In a previous post where I listed down the items / activities that require payments in cash when buying a HDB resale flat, one of them was “Topping up of CPF, if there is insufficient funds in Buyer’s CPF OA”.
Essentially, the savings we have in our CPF OA has to be able to cover the 10% down payment, assuming we are taking the full HDB loan. In this post, we consider 2 factors: Cost of HDB resale flat and estimated savings in CPF OA. From there, we are able to determine, at various salary levels and with different time spans for saving, what type of HDB resale flat a person can afford to buy.
How Much Is The HDB Resale Flat?
The first consideration when it comes to affordability is the price of the purchase. Extracting the latest median prices of HDB resale flat from HDB’s website (https://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/resale/resale-statistics), we have the following table:
| 3-room HDB Resale Flat | 4-room HDB Resale Flat | 5-room HDB Resale Flat | EC | |
| Median Price | $289,500.00 | $422,500.00 | $500,000.00 | $570,000.00 |
| 10% for down payment | $28,950.00 | $42,250.00 | $50,000.00 | $57,000.00 |
| 20% for down payment | $57,900.00 | $84,500.00 | $100,000.00 | $114,000.00 |
Table 1: Median Prices of HDB Resale Flat in Q4 2019
Mr Salty has also included the amount for down payment for each flat type. However, since Mr Salty is a proponent of using HDB loan, we will focus on the assumption that we only need to pay 10% of the purchase price as down payment.
For those who are nearing 35 years old, or are eligible to buy already, it is easy to determine if your CPF OA can cover the down payment.
From a financially savvy point of view, we should avoid having to top up our CPF. Therefore, if Mr Salty has $40,000 in his CPF OA, he should consider buying a 3-room HDB resale flat, instead of a 4-room flat. In this way, not only can he set aside some CPF money for emergency use as we mentioned in the earlier post, he can also pay more than 10% required, which in turn means he will take out a lower loan and incur lower monthly repayment.
What HDB Resale Flat Will My Current (Or Future) Pay Be Able to Buy?
This section is for those who still have some time before they turn 35 years old. In fact, the table below also catered for those who are 20 years old and planning for their HDB resale flat purchase 15 years later.
How Much Will I Have in CPF OA Savings in 5, 10 and 15 Years After Working?
| Starting Pay | CPF Monthly Contribution | Work for 5 Years | Work for 10 Years | Work for 15 Years |
| $1,000.00 | $200.00 | $13,093.22 | $31,523.19 | $56,923.48 |
| $1,500.00 | $300.00 | $19,521.09 | $47,143.36 | $85,216.80 |
| $2,000.00 | $400.00 | $25,948.95 | $62,763.53 | $113,510.11 |
| $2,500.00 | $500.00 | $32,376.81 | $78,383.70 | $141,803.43 |
| $3,000.00 | $600.00 | $38,804.68 | $94,003.87 | $170,096.74 |
| $3,500.00 | $700.00 | $45,232.54 | $109,624.04 | $198,390.06 |
| $4,000.00 | $800.00 | $51,660.40 | $125,244.22 | $226,683.37 |
Table 2: Estimate of CPF OA savings in 5, 10 and 15 years
The tabulation above consisted of the following assumptions:
- Pay rise every 5 years
- Inflation rate of 3%
- Constant CPF interest of 3.5%
- CPF monthly contribution to OA is approximately equal to the employee contribution of CPF
- No bonuses or exceptional contribution / withdrawal
- Continuous employment
This meant that the “savings” calculated should be lower than the actual amount that one would save over the same period, especially for the longer time spans. This is especially so, if a person actively seeks pay raises or better remuneration as he accumulates more work experience.
What HDB Resale Flat Will Can My Expected Savings Buy?
Since it’s not possible to give a good estimate of the prices of HDB resale flat in 5, 10 and 15 years, and since the savings calculated above is lower than expected, this means that we can superimpose both sets of values to give a rough estimate whether the savings at every salary point, at the point in time, can pay for the down payment of the HDB flat type at current prices.
Using the methodology above, the following table is derived:
| Pay | Work for 5 Years | Work for 10 Years | Work for 15 Years |
| $1,000.00 | 3R | 3R | 3R |
| $1,000.00 | 4R | 4R | 4R |
| $1,000.00 | 5R | 5R | 5R |
| $1,000.00 | EC | EC | EC |
| $1,500.00 | 3R | 3R | 3R |
| $1,500.00 | 4R | 4R | 4R |
| $1,500.00 | 5R | 5R | 5R |
| $1,500.00 | EC | EC | EC |
| $2,000.00 | 3R | 3R | 3R |
| $2,000.00 | 4R | 4R | 4R |
| $2,000.00 | 5R | 5R | 5R |
| $2,000.00 | EC | EC | EC |
| $2,500.00 | 3R | 3R | 3R |
| $2,500.00 | 4R | 4R | 4R |
| $2,500.00 | 5R | 5R | 5R |
| $2,500.00 | EC | EC | EC |
| $3,000.00 | 3R | 3R | 3R |
| $3,000.00 | 4R | 4R | 4R |
| $3,000.00 | 5R | 5R | 5R |
| $3,000.00 | EC | EC | EC |
| $3,500.00 | 3R | 3R | 3R |
| $3,500.00 | 4R | 4R | 4R |
| $3,500.00 | 5R | 5R | 5R |
| $3,500.00 | EC | EC | EC |
| $4,000.00 | 3R | 3R | 3R |
| $4,000.00 | 4R | 4R | 4R |
| $4,000.00 | 5R | 5R | 5R |
| $4,000.00 | EC | EC | EC |
Table 3: What HDB Resale Flat can each salary range afford in 5, 10 and 15 years? The ones in bold indicates “Yes”.
Is My Current Pay Enough to Pay the Monthly Instalments?
After determining whether we can pay for the down payment, we must also determine if we can afford the monthly instalment.
Like Mr Salty, he took a HDB loan of about $200,000, and his monthly repayment was $857. In other words, he has to earn $4.129 a month in order to ensure that his CPF contribution can pay for the monthly installment. If not, he will have to top up the repayment in cash every month.
This is after considering that he already paid $150,000 in down payment with his CPF savings, which was 40% of the price of his flat. If he had only paid 10%, his loan amount would be $315,000, which would translate to monthly payment of about $1,350. This would mean he must earn $6,430 a month (which he didn’t)! In this case, he would have to top up the difference in cash every month.
However, of course, this would not happen, as CPF has something called “Housing Withdrawal Limit” in place. The mechanism is complicated to explain and one can read up from CPF’s website. Basically, the systems in place would kick in and force you to buy a cheaper house when such a scenario happens. Of course, one can workaround by looking for a bank loan instead, if CPF refuses to let you take the HDB loan. However, Mr Salty thinks that is a very stupid thing to do – the scholars in CPF already told you you can’t afford the house, and you still want to go and buy it by taking a bank loan (with higher interest rate)? In that case, you deserve to go bankrupt.
Anyways, CPF has a calculator for one to estimate the Housing Withdrawal Limit here: https://www.cpf.gov.sg/eSvc/Web/Schemes/CpfHousingWithdrawalLimits/CpfHousingWithdrawalLimits
Therefore, even if your CPF OA savings is sufficient to pay for down payment, you need to see if your salary can afford the monthly installment. If not, consider looking for a cheaper flat, so that your CPF OA can pay more than the 10% down payment, which in turn reduces the loan amount and hence monthly installment required.
Making Sense of The Estimation
We were up front about the assumptions and how they affect the accuracy of the data. After all, no one really knows what will happen 10 years down the road. So a rough projection is actually good enough when we are looking so far into the future.
However, Mr Salty’s intention in displaying this table is actually for those young folks who are dreaming of buying their own HDB resale flat when they turn 35 years old – Given your current education level and expected starting pay after graduation, will you be able to afford the HDB resale flat you desire, without breaking the bank?
A university graduate who starts working at 25 years old with a starting pay of $3,500 can typically afford any HDB resale flat when they turn 35 years old in 10 years, though choosing to buy a 4-room flat and below (like Mr Salty) would mean less monthly instalments and less stress in repaying the loan.
On the other hand, a non-degree holder who starts working earlier will also have a lower starting pay. Assuming he starts working at 20 years old, with a starting pay of $1,500, when he reaches 35 years old in 15 years, he will also be able to afford any HDB resale flat.
The tricky part comes when a person decides to be a freelancer / entrepreneur after graduation. If he succeeds, he will have no worries about being able to afford a HDB resale flat. If his venture fails, it would mean he had delayed the start of his CPF contribution. Depending on when he starts his contribution and how long he saves up, the affordability changes.
More importantly, Mr Salty hopes that anyone can make use of the table, review their current earning capabilities, and decide if he can afford the flat he wants to buy. And if not, whether he can make plans to improve his earnings. After all, if we wait until we are 35 years old to find out we can’t buy the HDB resale flat type we want, it will all be too late.
Remember, salty is life!