MND vs NMP: Are HDB flats really affordable?

Minister for National Development, Mr Mah Bow Tan, writes a regular weekly column for the Today newspaper every Friday. In his articles, Mr Mah explains the issues and policies of his ministry, namely on the matter of public housing.

We feel that it is necessary for readers to have a counter-view to what Mr Mah says. So, each Monday, we will feature a response to the minister from our columnist, Mr Leong Sze Hian.

This week, Sze Hian responds to Mr Mah’s views in the article published by Today on 12 November titled, “Are HDB flats affordable?” (Click here for screen capture.)

Leong Sze Hian

When Singapore separated from Malaysia in 1965, the currencies were on par, and arguably the prices of public housing were probably similar to each other.

Now, 45 years on, let’s examine them from the perspective of affordability.

Malaysia vs Singapore

In Malaysia, public housing start from around RM25,000, against the cheapest 2-room HDB (1 bed-room) in Singapore from around S$90,000 (RM216,000).

In Malaysia, the monthly maintenance fee for public and low-cost housing is minimal, wheareas Service and Conservancy Charge (S & CC or maintenance fee) in Singapore range from about S$35 to S$60 for 3 to 5-room HDB flats, plus a monthly season parking fee of about S$70 for those who have a car.


Minister for National Development:

“Another widely-accepted measure is the debt-service-ratio (DSR), which looks at the proportion of the monthly income used to pay mortgages.

The DSR for new HDB flats in non-mature estates, based on an industry norm of a 30-year loan, averaged 23 per cent this year. This is well within the 30-35 per cent international benchmark for affordable expenditure on housing.

Depending on flat type, the DSR ranged from 11 per cent for standard flats to 29 per cent for premium projects like the Punggol Waterway Terraces, which cater to higher income households”.

The definition of DSR is all costs related to housing, such as mortgage, maintenance, property taxes, insurance, utilities, etc, and not just the mortgage repayments, as a percentage of net income and not gross income.

Also, the use of “averages” is meaningless for the lower-income. Moreover, the very concept of average affordability is flawed because those who cannot afford to buy or cannot afford to continue to pay, will not be included in the “average affordability” statistics.


Minister for National Development:

“We must also remember that CPF savings can be used for the initial downpayment and monthly instalments. Hence, more than 80 per cent of new flat buyers pay for their housing loans entirely out of CPF, without having to touch their take-home pay”.

Has the very high utilisation of CPF for housing contributed to Singapore’s very poor scores in the Global Pension Index 2010 – country with the lowest score for ‘minimum retirement income as a percentage of average income’ and ‘net replacement rate’?

Price is subsidised?

Minister for National Development:

“HDB builds and sells flats at heavily-subsidised prices to ensure affordability.

HDB also regularly reviews its subsidies to ensure affordability. But I must caution that there are limits to how much we can increase subsidies, without compromising other interests.

In other words, we must also consider affordability from a national standpoint. If we increase housing subsidies, what would we have to give up? The quality of education for our children? Healthcare services for our parents? Or do we impose a higher tax burden on Singaporeans?

There are no easy answers. Ultimately, we need to balance the interests of affordability for homebuyers and the burden on taxpayers”.

HDB continues to refuse to disclose break-down of costs of building flats – last year’s HDB annual report had its  largest deficit ever of S$2 billion, because under its Market Subsidy Pricing policy, the more flats it builds and sells, it seems the more money it loses.

So, without transparency, how do we know whether it is a burden for taxpayers? If HDB is in fact making profits, how can it be a burden for taxpayers?  Also, the quality of education for our children and healthcare services for our parents may already be compromised by the amounts that we have to pay for public housing which may leave us with very little left for our children and parents?

Comparing apples to oranges?

Minister for National Development:

“Ask most housing experts and observers, and they will say that HDB flats remain within reach of the majority of Singaporeans”.

The number of approvals for HDB flat dwellers given financial assistance because they could not pay disappeared from HDB’s Annual Report from 2005/2006 onwards.

Minister for National Development:

“I have been discussing affordability in layman’s terms. Let me now get into the technical stuff. In particular, how do experts determine housing affordability? There are a few generally accepted benchmarks.

Income affordability. One is the housing price-to-income ratio (or HPI), which compares median house price to annual household income.

In a Straits Times article in February 2010, two NUS professors, Tu Yong and Yu Shi Ming, noted that Singapore’s HPI for resale flats in non-mature estates is 5.8, compared to Hong Kong’s 19.8 and London’s 7.1. That means Singaporeans generally need 5.8 times of their annual household income to buy a resale flat in non-mature estates, whereas a Hong Kong resident needs more than three times that amount.

If we take Department of Statistics 2009 data on the median income of younger households – those aged between 25 and 35 years old – who are likely to be first-timers, their HPI is even lower, at 4.5 for resale flats and 3.8 for new flats. This is because they have higher incomes than average households”.

How can we compare Singapore’s public housing prices with Hong Kong’s prime private property and London’s prime private property prices? If any meaningful comparison is to be made, we need to look at how much people in Hong Kong are paying to live in public housing and how much the British pay to live in lower-priced local county housing outside of London after factoring in any tax advantages, mortgage interest tax relief in the United Kingdom and Hong Kong, and housing subsidies in the United Kingdom and Hong Kong, as well as the incomes of the lower-income who are the ones who need public housing instead of using the median income of the entire British Isles and Hong Kong. The comparison given by the minister may be akin to comparing  apples to oranges.

Loans in arrears declined?

Minister for National Development:

“In recognising Singapore’s achievement, the UN-Habitat Chief of Information Services said: “It’s really quite impressive for a country to provide adequate shelter and home ownership for so many”.

What is perhaps ironically “unimpressive” is, as I understand it, that no other country in the world has had such high deliquency rates for public housing mortgages – HDB loans in arrears over three months declines from 33,670 in September 2008, to 26,000 in June, despite Singapore’s worse recession in 2009. Is it because more people had to give up their flats or more people having to take HDB bank loans, that has resulted in the decline in the HDB loans in arrears?

Housing grant

Minister for National Development:

“For first-timers who cannot wait for a new flat or wish to buy a specific flat in a specific location, HDB provides a CPF Housing Grant (CHG)of $30,000 (or $40,000 if they stay near their parents) to buy a resale flat.

Help according to income. For households earning $5,000 or less a month, an Additional CPF Housing Grant (ACHG) of up to $40,000 is provided for their purchase of new or resale flats. In other words, a family earning $1,500 can get as much as $80,000 in housing grants. Families earning more, between $8,000 and $10,000, can now buy new flats under the Design, Build and Sell Scheme (DBSS), in addition to Executive Condominiums, and enjoy a CPF Housing Grant of $30,000″.

New and resale HDB flat prices have historically and invariably always increased more than the increase in the CHG and ACHG relative to the income eligibility criteria scale. HDB resale prices rose about 75 per cent over the last five years.

HDB loan subsidy

Minister for National Development:

“Beyond that, new and resale flat buyers can apply for a concessionary loan. For a $200,000 loan over 30 years, the interest subsidy amounts to about $30,000”.

Since the loan interest rates for HDB bank loans currently, as well as in the last few years, have generally been lower than the HDB concessionary loan rate of 2.6 per cent, how can it be still touted as a subsidy?


Minister for National Development:

“Whichever objective measure we choose, it is clear that there are enough HDB flats within reach of today’s homebuyers”.

Let us not forget what may arguably be the most important objective measure for public housing in any country – people who can’t afford a home and thus have nowhere to live – 2,200 Selective En-bloc Re-development (SERs) flats and other non-SERs flats (number unknown, such as former Jurong Town Corporation (JTC)) rented to foreigners, when thousands of Singaporeans wait years in the queue for HDB rental flats.

The number of homeless in Singapore picked up by the Ministry of Community Development, Youth and  Sports (MCYS) doubled, compared to last year.


Read also Hazel Poa’s rebuttal of Mr Mah’s views: Click here.