How much do you need to earn to buy the most expensive BTO flat In Bidadari?

Build-To-Order (BTO) application for the February 2016 launch closed earlier this week with an overwhelming application for the 5-room flats at Bidadari. On paper, this should come as no surprise. Large-sized flats in the centralised mature estates have always been on high demand.

Bidadari is an interesting case. When you look at the Singapore Map, it's difficult to see why it is classified under Toa Payoh. It isn't walking distance from the Toa Payoh MRT and it's a lot closer to Woodleigh or Potong Pasir MRT. It takes at least 35 minutes to reach well-know iconic places in Toa Payoh such as the HDB Hub and Singapore Press Holdings office via public transport near the estate.

Photo: Dollars and Sense

Nonetheless, flat prices are not cheap. Excluding the government grant, the flat prices start at $546,000 and goes up to $633,000. So how much would a couple need to pay for such a flat? More importantly, are the flats priced too high in consideration to the HDB salary ceiling of $12,000?

How much do you need to earn to buy a $633,000 flat?

Based on an assumption that the couple pays the 10 per cent down payment for the flat and borrows the remaining 90 per cent required based on a 25-year loan with 2.6 per cent per annum interest, the monthly mortgage repayment that they will need to repay would be $2,585 per month.

Photo: Dollars and Sense

If we want to use no more than 30 per cent of our income to pay off the mortgage, a minimum combined income of $8,616 per month is required in order to do so.

If you are intending to service your mortgage purely by the use of your CPF Ordinary Account (CPFOA), then each individual would need to contribute $1,293 from their OA each month. That translates into earning a monthly salary of $5,620 per month per person. In total, we are looking at a combined income of $11,240 per month, which is pretty darn close to the income ceiling.

An argument can of course be made that a couple who earns a salary of $11,240 each month might be able to take a smaller loan by paying a higher down payment. But please take note that we are calculating the amount required based on the worst-case scenario.

Is your HDB flat really an investment?

In the past decade, it has become common to see Singaporeans simply going for the biggest BTO flat in the best location that they can find.

One of the reasons for that could be the idea that everyone has towards HDB resale market. Everyone tends to think that they can easily make money on their BTO flats after 5 years. Because the HDB resale market has always been climbing upwards for many years, people tend to think this will continue indefinitely. That is a dangerous mindset to have.

In addition, your HDB flat is only an investment even if you have intention to cash out and move to a cheaper place in the future. The truth is that most of us will either stay put or look into upgrading our homes. Downgrading to a smaller flat in a less accessible location is a lot easier said than done.

Therefore, buying your first HDB flat is an important decision that should never be taken lightly. Before committing to the purchase, do work out how much you are able to afford first.

DollarsAndSense.sg is a website that provides bite-sized and relevant articles to help Singaporeans make better financial decisions.