Argument is flawed, says Leong Sze Hian.

S’poreans more able to afford larger flats?

Leong Sze Hian

I REFER to the report, ‘Cool response to smaller HDB flats’ (Nov 27), which stated that there were much fewer applications for HDB two- and three-room flats, relative to larger flats.

The reasoning that this was due to more Singaporeans being able to afford larger flats may be flawed.

It may be due to the HDB’s income ceiling policy, which does not allow applicants with a household monthly income of more than $2,000 and $3,000 to buy two- and three-room flats respectively.

What this means is that those who earn more than $3,000 have to buy four-room or bigger units. So it is not just a matter of preference.

With rising new HDB flat prices over the years, many lower-income households may not be able to afford a two- or three-room flat. This may be why there were fewer applications for smaller flats than for larger ones.

The argument that HDB flats are affordable, because most flat owners do not use more than 30 per cent of their income to service their mortgage, may be fundamentally flawed as only those who can afford it will buy flats. Those who cannot may already have given up their flats.

The fact that median and lower incomes have been lagging further behind, relative to HDB prices as a multiple of income, may be the best indicator of affordability.

The statistic that 30,770 HDB loans were in arrears over three months as of September, may be the best indicator of affordability as a 7 per cent arrears rate for total HDB loan mortgages is a very high figure – meaning about one in 14 cannot pay.

What this figure and the low ‘1,350 HDB flats repossessed’ statistic may reflect, is that most in default would have sold in the open market at valuation plus cash-over-valuation to avoid HDB compulsory acquisition at only 90 per cent of valuation.

Those who are forced to sell would disappear from the ‘in arrears’ and not be reflected in the foreclosure statistics.

Finally, why are there no statistics on HDB bank loans in arrears and foreclosures?

The above letter was published in the Straits Times’ Forum Page on 7 Dec 2009.