Wedding Advice

Can millennial couples in Singapore afford to buy a home?

Despite solid wage growth and moderate house price increases, cost may still be the biggest hurdle for aspiring buyers

Depending on location (outside of central region), a private two-bedroom apartment of about 1,000 sq ft would cost about $800,000 to $1 million, and a similar-sized HDB resale unit would cost about $375,000 to $400,000.

ST FILE PHOTO

 

A recent survey by CBRE found that almost two-thirds of Asia-Pacific millennials are still living with their parents and 18 per cent have no plans to move out, with unaffordable real estate cited as the common factor.

So is home ownership simply beyond reach for millennials or do they just have no desire to take on the responsibility and commitment to finance a property?

According to HSBC's recent global survey - Beyond the Bricks - 83 per cent of millennials (those aged between 18 and 35) who do not own a home intend to buy one in the next five years. In other words, young people strongly value home ownership.

This is particularly true in Singapore, where nine out of 10 residents own their homes and the trend is expected to continue. Despite having an ageing population, there are more than 100,000 resident households owned by a resident under 35 years old.

But buying a home is never easy.

See also: How much money do you really need to buy your first HDB flat?

The HSBC report showed that globally 69 per cent of young people said that saving enough for a deposit was their biggest barrier to home ownership, and 64 per cent cited the need for a higher salary.

The good news is: Singapore millennials do not have to enter the market on their own.

Unlike developed countries where new housing is primarily provided by the private sector, 75 per cent of the housing units in Singapore are provided by the Government at a subsidised rate.

While the cost of such public housing is by no means cheap, Singapore millennials can leverage various government schemes and grants to support their home ownership dreams.

In addition to bank loans, they can also utilise their Central Provident Fund savings to pay their down payment and finance their property.

See also: Is an old HDB flat worth its asking price? Here's how to know

SINGAPORE'S MILLENNIALS MAY BE ENTERING A 'SWEET SPOT' IN THE DOMESTIC HOUSING MARKET

A recent research report showed that affordability of private and public housing has increased over the past five years, due to falling values and increasing incomes.

Singapore millennials are also in a slightly more financially advantageous position than their global peers. Globally, we see that in many places, salaries have stagnated since the financial crisis while average property prices have risen.

But for Singapore, what sets its young people apart from their global peers is that house prices have actually come down, while wages continue to grow, given the resilience of its economy.

Despite all the conditions appearing to be favourable, it is not all smooth sailing.

See also: Avoid these 10 common mistakes when decorating your dream home

While solid wage growth coupled with moderate house price increases may point to a positive outlook for younger buyers here, cost may still be the biggest challenge.

Depending on location (outside of central region), an average two-bedroom apartment of about 1,000 sq ft will cost about $800,000 to $1 million if it is a private development, and about $375,000 to $400,000 if it is a resale unit from the Housing Board.

New HDB flats of similar size and location will cost about $275,000 to $300,000.

While prices for both private and public housing (resale units) have fallen 11.25 per cent and 9.9 per cent respectively from the peak in 2013, compared with most developed markets, housing cost here remains high.

See also: 5 ways newlyweds can save for their house's downpayment

START THE PLANNING PROCESS AND UNDERSTAND YOUR LIMITATIONS

The housing challenges make it even more essential for young home-buying aspirants to be aware of the importance of a well-structured savings strategy in buying that first home.

Especially now with Singapore's economy being on a "three-speed trajectory" in the past few years, when we have seen uneven sector and industry growth and a sluggish labour market, it is important to take a dispassionate approach to planning to make home ownership a reality.

Setting a savings target can provide motivation and focus, and a realistic estimate of the additional costs over and above the mortgage - such as renovation, buying furniture or service charges - helps avoid unpleasant surprises once the purchase is complete.

Ultimately, it is about balancing your desire to own a home and your ability to sustainably finance your purchase.

•The writer is head of retail banking and wealth management at HSBC Bank Singapore.

See also: 4 financially sound reasons newlyweds should consider new HDB flats over older ones

PLANNING: THE KEY TO HOME OWNERSHIP

Here are some steps that younger people can take to help make the dream of owning their home a reality:

Plan early and don't underestimate the deposit:

Start planning early to make home ownership a reality sooner. Include saving for the deposit, usually the first payment you will need to make. Find a competitive mortgage to help make borrowing the rest more affordable.

Budget beyond the purchase price:

Think about the extra things that will make the house you buy the home you want to live in, and make sure to include them in your home purchase budget.

Consider what sacrifices you can make:

Consider cutting back on your day-to-day spending. Think outside the box about what could help you to buy a home, such as buying with a family member or friend.

 

See also: Planning your HDB renovation just got easier! 7 things to note

This originally appeared on The Straits Times.

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