A bachelor pad is akin to a forbidden fruit for Asians. Our culture encourages us to stay with our parents and look after them when they aged. Staying out on your own is seen as unnatural and an economic waste. But let’s say you are not inhibited by this traditional thinking in your family, what is the state of reality of getting a bachelor pad by 35 in Singapore?
The Value-for-Money Way
If you decide to remain a swinging bachelor at 35, you can qualify for the Single Singapore Citizen Scheme and buy a HDB flat.
We can safely assume the current (year 2014) prices for a 3-room flat is about S$350,000. If you have been employed for the past 10 years, you should have sufficient money in the CPF to pay 10% down payment for the property (S$35,000). The remaining mortgage payments can also be made with CPF monies. You can fork out another S$30,000 for a good renovation to impress your girlfriends.
Think about it, a 3-room flat allows you to have a comfortable bedroom with an attached toilet and another room for your study or even a walk-in wardrobe. You have a decently sized kitchen where you can hone and showcase your culinary skills. Let’s not forget a dedicated living room for your TV and Xbox gaming sessions.
The Prestigious Way
Despite the advantages of size and price of a 3-room flat, you may not be able to entertain the thought of having a HDB unit. Or it can be a case where you are a foreigner, or you want to get a place of your own before age 35, and buying a HDB flat is not possible for both scenarios. You would have to go for a private property.
A studio apartment would be a plausible alternative. Try not go any smaller than a studio. A shoebox unit is so uncool for a cool gentleman like you.
A studio apartment at The Sail would probably be the ideal choice. The location is fantastic given that it’s right in the heart of CBD, overseeing the alluring Singapore city landscape (free MBS water and lights show anytime!). Vibrant locals and tourists roaming the streets. And how about the view of fireworks just outside your window? A studio apartment with a good bay view like this would cost you close to S$2m in today’s market.
A minimum down payment of 20% of the purchase price would be a whopping S$400,000! You would still need to have S$300,000 in your CPF and S$100,000 cash to afford the down payment. Not within reach for most bachelors I suppose.
The Affordability Check
Let’s look at something more affordable. For that we have to work the sums backward.
Assuming you are making S$3,250 per month (2013 median income in Singapore excluding CPF). You can afford a monthly mortgage payment of S$1,137.50 (35% of your salary) and that means you can borrow up to S$329,595. You can use this calculator to calculate the maximum loan you can borrow for your house. This means that your budget for your bachelor pad will be S$411,993.
Where can you buy a studio apartment for S$411,993? After a thorough search at propertyguru.com, the results showed numerous foreign properties. You have a glimpse of chance with The Hillford at Jalan Jurong Kechil. It is going to achieve TOP in 2017.
If you are able to increase your budget slightly to around S$550,000, you can have a lot more options at the fringes of Singapore like Tampines, Pasir Ris and Geylang. However, you are still limited by your ability to borrow, which is derived from your salary and existing debt commitment.
For a purchase price of S$550,000, you need to have at least S$27,500 cash, S$82,500 CPF monies, and making a gross salary of S$4,339 per month. This is assuming you have no other loan commitments.
Of course, you can afford a studio if you can save up a lot more capital for the down payment while you are young. I would say having S$100,000 by age 35 is plausible. This requires deliberate financial planning and the commitment to save and invest.
What To Do Next?
Let’s assume you started work at 25 years old and intend to save up to S$100,000 at age 35. You can achieve the target by paying S$750 premium per month for the next 10 years in an endowment plan that gives a policy returns of 2.5%. Alternatively, you can invest S$635 in a stock index fund on a monthly basis at a returns of 6%.
The advantage of the endowment plan is the certainty that you will receive the S$100,000 after 10 years while we do not know where the stock market would in 10 years’ time. But expecting 6% annual returns from the stock index over a period of 10 years is reasonable in my opinion. In fact, the Straits Times Index Exchange Traded Fund has returned 9% per year for the last decade.
The good news is that the property market has been declining over the past few months. If the trend continues, the purchase price can retreat to your budget. The smart way is to hold out and not make an impulse purchase in order to prevent overcommitting your finances.
With that said, unless you’re related to royalty, going for a 3-room HDB flat would definitely be the most viable approach as it is the most value for money option in Singapore.
But I understand that there’s different strokes for different folks. HDB or private property for your bachelor pad?
“How to get your bachelor pad by 35” has been contributed by Big Fat Purse, a Singapore based online resource that offers tips and insights on personal finance and investments.