Wednesday, March 31, 2010

An Average Singaporean's Largest Expense = HDB

In Singapore, people spend the most amount of money on their houses and their cars. With the increasing prices of HDB flats and COEs for cars recently, I think quite a few Singaporeans are concerned that these big ticket items will only go higher and higher.

Our Largest Expense $$$$ = Housing ($200K to $500K)

I remember that there was an article published on Today newspaper over the weekend stated that HDB's policy was to provide housing for the majority of Singaporean, make it affordable and at the same time allow Singaporeans to monetise on their houses. (I can't really remember the exact details so someone will have to correct me if I am wrong).

This being said, it shows that the government is truly concerned about making housing affordable for all. The supply of HDB flats have been increased recently but at the same time, the government needs to make sure that the value of people's houses increase over time. So this supply and demand has to be managed carefully. I have written about this previously when I said that the government should not be pressured into increasing the supply of HDB flats just because people are complaning. Complaints have to be heard but if the supply of HDB flats are increased without any proper planning, the value of all HDB flats in Singapore will be diluted.

Yet in today's newspaper, we hear of one flat being applied for by 6 applicants. It perhaps shows that there is still a great demand for HDB flats. Or maybe the supply is not enough. The cup is either half empty or half full depending on how you look at it =)

But are there any alternatives for people who cannot get a HDB flat?

1. They could opt for private housing which is even more expensive or they will have to put off their buying to a later date.

2. HDB BTO flats are another option. This is quite a funny scenario as I know of people who are still waiting to occupy their BTO HDB flats. Some have waited for 2 to 3 years. The wait is long and at the mean time, they put up at their parent's place.

3. HDB resale flats. More expensive and sometimes require Cash Over Valuation.

4. Another alternative would be to rent a place. But rental isn't exactly cheap either for an entire unit.

5. Stay with parents or in-laws. I know of people who chose to stay with their parents. They do not have to worry about queuing up for a HDB flat. Of course, they will have to forfeit their privacy.

So the point at the end of the day is that we need to manage people's expectations. If your expectations are high, be prepared to pay a high price for it. At the end of the day, most of us will still have a roof over our heads even if we can't get a HDB flat.

With housing being one of the largest expenses that an average Singaporean will incur, the house that you buy has a GREAT impact on your finances and should not be taken lightly. The loan period is usually 30 years and one can expect to pay a grand total of $200 to $500K depending on where they chose to stay. Of course, there are groups of people who purchase houses that cost way above $500K.

When people are desperate to get a HDB flat, they might sometimes make a hasty decision of buying a flat that is way above what they can afford. A rule of thumb used is that your monthly loans (all loans) should not exceed 35% of your monthly income. Please take note that some women also tend to stop working when a baby arrives. It might be wise to consider buying a house where the monthly installments can be managed based on a single person's income.


  1. Sometime the wife may be forced by circumstance sto become housewife.

  2. Well said. Many women chose or have no choice but to stay at home to look after the children.

    The husband is the sole breadwinner and has to pay off the housing loan. That is why it is important that couples plan ahead when making the biggest purchase of their life.

  3. This comment has been removed by the author.

  4. I consider myself lucky as I bought my HDB flat back in 2000 when the economic is bad. 4 more years to go to clear my housing loan after making a lump sum in January.

    I would foresee it will be getting harder and harder to find an affordable place to live in Spore. :(

  5. Hi axt,

    Well done. You really bought your place at a good time. I still have 25 years to clear my loan.

  6. Not bad axt, that means your total loan period is just 14 years.

    I will be clearing mine in about 6 years (barring any lump sum repayments in the meantime). My loan started in 2004, so that would mean a total of about 12 years to clear my loan. I accelerated it along the way by increasing the monthly installment (all from CPF, no cash).

    FF, you can try that too, over time. 25 years is way too long to service a loan. The interest is astounding.

  7. Hi MW,

    Yes. I know the interest is astounding. I have made lump sum capital repayments before. However, I am currently not contributing to CPF so I will wait for my contributions to start again before taking the option of increasing my monthly installments.

    I remember reading Dennis Ng recommending that we should not be in a hurry to pay back our housing loans because it is much easier to find investments that yield better returns than the 2.6% HDB loan that I have.

    I agree.. 25 years is a long time. That will be 2035 when I repay my loan if I follow his method.

  8. Monkey and Four bananas

    Monkey is given 1 in the morning, 1 in the afternoon and two in the evening, monkey protest and want more bananas

    Monkey is then given 2 in the morning, 1 in the afternoon, and 2 in the evening. Monkey stops protesting and become happy.

  9. Monkey and Four bananas

    Monkey is given 1 in the morning, 1 in the afternoon and 2 in the evening, monkey protest and want more bananas

    Monkey is then given 2 in the morning, 1 in the afternoon, and 1 in the evening. Monkey stops protesting and become happy

  10. MW/FF,

    Yes 14 yrs. I may clear it off with a lump sum 2 yrs later cutting down to 12 yrs in total. This is all CPF no cash. I was shock when I rec'd my first annual statment on the amount there goes to interest even though I knew.

    IMHO, 20 yrs or more loan period is too long. Interest can be low at 2.5% but one must remember the power of compounding.

  11. Wah uncle 8888, I don't understand the monkey logic. Care to explain here?

    Hi AXT,
    The interest that is being paid is really astounding. Yep, compounding does make it work against us. Especially since it is 30 years of interest.

  12. Four bananas are your lifetime financial resources that you have for paying off debts and investing.


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