More young Singaporeans taking loans to buy private homes, despite elevated interest rate environment
While there has been a rise in the number of young people taking out home loans, default rates for this group remain low, said banks.
File photo of condominiums and HDB flats in Singapore. (Photo: CNA/Syamil Sapari)
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SINGAPORE: More young Singaporeans have been taking out home loans in the last few years, with the group accounting for more than a third of people borrowing to finance a property, banks told CNA.
However, banks cautioned young Singaporeans against over-committing to a home loan, despite default rates remaining low for this group.
RISING INCOMES, HOPE OF HIGHER RETURNS
Software test lead Sharmila Nakulan, for instance, is among the growing number of younger Singaporeans who are buying private property.
The 28-year-old bought a one-bedroom condominium apartment in Farrer Road last year for about S$1.4 million (US$1.04 million).
She forked out half of the S$350,000 down payment, while her parents chipped in to pay the other half.
Ms Sharmila said the housing prices in Singapore can be quite steep.
“I thought it would be smart to secure a house as fast as I can,” she added.
“Being 28 years old, it means that I don't have the eligibility to purchase (a HDB flat), because to purchase (a HDB flat), you either have to be above 35 or you have to be married if you are below 35.”
Ms Sharmila is hoping to pay off her monthly home loan by renting out the unit. She is also repaying her parents monthly for the down payment that they helped with.
As a rough estimate, the combined monthly household income has to be at least S$12,000 for a S$1.5 million condo, said observers. That is, however, assuming that the couple has been saving quite a bit of their income and bonuses.
Since 2015, the number of private home buyers aged between 26 and 35 has tripled, according to ERA Realty Network.
These home buyers accounted for 35 per cent of new private home transactions in Singapore last year, up from 31 per cent the previous year, said the real estate firm.
Mr Eugene Lim, key executive officer of ERA Realty Network, said that there are various reasons for this, including rising incomes, more flexibility to resell than Build-To-Order (BTO) flats, and the hope of higher profit gains.
“The bulk of the transactions for this age group is below S$2.5 million. They would buy within what they can afford according to their respective incomes and they will rarely overstretch,” said Mr Lim.
“Those who are planning to start a family or already have young children will usually buy near to their school of choice or somewhere near to their parents’ homes, whereas those that prefer a more urban lifestyle or are buying for investment tend to go for city-fringe locations.”
He added that some buyers see private properties as “a good investment (with) a potential to be able to build their wealth over time”.
“The aspiration to buy and upgrade into private property remains very strong,” said Mr Lim.
“And as long as one has the financial means and buys within their affordability, new launch private housing becomes increasingly more attractive to this group of buyers, compared to public housing.”
COPING WITH HIGHER INTEREST RATES
Mr Ryan Chia and his wife bought their S$1.2 million condo in Hougang in 2021, as it was near several schools and their parents’ homes, which were important considerations.
“We are preferably looking to stay here for about maybe 10 years or so,” said Mr Chia, who has a baby boy on the way.
However, he has been hit hard by rising interest rates.
“Back then when I took out the loan, the interest rate was about 1 per cent. So the projected monthly instalment is about S$3,100,” said Mr Chia, adding that the interest rate has increased dramatically in recent years.
“But right now the interest rate, because it's a floating interest rate, is about 4.5 per cent. So, we'll come close to maybe S$3,900 to S$4,000 for monthly instalments.”
Mr Chia is considering changing his loan to a fixed interest rate of about 3.5 per cent, so he can better project the monthly instalment and plan his finances.
Still, they are calling for prudence.
DBS Bank said that a home loan can be over 30 years. While young home buyers might have less financial burden, they may over time need to take up other loans such as to buy a car or renovate their homes.
OCBC Bank's head of home loans Maryanne Phua said customers have been making more partial repayments to reduce their loan commitments amid an elevated interest rate environment. Some are also looking to switch to a fixed rate pricing.
“Home loan is a long-term financial commitment with monthly repayment, so we encourage our customers to speak to us early on the affordability before committing to any purchase,” she added.
“This is largely to avoid a situation where the loan amount is insufficient, and they need to come up with more cash for the down payment or they may have to, in the worst-case scenario, forgo the purchase and forfeit their deposit.”
Buyers should set aside savings of at least 12 months of monthly instalments, to prepare for unforeseen scenarios such as job changes or increase in interest rates, said Ms Phua.
