diverse needs and preferences of Singapore's population across different income levels.

The BTO path is a more practical alternative for a low-income household earning an average of $1,500 per month because of the lower price point. Although resale apartments provide greater grants, the higher prices connected with resale flats mean that house buyers may still have to pay more and obtain a larger loan. This could result in larger monthly repayments and potentially strain the household's budget, making the BTO option the more responsible decision for long-term financial stability.

Singapore's public housing model, with its emphasis on homeownership and targeted subsidies, continues to evolve to meet the changing needs of its population. While challenges remain, particularly for low-income households, the government's commitment to affordable housing remains strong. As Singapore moves forward, ongoing dialogue between policymakers, housing experts, and citizens will be crucial in refining and improving housing policies to ensure they remain effective and inclusive for all segments of society.