Should you stretch yourself to afford a 5-Room Flat?
If you are a young couple ready to step out of your parents’ home into your own, this article is for you. Choosing which type of flat is as troublesome as choosing which area to BTO for. Fret not, I am going to relieve you from one of those headaches with this piece.
Flat types: its size and number of rooms
In the table above you can find the differences between the 3,4 and 5 room flats from the HDB website. The main differences are reflected in the pricing, floor area and bedrooms.
(based on Aug 2020 BTO exercise – Champion Bliss @ Woodlands)
With a $220,000 difference between 3 to 5 room and a $130,000 difference between a 4 to 5 room flat, upsizing is a serious financial consideration. Profits after sale is higher for the 4 room than the 5 room with a lower upfront cost and higher absolute profit. While the 5 room flat may cost more than a 4 room, the extra space it provides can make the difference worthwhile for some. For instance, the study room can potentially be knocked down to create a larger living room.
One potential way to “reduce” the cost of a 5-Room flat is to monetize the extra space by renting out a room. The average common room rental rate is $700-800/Mth ($8400-9600/Annum) and $1000-1100/Mth ($12000-$13200/Annum) for a master bedroom. The better the condition and furnishing, the higher the rental you can fetch.
How much should I earn for each flat type?
Firstly, the main grant that everyone will be eligible for plays a big role in this. Let us first look at what the Enhanced CPF Housing Grant consists of.
Assuming the ineligibility for additional grants, a minimum of $5000 to a maximum of $80,000 is allowed based on the total monthly income of occupants.
The down payment of a flat is at least 10% of the total price of the flat AFTERgrants. Monthly installments vary a lot due to a multitude of factors so using the HDB installment calculator (https://services2.hdb.gov.sg/webapp/BB29MTHLY/BB29SMTHLY) will give a good estimate. BTOs income ceiling are at the low of $7000 for 3-Room flats and up to $14000 for 4 and 5-Room flats.
A good rule of thumb for the minimum income to comfortably buy a BTO for 3, 4 and 5 room would be for your combined monthly income to follow the number of rooms (eg. 3-Room; $3xxx, 4-Room; $4xxx).
It is an additional 20sqm that cannot be overlooked when comparing a 4 and 5-Room flat. However, with a good layout and renovation, a 4 room flat can feel as spacious as and possibly even larger than a 5-Room flat. One can use that extra $160,000 to even buy a brand-new Mercedes or that it can be used to finance some extra holidays!
Where that extra space can come in handy is for the creation of home offices or play area.
Covid-19 is a very real and relevant reminder that in a moment’s notice we can all be locked up in our houses. What your house resembles is up to your creativity.
What about having… a home office?
Having a home office might already be relevant for some with companies realizing its cheaper to have certain staff work from home with office rentals being sky high. Besides that, being able to continuously work in a room different from one that you use for leisure is good for mental health as you would be able to enjoy your leisure areas for its purpose and not get confused between the work and play.
Apart from work, the extra space can also be used for something up to your imagination like a gaming room or a walk-in wardrobe. A personal touch to your home is almost a must considering you would be staying in it for the next 5 years.
Both 4 and 5-Room flats come with 3 bedrooms. However, the main difference stems in the size of the bedrooms itself. In fact, in a well-designed 5-Room flat, it is possible to create another bedroom from partitioning without feeling too much loss of space. This comes in handy for those that have an idea to rent out extra rooms before having a child. Combined with a good location near transportation hubs, rental income can be an appealing source of extra income.
All in all, there is no such thing as 4-Room is better, or 5-Room is better. There are so many other factors such as location with certain BTOs not even offering 5-Room flats. For the more budget conscious, a 4-Room approach is the most bang for the buck on average.
All you need to do, is to figure out what are your needs. Are your parents moving in with you? What about your lifestyle, will this be a factor that would impact the amount of space needed? If you work from home or operate a home-based business, you are going to need a separate workspace as well.
So, make sure to compare and consider your “Needs” and “Wants”. Weighing out the 2 factors will give you a better idea whether if that extra space is worth that extra S$100+k more.