Leong Sze Hian
Our columnist picks apart the latest announcements and replies from HDB.
I refer to the HDB’s latest announcement on Build-to-order (BTO) flats for December – in Queenstown (Dawson), Bukit Panjang and Sembawang.
Once again, the HDB is saying that HDB flats are affordable, citing data that the Installment to Income Ratio for a 3-room flat, are 25% (Queenstown), 23% (Bukit Panjang) and 21% (Sembawang) respectively. This figure is derived using the typical selling price of $320,000, $150,000 and $140,000 for a 3-room flat in each of the three locations.
The HDB’s reasoning on affordability may be flawed, as only those who can afford would apply and so, using applicants’ median income is, in my view, a continuing illusion that HDB flats are affordable despite rising new HDB flat prices. To illustrate the fallacy of the HDB’s affordability assertion, even if a HDB flat is priced at say $1 million dollars, the Installment to Income Ratio may also be around 25% because obviously only those who can afford to will apply.
Perhaps a better measure of affordability is to see how many households cannot afford to apply in the first place.
According to the Department of Statistics’ Household Expenditure Survey released in December, the Average Monthly Household Income by Income Quintile for 2008, was $1,274, $3,476 and $5,480 for the 1st – 20th, 21st – 40th and 41st – 60th quintiles respectively. It showed that:
- 105,965 households earn below $1,000
- 116,092 households earn $1,000 – $1,999
- About 20 per cent of the total 1,091,399 households had income below $2,000.
With the Applicants’ Medium Household Income at $4,700, $2,100 and $2,100 for a 3-room at the three locations, I estimate that about 50% and 30% of applicant households may not be able to afford to apply for Queenstown and Bukit Panjang/Sembawang respectively. This is assuming that most applicants may be new couples whose combined household incomes may generally be lower than their current household income data which may include other working household members as well.
So, how can we say that HDB flats are affordable when 50% or 30% cannot even afford a new 3-room flat?
Another measure of affordability may be the statistic that as of September, 30,770 HDB Loans (about 7% of HDB Loans) were in arrears over 3 months. Another measure of HDB “affordability” may be the number in arrears on their Service and Conservancy Charges (S & CC), for over 3 months. However, since the co-co-ordinating chairman of PAP-run town councils had declined to give statistics on the total number in arrears, we can only estimate that about 53,108 HDB households (average of 6% of the total number of flats since 3% to 9% were in arrears) were in arrears.
The HDB has stopped building smaller 2-room flats for many years and built lesser 3-room flats relative to larger flats. Although the HDB has started to build more 2 and 3-room flats, the typical 3-year period to completion for BTO and the minimum occupation period of five years before a new flat with HDB loan can be sold may continue the supply shortage of smaller flats in the open market to meet rising demand. Thus, the prices of smaller flats may continue to skyrocket, making them beyond the affordability of more and more Singaporeans, especially singles and downgraders.
The HDB “affordability” data also assumes a 30-year HDB concessionary loan and applicants over the age of 35 who may only qualify for a shorter loan period will have to take a bank loan with higher interest rates because they have used up their two times HDB loan if they had previously applied and upgraded with their parents’ flat or are downgraders, resulting in higher monthly installments and thus increasing the Installment to Income Ratio. Furthermore, the HDB also assumes that applicants are first-timers who qualify for housing grants.
Moreover, since the “Applicants Median Household Income is based on applicants’ income in our Oct 2009 Sale of Balance Flats Exercise”, the data may be skewed as quite a lot of Balance Flats may be higher-priced units which people could not afford to accept in the first place.
Point-by-Point Rebuttal
I also refer to the articles “Flat prices will continue to rise but still be affaordable” (ST, Dec 14) and “Soaring home prices plaque China couples” (My Paper, Dec 14). My point-by-point commentary on the former article is as follows:
“Singaporeans can expect the prices of HDB flats to keep on rising as long as the economy continues to grow, Minister Mentor Lee Kuan Yew said yesterday“
Although the economy grew from 1996 to 2009, HDB resale prices went through a 13-year bear market with prices taking 13 years to recover to their last high in 1996.
“However, he assured young couples that the Government will help them to own their first flats“
In recent years, the housing grants given has not been able to catch up with the rising price of new HDB flats. If the price increases more than the grant, is it really a grant or subsidy?
“The Housing Board will also keep building affordable homes ‘so that each generation of Singaporeans will continue to have a stake in the nation’, he added. Mr Lee gave the assurance when he visited the newly-completed crown jewel of Singapore’s public housing which he said is symbolic of the spectacular transformation of the country”
Affordability of HDB flats has increasingly become an issue with the bottom 20% of households’ monthly income declining by 0.3 per cent per annum in nominal terms (before adjusting for inflation) from 1998 to 2008, and the 21st to 40th quintile of households’ income increaing by only 0.9 per cent (2.3 per cent increase less 1.4 per cent inflation) in real terms.
“Later, he told reporters that the direction of HDB home prices depends on the people. If they have confidence in the country and support the Government, then prices ‘must go up’ as they have every year since 1965, he said, in response to reporters asking what he would say to young couples lamenting the sharp price increases in recent years. The alternative, Mr Lee said, is grim. ‘They’ve got to decide if the country is going to go up or go down. If the country is going to go down, then the economy will go down, people’s incomes will be down, unemployment will be up and property values will go down.’“
Actually, the main determinant of HDB prices is the HDB’s “market subsidy pricing” policy which has led to increasing HDB prices. Perhaps the best indication of affordability is the statistic that 30,770 HDB loans are in arrears for over three months which is about seven per cent of HDB loans. There are no statistics available for HDB bank loans in arrears or foreclosed.
“In the last 45 years, HDB home prices have soared. For instance, a three-room flat in Queenstown in 1964 cost $6,200, but would fetch at least $200,000 today. However, much of the increase in prices has taken place in the past few years. In his speech, Mr Lee also dwelt on the many benefits of a home-owning society, which had its roots in the policy introduced in 1964. It gave a community of immigrants a sense of rootedness in Singapore, he said, adding: ‘It is the foundation upon which nationhood was forged.’ Owning their homes also gives people a pride that is critical in preventing housing estates ‘from turning into slums, which is often the fate of public housing estates in other countries’, he said. But the key advantage is that the policy gives people ‘a tangible stake in worth’ and motivates them to work hard. If Singapore prospers, their flat values will appreciate and they share in the growth,’ he said“
So, your three-room flat has appreciated. How can you benefit from the growth? Downgrade to monetise your $200,000 three-room flat. But, to downgrade to a new smaller two-room flat you have to wait 30 months. Where are you going to stay during that 30 months? If you have to downgrade immediately to a smaller resale two-room flat, the price differential is very small – so, how to monetise?
“He added: ‘If all the 900,000 HDB flats built over the past 50 years were rental flats… We would not have the stability, progress and prosperity that a stake in home ownership of a growing asset has made possible.’ As assets, HDB homes have become more valuable partly because their prices have moved in tandem with the economy, thus allowing citizens to share in the fruits of growth, said Mr Lee.“
If most Singaporeans had rental flats, very few would have lost their homes and life CPF savings when they defaulted on their mortgage. Most Singaporeans would have more than a million when they retire, instead of the 25 per cent projected to have less than $40,000 in their CPF at age 55 with only 60 per cent to have more than $67,000 (source: Longevity Insurance Committee report).
To put this into perspective, a 20 year-old earning just $1,500 a month with no pay increase for the rest of his life will have $1.05 million at age 65 ($517.50 CPF monthly contribution compounded at five per cent for 45 years).
“It has 1,848 flats. At the first launch in 2004, its four-room flats cost an average $335,000 and the five-room flats, 395,000. This year, the HDB priced these same-sized flats at an average of $486,000 and $590,000 respectively.“
So the HDB must have made a lot of money instead of the $2 billion deficit for the last year!
“Mr Lee described the building of the Pinnacle as ‘a strong testament to our tenacity and capabilities as a people’. ‘I see more and more of these old blocks being demolished, and new blocks like the Pinnacle being built,’ he added.”
More Singaporeans having affordability problems with HDB flats, and ending up with very little when they retire.
HELP keep the voice of TOC alive!
If you like this article, please consider a small donation to help theonlinecitizen.com stay alive. Please note that we can only accept donations from Singaporeans. Thank you for your assistance.Do you have a flair for writing? Volunteer with us. Email us your full name and contact details to theonlinecitizen@gmail.com
how many people have household income of $6000? How many people who are not ministers or civil servants (oops should be masters) can afford house in Oxley Road and still go on to buy seven figures apartment? ditto son,ditto daughter and brother?
People who lives in ivory towers for too long forget what the situation outside is like!
I just hope more people both inside and outside ivory towers will wake up!
Can I ask you guys if you are allowed to withdraw your CPF if you decide to migrate?
It’s alright.
The idiots who voted for PAP deserves to have nothing in their CPF at the age of 60 and start drawing $200 a month at 65 when a loaf of bread cost $10. If lucky, they get cancer and die before the money runs out.
Refer to (148) by [oh holy].
“So u r saying it is alright for the PAP to ruin Singapore?”
Under the PAP, SIngapore has progressed from a third world to become FIRST WORLD nation.
//My Views
//Under the PAP, SIngapore has progressed from a third world to become FIRST WORLD nation.
A first world nation where the median pay has stagnated for the last decade.
My foot.
What are the contributions to civilization besides tall buildings?
It is built on locking innocent people up for no reason.
My Views
post #154 on December 29th, 2009 2.28 pm
////Under the PAP, SIngapore has progressed from a third world to become FIRST WORLD nation.////
1st world? this term is used only when it suites them. also, not forgetting its the previous team that did it.
i do not see how a 99-year lease can equate to home ownership. that is a very costly lease with decades of commitment, coupled with an ever increasingly uncertain future. its all too easy to fall deep into debt, how can this be 1st world?
Mic O Mic
post #153 on December 29th, 2009 1.49 pm
yeah, scary thought… -.-”
aiyoyo,
cant tahun la
hdb price so high!!!
hope 2010 can make hdb REALLY affordable!!!
aiyoyo
@154
Define First World Country Pls. We have toliets and a home? All countries have it and moreover we r sucha tiny city, if we dont even have the basic amendities, then we r worse then HK. We only have MRT in the last decade only, copied from HK.
PAP credit? Pui, it is the people’s credit. In fact, the toliet bowl is not even a credit to the gov at all but due to advances from other countries.
Why First World country , we have 1/5 of our population in such a dire state and we dont even have any welfare? We revise our bills every 3 months compared to the yearly increase or several years increase from other nations.
It is obvious that you r a troll. If u r a liverpool fan, you dont go MU forum and praise liverpool. It stupid right? Now you realize it but too late, we all know you r a troll. You better stay in Outreach and other gov forums and praise all you want.
Great article Mr Leong. People, listen up! When our beloved MM says everything must go up, pls be prepared for ‘Everything will come down’!
If you still remember that MM said in 2008, that we are living in a golden period. What happens next???? I guess you people would already know. The financial crisis falls right after his predictions!!!!!
Its time for him to go down!!!! Period……
Since, the 90s to now, we have five times as many poor and unfortunate people. I wonder why we r considered a First World Country now and not back then, when the society is equaled.
Then after reading today’s paper, the PM says, he will raise the Per Capital of the Country. It is impossible since the poor and the jobless increased. Then I realized that he meant to increase the rich even more. By paying millions more dollars to the rich ministers and civil servants, our GDP will naturally increase even though the poor increased. Kudos to the twisted mind of our PM.
//oh holy
Actually, if LHL really meant what he said: increasing per capital income, ie. increasing every body’s pay, that should be good… provided it is done through improve productivity.
However, there are 2 suspicious points:
1. how come he didn’t do that earlier? What makes him think that GDP alone will suffice? What makes him think that this is sufficient as well. I honestly think his view is too simplistic. His level is not good enough to be a PM.
2. he is not sincere at all. like you said, it is another one of those marketing lines which seem to help us but in the end ended up fattening his pockets or rather the pigs pocket.
Actually, he needs to make sure that investments by GIC and TH is done properly and makes a minimum rate.
The current standards as demonstrated over the last 20 years is lousy.
“Every Singaporean who owns a flat can double his value in today’s terms within the next 15 to 20 years. In other words, in the next 20 years, we can make everybody worth twice as much, at least.”
- PM Lee Kuan Yew, National Day Rally, 1990
For someone like me, in my early 30s, single, makes 2k a mth, thinking of buying a flat is nothing but an illusion.
The brainy PAP folks should know by now Singles like myself will continue to increase. After all, they’ve had a big say in creating & proliferating my kind.
The Government wants me to get married & have kids so I can enjoy “discount” for a roof over my head. So I should grab some poor gal off the street, go to ROM, & rejoice at the “savings” I get from our esteemed government.
But I’m a hardworking Singaporean who’s paid my dues to the Nation. But my Pink IC is only worth as much as a FT’s work visa. What a farce.
@mice is nice
The SG govt took over from the cowardly british govt which left us totally bankrupt, the opium houses were rampant, the gangs were many the whole nation is in chaos, my family was so poor last time we picked bread skin to eat behind bakeries. Who knows in just 20 years, we transformed so much, and we continue to transform to the nation we are today.
What problems do we have in Singapore? If we talk about lets say education and school dropout rates, we compare with East Asia or even the world, those are peanut issues to them, they have far greater things to worry about, teen crimes, drug abuse, terrorist recruitments, gang recruitments etc. And we? Only dropout rates and minor teen crimes.
@poor but not cheap, then work harder to buy a flat.