Buying Flats Series: Buying Clementi Crest right off the bat (part I)

Buying Flat series: This is part I of the buying flat series, which covers ways to eventually own homes of various pricing tiers as well as the implications that you probably weren't aware of.

When I talk about buying flats, I do not mean it as an investment. When you invest, you stand a chance for something to lose its value. Can you stand to lose the value of the flat you live in?

Oh, right now, some of you are thinking, there is an intrinsic value to the flat, blah blah blah. But let me tell you that when you bought the flat, you are not buying it from a HDB warehouse sale, you are also making a profit for some in the middle. So for a S$300k flat, the cost is most definitely much much lower (by how much, no one knows really). With that in mind, lets just assume that you cannot stand to sell the flat you are living in at all without increasing your debt by a lot.

Over the next few posts, I'll be showing ways to which you can own homes and how to get about it the smart and seemingly-smart-but-foolish-way.

Before we start off, lets just set a few things first. I'm not discriminating areas of Singapore, but Choa Chu Kang costs less than half or maybe a quarter of what housing is in Orchard road.

My end game is very simple, I want a nice flat in along an area that is convenient to town be it for work or play or grow old.

Choa Chu Kang/Yew Tee/Gombak is just very out of the way, there is also nothing there as you can see in this very reddit post or maybe google and it will come up. I live in the west all my life: Bukit Batok to Yew Tee, I spend at least 2 hours travelling everyday to whatever/wherever I want to go in Singapore. It isn't far compared to Europe, but then again, East side people do not need to travel that much and the bus services is much faster and more established than the west.

Lets compare buying and owning 4 room flats.

But anyways, lets look at owning one of the most expensive BTO in Singapore: Clementi crest.

Print-screened from HDB website, the launch is still there to show, but you can google clementi crest BTO and be brought back to this page.

Lets see how much is a 4-room flat selling for:

$478,000 - $621,000!!!

Huat big time!

Let's see what is being said on the web to 'guide' you to own this flat.

Suddenly, typical price of a 4 room becomes $550,000. So $478k is nothing, don't tell people it is less than $500k due to various options like flooring/kitchen fittings/door, and legal and stamp fees. (its an oxford comma, atas ang moh there)

Any how, for $550k, you have to have a $55,000 money either in CPF or cash to pay as down-payment.

On top of that additional monies is needed as you are most likely not going to be able to loan this amount of $495k in your HLE.

HLE - housing loan eligibility letter, it calculates the maximum amount of money HDB will loan to you. Also a means of 'refinancing' your loans by constantly renewing with your new pay, you can reduce loan quantum. Also this is also roughly 30% of how much you going to earn 25 years down the road, in line with MSR (it is not definite but at least it is a good indication). If an organisation like HDB refuse to lend you any more money, I don't see why you should take up more debt by paying more than 10% down-payment.

Now these are all quite technical, HDB has a calculator to calculate roughly how much you need to pay a month for your installment. Lets refer to this picture again.

If you understand how CPF works and MSR, you can roughly gauge if you can afford the place.
$1495 CPF OA monthly between you and your spouse.

This is the monthly allocation rates for CPF.

As you can see only 23% of your monthly pay goes to your OA for you to pay for your flat.
$1495/2 = $747.50 (contribution by you alone)
$747.50 divide by 23% = $3250.

That's it, you and your spouse needs to earn at least $3250 each. This is a very rough yet effective indicator whether you can afford the place or not. With that in mind, lets give you a boost to $3300 a month for easy calculation.

$3300, after 20% of your own contribution, it is left with $2640. On top of that, lets not forget you have to pay cash monthly of $455 or $227.50. If you earn $3300 a month, after you pay for your house, you are left with less than $2500 a month to spend.

This is quite a serious implication. Being this tightly wound to your own housing loans. As much as you think you are going to get increments as you work, you are also equally subjected to lose your job as well. If you get increments, better hope it is more than 3% as you are also accumulating accrued interest in your CPF account as well.

Bottom line
To own Clementi crest 4 room flats, you and your spouse need:
- to earn $3250 monthly each (or total income of $6500, this amount leaves you not eligible for any grant)
- neither of you can lose your job. if you do, the flat still needs to be paid, you will have to fork up $450 cash on-top of your CPF contributions (if I'm not wrong, you can defer some payments), doing so will leave you with $2190. The sole-breadwinner taking home $2190 is really insufficient these days (hard truth). Not to mention, under MSR, earning $3300 and taking home $2190, you are almost touching 30% of your gross income for housing loan.

If this is not a clear enough sign that you cannot afford the place, then you probably had it coming.

*Also, I have not mentioned renovation and furniture costs. So good luck if the couple do not earn at least $5999 each. ($6000 each is the income ceiling).

Otherwise, if you can afford to pay up-front so much cash that you bring the loan amount down to $300k or less, you are good.

This post represents my views and opinions based on the current rulings, there are many many rules/grants/loans and other things to help you work around, but it is roughly there. But nonetheless, do take time to read it. 

Words of wisdom: If you had to do precise calculations to find out whether you can afford anything, it means you probably can't.