The Truth About Raising a Child and Buying a Property in Singapore
At some point, most Singaporeans will aspire to raise a child (or children) in a home they can proudly call their own. These are worthy goals, but the fact is they can cost quite a bit of money, especially in a developed country like Singapore.
That’s why in this article, we will be looking at three questions:
● How can you mitigate some of the expenses of raising a child in Singapore;
● What does it cost to buy a property in Singapore (including hidden costs); and
● What might it take to achieve the previous two? (the most important question)
2 Easy Tactics for Mitigating the Expenses of Raising a Child in Singapore
Estimates for how much it costs to raise a child in Singapore will, understandably, vary. No two children are raised the exact same way, nor is there a ‘market price’ for the total cost of child-rearing—unlike buying property. A quick search on the Internet will turn up average costs estimates from as low as SGD200,000 to as high as SGD900,000.
With such a wide range, getting an accurate consensus that most people will agree on is almost impossible. But there’s one thing everybody can agree on—it will come up to at least a significant six-figure sum. As such, everybody can benefit from learning how to mitigate some of the major expenses. Here are two easy tactics to use that every Singaporean can take advantage of.
Buying a Property in Singapore – The Potential Costs (Including Hidden Costs)
If raising a child is one major milestone, owning your own property is another. Fortunately, unlike the cost of raising a child, the cost of buying a property in Singapore is far more transparent, meaning it is easier to plan for.
According to the government’s Private Property Residential Price Index⁹, property prices have increased 60 per cent from the beginning of 2000 up to the fourth quarter of 2019. As for HDBs, the HDB Resale Price Index¹⁰ shows a 64 per cent increase from 2000 up till end-Sep 2019. Global real estate firm CBRE estimates the average price of a private property in Singapore at SGD1.18 million, with average price per square foot of SGD1,430¹¹. It is the second-most expensive in the world, only behind Hong Kong. For HDBs, resale prices as at 2019 range from about SGD250,000 to SGD800,000, depending on size and location¹².
But beyond just the sticker price, you must also consider the not-so-visible costs of buying a property in Singapore. They include:
● Option Fee: The fee to reserve a chosen property, payable upfront. Ranges from flat fees (HDBs) to percentages (private).
● Fire and Home Insurance: In the case of buying HDBs, basic fire insurance is compulsory. However, most owners would prefer more comprehensive insurance coverage.
● Stamp Duty: Mandatory for all property purchases in Singapore. Calculated as a percentage based on property value. Additional stamp duties also apply for the second property and above.
● Legal Fees: To ensure the mortgage and purchase is processed properly.
● Valuation Fees: To appraise the value of a property before obtaining a loan. The bank may decide to absorb the cost.
What Will It Take to Afford to Raise a Child and Buy a Property in Singapore?
When you total the estimates of raising a child and buying a property in Singapore, it can easily add up to well over a million dollars. Fortunately, this is not a cost that has to be paid in one lump sum, but one that is spread out over many years. Even so, meeting such obligations can be a challenge. So, what does it take to be able to afford such amounts?
There answer is simple, but not easy. It is financial discipline, time, and the magic of compound interest. You should start saving and investing as early as possible, no matter how small the initial sums might be.
Here’s an illustrative example. Consider two people, one who starts diligently saving and investing from the age of 20, and another who only begins at 30. They both get a return of 5.5 per cent a year, based on the following two assumptions:
● Their savings accounts (or insurance savings plan) return 1.8 per cent per annum while their investment accounts return 9.2 per cent per annum (which is the annualised total return of the Straits Times Index from 2009 to the beginning of 2019 )
● They allocate half of their excess funds to savings and half to investments (e.g. mutual funds or liquid equity), for a total blended return of 5.5 per cent per year.
Now, let’s say they both save and invest SGD1,000 a month. How much would that turn to by the time they’re both 60?