Is S$2.5 million an affordable price tag for a new leasehold 3-bedroom condo?

Is S$2.5 million an affordable price tag for a new leasehold 3-bedroom condo?

Even high-income earners might find these prices challenging for a 1,000 sq ft unit in projects outside of the prime districts

Leslie Yee
The Business Times

Feb 17, 2025

https://www.businesstimes.com.sg/opi...-bedroom-condo

Judging by the frenzied buying at recent major new condo launches here, buyers are undeterred by stiff prices. Possibly, many people fear missing out as they believe that prices will rise further.

The Orie, a 99-year leasehold condo project located in Toa Payoh, sold 668 units or around 86 per cent of the 777 homes over its launch weekend last month at an average price of S$2,704 per square foot (sq ft). The bulk of the buyers were Singaporeans.

According to the latest data from the Urban Redevelopment Authority’s Realis records, some 681 units at The Orie have been sold as at Feb 17. Of that, slightly under half – 314 units – were sold at below S$2 million, while 367 were sold in the S$2 million to S$4.5 million range.

Take a four-member household comprising parents and children who are eyeing a new three-bedroom 99-year leasehold condo unit of around 1,000 sq ft outside of the prime districts of 9,10 and 11. Such a home might cost S$2.5 million or more, excluding stamp duty.

Could these prices be increasingly unaffordable even for high income earners?

Stretched affordability

A home costing S$2.5 million works out to a possibly stretched 8.6 times of the average annual household income from work of the second highest decile of resident employed households.

One has to be well within the top decile of resident employed households to better afford a new condo home. A S$2.5 million home is six times the average annual household income from work of the top decile of resident employed households.

In 2024, the average monthly household income from work of the second highest and highest deciles of resident employed households were S$24,229 and S$34,489 respectively. Income from work includes employer Central Provident Fund contributions.

The Urban Land Institute, a research organisation, considers home ownership affordable when the ratio of the median home price to median annual household income is below five. This means that the home price is within five times of the buyer’s annual household income.

Consider a household earning S$30,000 a month or S$360,000 a year. Assume this household takes bank financing for 75 per cent of the purchase price of a S$2.5 million home. Subject to various criteria, the highest loan-to-value limit that one can borrow from a financial institution for a home loan is 75 per cent.

In the above case, the monthly repayment on a 25-year home loan with interest rate of 3.6 per cent per annum is S$9,488. Spending around 32 per cent of monthly household income on servicing a multi-year home loan represents a substantial burden, especially with rising job insecurity. In addition, a household may have other debt obligations besides a home loan.

However, while new condos might appear over-priced relative to what households earn from work, several other factors impact new condo affordability.

Liquidity drivers

For one, many new condo buyers enjoy enhanced buying power through realising profits of possibly several hundred thousand dollars each from selling a Build-To-Order (BTO) flat which was bought from the Housing and Development Board (HDB) at a subsidised price.

HDB BTO flat owners whose units have reached the five-year minimum occupation period (MOP) recently or will reach MOP soon can make particularly attractive gains, as HDB resale flat prices rose strongly in recent years. Between Q4 2019 and Q4 2024, the HDB resale price index jumped over 50 per cent.

Another factor fuelling liquidity is that some home buyers receive financial help from their families, or recycle large gains made from financial investments.

Think of wealthy parents helping their adult children buy new homes or beneficiaries of tax-free financial inheritances. And gains recycled from equities or cryptocurrency investments among others can feed into Singapore homes, which are seen as a good store of value.

Given the strong run-up in private landed home prices in recent years, the need to raise funds for retirement and the desire for a more compact home, some retirees may also happily trade their old landed homes for new condo units.

For example, they might swop a mortgage-free old terrace house worth over S$4 million for a new condo costing S$2.5 million and free up substantial cash in the process.

Still, affordability can be tricky for many households who rely largely on employment income to buy a new home for owner occupation. And the predicament of such households matters as anchoring human talent here is vital to economic competitiveness.

Alternatives

Many people desire new homes. One can get a fresh 99-year lease with a new HDB BTO flat, executive condominium (EC) unit or condo.

A new home may offer an efficient layout and a good design that caters to modern lifestyles. Some new housing developments also have great amenities.

However, local couples earning over S$14,000 a month cannot buy an HDB BTO home. And those who earn over S$16,000 a month cannot buy an EC home from a developer. In short, high-earning locals seeking a new home may be restricted to new condo units.

Ultimately, some high-income earners should temper expectations and forego pursuing a new home due to affordability reasons. Fortunately, they have ample choices in the resale market.

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An older 1,000 sq ft non-prime district condo unit might cost, say, S$1.6 million. However, such a home may have an outstanding land lease of well below 99 years and two bedrooms.

In contrast, a new 1,000 sq ft condo unit could have three bedrooms plus a study.

A sought-after resale HDB four-room or five-room flat, of around 1,000 sq ft or more with three bedrooms, may sell for about S$1 million or above.

Hunting for a resale home can involve much shoe leather cost. However, securing a desirable new condo unit requires plenty of money as well as luck in securing a good ballot number if one cannot get on the inside VIP track to select a unit ahead of a popular project’s public launch.

Given the strong demand at major new condo launches and the high development costs, those hoping for lower new condo prices may be waiting in vain. In the absence of additional cooling measures that adversely impact prices, perhaps high-income home buyers should look to resale condos or HDB flats instead of new condo homes if their budgets are stretched.