HDB flats seem to be priced many times my annual income. How can I afford one?

By Leong Sze Hian –

According to the titled article at www.hdbspeaks.sg, posted on 06 Sep 2012 |

"HDB offers a wide variety of flat types in both standard and premium designs in various areas across Singapore at different times of the year. You should be able to find a suitable flat priced within your means.

Some measures of housing affordability use the Home Price-Income ratio (HPI), where a figure of 6, for instance, would indicate that the property being purchased is priced at six times the buyer’s current annual income.

There is no international consensus on what figure signifies whether a property is affordable or not. In some leading international cities, such as Hong Kong or London, the HPI could be quite high, with some sources putting the HPI for Hong Kong in the double digits. In other countries, in areas away from centres of population or economic activity, the HPI could be lower.

In Singapore, HDB uses the Debt Servicing Ratio, or DSR, as a more accurate indicator of actual housing affordability. The DSR refers to the proportion of the monthly household income set aside for housing instalments.

The DSR takes into account interest payments, which the HPI does not. The DSR is calculated on an assumed 30 year loan, and the figure would rise if the loan tenure were shortened. Correspondingly, a working household may reasonably expect salary increases over time, and, assuming a fixed tenure period, the actual DSR in later years of repayment may fall.

HDB’s commitment to Singaporean households centres on the provision of new BTO flats. A typical buyer of a new 4-room flat in a non-mature estate who has a median monthly household income of $4,000 needs to set aside just 25 percent of the income, or $1,011, to meet the monthly instalments. With most of it coming from the CPF contributions, the buyer has only to pay $91 per month in cash.

Table 1: DSR for New HDB Flats Offered in Non-Mature Estates in First Half of 2012

Flat Type

New Flat Selling Price 1H 2012

Median Household Income of Applicants

Eligible Additional CPF Housing Grant (AHG)

Eligible Special CPF Housing Grant (SHG)

Nett Selling Price

Monthly Instalment for Mortgage Loan

Monthly Instalment to Income Ratio

Instalment Payable By Cash

2-room

$108,000

$1,500

$40,000

$20,000

$48,000

$149

10%

$0

3-room

$188,000

$2,400

$30,000

$0

$158,000

$558

23%

$6

4-room

$297,000

$4,000

$15,000

–

$282,000

$1,011

25%

$91

5-room

$381,000

$5,600

$0

–

$381,000

$1,373

25%

$85

Weighted Average

23%

Explanatory Notes:

a) Average prices based on new flats offered in the first half of 2012 in non-mature estates.
b) Median Household income is based on 1st-timer applicants in the first half of 2012 in non-mature estates.
c) Monthly mortgage instalments based on concessionary interest rate of 2.6% over 30 years.
d) The Additional CPF Housing Grant (AHG) and Special CPF Housing Grant (SHG) used to offset the 90% maximum loan, where applicable, assuming that buyers have sufficient savings for the 10% downpayment.
e) The stamp, conveyancing and other fees payable to buy a flat are not included in the table above.

Another buyer, with a lower income of $2,400 monthly, may opt for reasons of financial prudence for a smaller 3-room flat in a non-mature estate. This buyer will only need to come up with a very minimal cash outlay of $6 for the monthly instalments.

The DSR levels for new HDB flats is set well within the acceptable international affordability benchmarks of 30-35 percent. With generous and targeted grants for the lower income, the typical buyers of smaller 2- and 3-room flats can enjoy a lower DSR, some with zero cash outlay.

While HDB works to ensure that new BTO flats are priced within reach of most working Singaporean families, individual households also need to adopt a prudent approach, and look for flat options that are within their means, after taking into account their other financial commitments over the long term."