3 Reasons You Can’t Afford a House in Singapore (And What You Can Do)

Ryan Ong



Today, we’ll take about building resilience to disease. Of course it’s relevant. You’ll need it when you’re living in the street, eating out of the trash bin at the local Wendy’s. Wait, you weren’t planning to do this? Because you imagine you’ll be living in an actual HOUSE? Yeah, and I imagined I’d sing back-up for Eddie Van Halen. I suppose anything’s possible; but here’s three reasons why you should restrain your optimism:

1. You Can’t Take Advantage of Low Interest Rates

Property experts keep saying home loans are cheap right now. And they’re right, but here’s the problem: It may not apply to you.

See, in theory, houses should be more affordable than ever. Mostly because America mistook the words “make more money” to mean “bomb a desert”. After which, America’s federal reserve policies pushed SIBOR and SOR to an all time low.

SIBOR and SOR both determine home loan rates in Singapore; and housing loans now hover around 1% interest. That’s cheap, and a deal you want to jump on…if you have the cash or income to qualify. Otherwise, it doesn’t do squat for you.

Here’s why:

To get this low interest rate, you need a bank loan. But a bank can only loan you 80% of your home’s market value, max. So to buy a $400,000 flat, you need to make a down-payment of at least $80,000 in cash. Yeah, why don’t you just reach in your back pocket and get that?


Empty wallet
Sorry, European wallet. No one knows where the money goes.


Oh wait, if you’re not a high income earner, then you’re more likely to find a horse’s ass in there than 80 grand. And because you’re too poor, you can’t get a bank loan. You need a HDB loan.

A HDB loan will cover 90% of your flat price, and the 10% down-payment can come from your CPF. Unfortunately, HDB loans charge an interest of (0.1% + the current CPF).

That means you get to pay an interest rate of 2.6%. Only richer people have access to that low 1% average. That’s some government help right there.

What You Can Do About It:

If you have a HDB loan, you can choose to refinance into a bank loan. But not everyone can qualify: To refinance into a bank loan, you need to meet minimum income standards.

In particular, you can’t be over-leveraged (owe too much on credit cards, car loans, etc.), and your overheads can’t exceed 50% of your income.

Also, once you switch to a bank loan, you can’t switch back to a HDB loan. That means you need to have emergency savings, in case the interest rates spike (it might after 2014 – 2015). You need to set aside at least three to six months of your income as savings.


Signing a home loan
…and if you use our loan, you’ll only *probably* be poor!


Don’t have that? You’re stuck. You don’t dare refinance, and you have to swallow the 2.6% interest.

If you do want to refinance, compare the loans from all the banks first. There are free loan comparison sites out there, like MoneySmart. But if you don’t have the savings, think twice. The low interest rates are for the wealthier crowd, who can handle volatility. Sucks, I know.


2. Insane Sellers’ Expectations

The resale market may be down, but that doesn’t stop people from having completely mismatched expectations. With stories like the one about the million dollar flat, people just think that the high prices of yesteryear are still possible, and property agents are more than happy to push hard.

Sure, they’ll claim it’s an irregularity. But some will add a “maybe” to it:”This is a freak show, but just maybe, in X years, we’ll see more million dollar flats. Who knows, who knows“.

Hey, their comissions aren’t going to pay themselves.

Property news like this does something to home owners. They get all funny in the head, and develop expectations less realistic than your insurance agent’s projections. The end result is rising median COV (Cash over Valuation); this is a sum paid above the bank’s official valuation, which can’t be covered by the loan.


Monopoly Houses
Your COV is WHAT? Where the hell did you learn about the property market?


The COV is subjective, and based on the seller’s greed. It’s artificial inflation in the property market, and there’s zero government regulation on it. After one seller pads their COV, the next seller will pad it even higher, and so forth. The result is unsustainable price inflation, and you may end up being priced out of the market.

What You Can Do About It

To reduce the COV right now? I suggest developing mind control powers. If you can’t afford the COV (remember it’s paid in cash), you better just get a new flat.

But if you can wait, you can time the market. Wait until the unsustainable price inflation hits its peak, and then plummets downward. Just be sure you save up your money, so you can buy when the market bottoms out.

Or maybe the government will do some actual work, and intervene.


3. The ABSD Didn’t Work


Not pictured: Any native Singaporeans.
Not pictured: Any native Singaporeans.

I raved about the ABSD (Additional Buyers Stamp Duty) when it was announced. Singapore’s property market is currently overheated by rich foreign investors, who see Singapore as a sort of Switzerland without mountains.

Where do you think all our money comes from? Productivity?

Anyway, the ABSD made foreign buyers pay 10% stamp duty on their property. As it turns out, this hindered the rich to the same degree that a toothpick would hinder an attacking polar bear. H88 has an article on it. Despite having paid half a billion dollars to the government already, foreign buyers won’t stop parking their cash here. They’re still buying, and locals can’t outbid them.

At least BTO flats aren’t directly affected, because foreigners can’t buy them. However, as private property prices soar, more Singaporeans will back down from purchasing condos and resale flats. They’ll go for lower-end properties, and you may get more competition when balloting for BTO flats.

Whatever the case, you might have to abandon your hopes of owning a condo or resale flat for now. Or you can follow us on Facebook, and we’ll update you on the details!


Paper doll in front of city scene, with arms outstretched
Where you’re seeing is what we property experts technically call a “fat hope”.


What You Can Do About It

As I said, apply for a new flat. Unless we see new cooling measures, I see no end to the number of foreign property investors. With markets collapsing in Europe, and the situation dire in America, everyone wants to put their cash into four Singapore walls.

Image Credits:
Phillipe Put, Thirteen of Clubs, Victor1558, Phillip Taylor PT, Nicolas Lannuzelヘザー heza

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.