Reflecting on “Reflections” – A review of Mah Bow Tan’s book (Part 6 of 9)

This is a review from a statistical perspective, wherever possible, of the book “Reflections on housing a nation”, launched on 22 March. (You can read it here for free and save yourself ten dollars. – Editor)

Leong Sze Hian/

In Part Six (“Are HDB flats affordable?”), the Minister for National Development wrote:

“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.


“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”.

Singaporeans’ CPF contribution that is credited to the Ordinary Account (OA) declines with age. That is, as you grow older, your contribution to your CPF OA is less. The OA is what you can use to pay for your housing mortgage loans.

Let’s look at how much OA contribution you make as you grow older:

Age 35 & below – 23 %

Age 35 & above – 21%

Age 45 – 19 %

Age 50 – 13 %

Age 55 – 11.5%

Age 60 – 3.5%

Age 65 – 1%

Declining CPF OA contributions may mean that one may not be able to service the HDB loan as one grows older, unless salary increases are to such an extent, as to offset the declining CPF contribution.

With the statistics indicating that low-income workers had  hardly any wage increase over the last ten years or so, what is the likelihood that salary increase in the future will be sufficient to offset the CPF contribution decline?

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?

“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 the break-down of the cost of building flats.

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?

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

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?

“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 declined from 33,670 in September 2008, to 26,000 in June ast year, 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’ statistics?

In this connection, the latest available data according to HDB, was that there were 159,000 HDB bank loans. This confirmed the trend of more HDB bank loans to HDB loans’ growth, on a relative basis.

Housing grant

“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

“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?


“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)) are 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 last year, compared to lthe previous year.


Notify of
Inline Feedbacks
View all comments