By Mr. Propwise

In a recent blog post, guest contributor Property Soul shared her rules on buying a property you can afford, what she called the “3-3-5 rule”. In a nutshell, the “3-3-5 rule” states that:

  1. You should have at least 30% of the property’s price in initial capital to cover the downpayment and other costs.
  2. Your monthly mortgage payment should not exceed one-third of your monthly salary.
  3. The purchase price of the property should not exceed five times your annual income reader JC wrote in to comment that Rule #3 was unrealistic and overly conservative. Here’s what he had to say:

The five times of income to property price ratio is quite ridiculous. I feel that this ratio is only applicable during the “mata wear khaki shorts” days. How can one ever find such a low ratio of five times in today’s context? No way, even if the property market is to crash, or rather correct. Nevertheless, I would definitely wish such a ratio would still hold today, and I would bet all my money into property.

Example: a couple earns $15,000 per month, which annually would be $180,000. At five times, they can only afford a property that is $900,000, which can only buy a 2-bedder condo at an RCR or OCR location in Singapore. If the couple has kids, then I think it’s pretty difficult to live in a smallish 2-bedder of approximately 75 to 85 square meters with a maid!

Rather, many couples CAN afford properties at $1.2 to $1.5 million and above when their income is approximately $10,000 per month, which is a 10x rather than 5x ratio. With savings of $400,000 to $500,000 (approximately 30% of $1.5mil), they can easily afford the mortgage at $3,000 per month (2% interest rate over 28 years). A savings of $400,000 is not difficult to achieve for a couple (both university grads) who have worked for 10 years possibly with a little help from their parents, say $50,000 to $80,000.

In a nutshell, the 3-3-5 rule is skewed towards an unrealistic scenario which is unlikely to happen in Singapore (for Rule #3). We need to be realistic about the current pricing, current market, and hopefully, capitalize or gain from it through long term investment or enjoyment of the property. If we stick to this rule, we will NEVER buy a property (condo, that is) in Singapore, unless we earn $25,000 per month income combined for a couple. (i.e. $12,500 each!)

I routed this question to Property Soul, who had the following response:

This is what I called the “boiling frog” phenomenon. When people are in a high-price environment for too long, they will gradually think that it is normal and acceptable to pay high prices. Similarly, when people are in a prolonged boom of the property market, they will forget what a ‘value-for-money’ home is, or why it is necessary to calculate the ROI of an investment property.

When the market prices are climbing rapidly, salespeople will tell their clients that it is impossible to go back to the low prices in the past. But history has proven that they are wrong every single time.

It is when market prices have corrected sharply that people begin to realize that buyers have been overpaying for their properties during the last peak of the property market.  These buyers pay the price of holding their overpriced properties “for the long-term” to break-even, while missing the opportunities to buy when prices become reasonable.

Developers can sell at future prices and sellers can market at unreasonably high prices. But as buyers, it doesn’t mean that we have to take whatever they offer in the market. We all can exercise our individual judgment to see whether the current properties are overpriced before we buy anything.

Of course, being “kaypoh”, I have some thoughts as well on this discussion:

  • I view the “3-3-5 rule” as a conservative affordability test. When you are making the biggest purchase in your life (of a property), you typically want to err on the side of being conservative. If your purchase meets Property Soul’s “3-3-5 rule” test, then you know that financially you are not stretching yourself and can sleep peacefully in your home. However, that doesn’t mean that you MUST follow the rule. For example, if you find a home that you like and meets your requirements, and it is six times your income, I don’t think there’s anything wrong with buying it as long as you have prepared for unexpected contingencies (e.g. have a cushion of savings).
  • Sure a couple earning $10,000 a month can potentially buy a $1.5 million condo, but it is very aggressive. An 80% mortgage loan (i.e. $1.2 million) at a 2% rate over 30 years will result in a monthly mortgage payment of $4,435, or 44% of their income. They might be able to tide over if they do not spend too much in other areas. But we should NOT assume a 2% rate of interest – using a more conservative 4% mortgage rate (a long term average), their monthly mortgage will balloon to $5,729 per month, which could put significant stress on their finances, especially if one party loses his or her job. So yes, if you are aggressive you can buy an expensive condo (as JC has pointed out), but you may not survive the tough times.
  • Yes, a couple with kids and a maid will feel very cramped in a 900 square foot condo apartment, but it is a choice. They could have chosen to buy a resale HDB flat, or can choose to “suffer” in a cramped apartment for a few years until they can comfortably afford to upgrade.
  • In general we have very short memories. It wasn’t too long ago (certainly not during the “mata wear khaki short” days) when properties were more affordable. In fact, it was in 2006 when I bought my first private property and I paid less than 5x combined income for it.
  • I don’t think that property prices will necessarily go back to the previous lows as Property Soul has mentioned. In fact, looking at the URA Property Price Index over a long period of time we see that the general trend is an upward one, with higher lows and higher highs. Property prices go up over long periods of time due to inflation and rising incomes. But the market has cycles as well – that’s what I look at to time my entry and exit into the market.

Hope you found this discussion interesting! If you have any opinions or stories you’d like to share, do email me at

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