How to get enough money to buy a property in Singapore

Buying a property is expensive in Singapore. And it seems like it's something that's more and more unattainable these days, especially given the increasing property prices in the last two years.

But if you think you need a million dollars in your bank account to buy property, you're wrong. Well, okay, it helps if you do.

But there are still ways you can go about affording a property in Singapore.

You don't need to have a million dollars right now to buy a house

The good thing about Singapore is that home loans are widely available, and have low interest rates.

For example, to buy a flat with an HDB loan, the minimum downpayment is 15 per cent. This 15 per cent can also be paid through your CPF savings.

To buy a $450,000 flat, for example, you might only have to pay $67,500 out of your CPF Ordinary Account (OA) savings; the rest can be covered by the HDB loan.

For private property, the downpayment is 25 per cent when you take a bank loan. However, 20 per cent can be paid through your CPF OA savings, so you only need five per cent in cash.

Let's say a condo costs $1.2 million. Your total downpayment can be as low as $300,000. Of this $300,000, up to $240,000 can come from your CPF. The total you need in cash is just $60,000.

How can you save up enough to buy a home?

Here are four basic strategies you can adopt.

• Put money into a targeted investment plan
• Consider making voluntary CPF top-ups
• Maintain low debt before getting a home loan
• Build an emergency fund of six months' worth of your expenses

1. Put money into a targeted investment plan

Due to the power of compounding interest, you can make a sufficient amount for the downpayment faster than you think.

For example, consider an investment with returns of just about five per cent per annum. If you invest around $500 a month for 10 years, this will come to about $80,000.

This is enough to make the downpayment on a property that costs up to $1.6 million. If you start doing this at the age of 25 - while still diligently contributing to your CPF, of course - you could have enough to afford a private property by 35.

The key, however, is to use a targeted investment plan. This means you need to pick an investment that will deliver a more or less consistent amount, and mature close to the target date that you want to buy a property.

"Making more money" is not a targeted plan, but "making $60,000 in 10 years" counts.

A qualified financial advisor can help you with plans of this sort. One popular option is an endowment insurance policy; this has a guaranteed payout after a certain number of years. If you start early, it's an effective way to meet your property downpayment.

ALSO READ: Should you rush through your home loan repayment before interest rates rise?

2. Consider making voluntary CPF top-ups

Besides retirement, you can use your CPF OA monies for the downpayment of your property. On top of that, your CPF monies can be used to pay stamp duties, and the monthly instalments for your home loan, regardless of whether you buy a condo or HDB flat.

Depending on the law firm you use, your CPF savings can also cover any conveyancing fees when buying property.

One way to ensure you can afford a home is to voluntarily increase your CPF contributions and take advantage of the guaranteed 2.5 per cent interest rate the CPF OA offers.

For example, instead of spending your year-end bonus on luxuries, you can plan for the long term and put it in your CPF instead. This will ensure that, when the time comes, you have enough CPF monies to cover a large part of your housing loan and downpayment.

Do take note that there's a caveat to using CPF to pay for your housing.

3. Maintain low debt before getting a home loan

When getting a home loan, you are subject to the Total Debt Servicing Ratio (TDSR). Under the TDSR, your total debt obligations (including personal loans, car loans and your soon-to-be home loan) are capped at 55 per cent of your monthly income.

For example, if your household income is $10,000 per month, your total loan repayments cannot rise to more than $5,500 when you take a home loan. Otherwise, you'll have to borrow less for your house.

Due to the TDSR, it's important for aspiring homeowners to keep debts low. Some key methods here include:

• Not buying a car until after you've bought your house
• Avoid revolving, high-interest debt. For example, make sure you pay back your credit cards in full, to avoid the 26 per cent interest rate*
• Aggressively pay down your debts in the 12 months before applying for a home loan

Also, note that having too much debt can worsen your credit score. This can result in the bank lending you less money, thus making your home less affordable.

*For unsecured revolving loans like credit cards, the minimum monthly repayment is used when calculating your TDSR.

4. Build an emergency fund of six months of your expenses

Set aside 20 per cent of your monthly income as savings until you have accumulated six months of expenses. Building this emergency fund is an essential step to owning property.

This is because, if something goes wrong financially (e.g. you fall ill and cannot work), you can still manage to pay the mortgage for six months. This will give you time to recover, find a new job, etc.

As a very last resort, six months will give your property agent sufficient time to find a buyer and sell the property at a fair price (if you need to sell the property in a rush, you'll probably get a lower price).

Saving and investing early can make your property purchase in Singapore more affordable

You may have come across many articles talking about how Singapore is one of the world's most expensive property markets. And last year, property prices have reached all-time highs, resulting in more cooling measures to be introduced.

But that doesn't mean owning a property in Singapore is no longer attainable.

With careful financial planning, as well as saving and investing your money early, you can eventually buy your dream home.

This article was first published in 99.co.