Reflecting on “Reflections” – A review of Mah Bow Tan’s book (Part 8 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 Eight (“Seeking truth from facts in the housing debate”), the Minister for National Development wrote:

“Dr Goh Keng Swee used to quote the Chinese saying, “Seek truth from facts (实事求是)”. Let us heed these words of wisdom as we address the people’s concerns”.

Lower-income can afford HDB flats? Truth or fact?

The truth of the matter in the context of public housing, is that for many Singaporeans, particularly the lower-income, their real income has hardly gone up, over the last five, 10 years.

Moreover, the cost of living continues to accelerate. For example, the average surgery bill in the Class C wards of six of the seven public hospitals increased by at least 50 per cent to as much as double over the last four years, electricity tariffs keep going up, increase in public transport fares, child-care fees, university fees, etc.

In such an environment, how many lower-income Singaporeans cannot afford to buy a HDB flat ?

The uncertain future

When your flat comes in about five years’ time, wouldn’t you be afraid that your circumstances may change such that you may not be able to afford the flat, not to mention the risks and uncertainties of job losses, pay-cuts, illness, etc, over a 30-year mortgage loan?

HDB creates new problem – getting a loan?

The other truth and fact is the issue of the new rule on a second HDB concessionary loan.

How many people can cough up 50 per cent of the cash profits from their last HDB flat sold, regardless of how long ago, and also have their entire CPF utilized plus accrued interest from the previous flat to pay for the new flat?

Nobody wants two-room flats because they can afford bigger ones?

The $2,000 household income ceiling eligibility for two-room flats has not changed for many years, whilst the two-room price has escalated to the typical selling price of $105,000 now.

After the HDB announced on 3 March 2006, after it had stopped building two-room flats in the early 1980s, that it would resume the building of the flats from June 2006, the average price of a two-room flat in November 2007 in Compassvale Beacon (Sengkang), was only $78,000 for example.

I estimate that the prices of two-room BTO flats may have increased by about over 30 per cent over the last four years or so. Since two-room flats are the cheapest option for lower-income Singaporeans, why have their prices been allowed to increase by so much?

If your household income is below $2,000, you may be finding it hard to make ends meet in the first place.

So, with the lower income group’s arguably greater incidence and fear of job security, declining wages (over the last decade, it is estimated that 30 per cent of workers have had negative real wage growth), rising cost of living, etc, the truth and fact is that many cannot afford to buy a flat purchase.

Is it really affordable?

According to the HDB’s web site, “Affordability of a Typical Flat”, Applicants’ Median Household Income for two-room is $1,400.

If half of the two-room applicants’ household income was less than $1,400, how on earth can they afford to buy anything, including a flat?

Using $260 as the typical monthly installment for a 30-year loan, after the first-timers’ $40,000 eligible additional CPF housing grant (which is the highest possible grant for those with income of not more than $1,500; applicants must also have been in continuous employment over the last 24 months at the date of the flat application), at 19 per cent installment to income ratio which then seems to suggest that flats are affordable, how can a family struggling with $1,400 a month  afford to squeeze $260 out from their already miserably low income to buy a flat?

Let us not forget, that there are hundreds of thousands of Singaporeans who are self-employed, and thus do not have any CPF contributions to help pay for a HDB flat. So, if you are a lower-income self-employed, the truth of the matter is that you may not be able to afford a HDB flat at today’s sky-rocketing prices.

If you are a lower-income worker, you have CPF contributions to help you pay for a HDB flat – but, your CPF Ordinary Account contribution rate declines as you get older, and what if you lose your job, get a pay-cut, etc, in the next 30 years?

Also, not everyone lower-income family who buys a smaller HDB flat, meets the eligibility criteria for CPF Housing Grants.

How many of those who buy HDB flats do not qualify for grants? Without these statistics,  how can the HDB keep saying that flats are affordable by giving examples of affordability assuming Housing Grants?

Down-payment problems

Finally, many lower-income households may not even be able to come up with the initial 10 per cent down-payment for the flat.

Also, if you are not eligible for a HDB concessionary loan, your down-payment will be increased to 20 per cent from 20 February 2010 for HDB bank loans

End of Part 8

Also read Part 7 here

Mr Leong has beaten Mr Mah by publishing a book in 2008. It has no pictures but at 186 pages (with Chinese translation), is more value for money. You can buy it here!


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