By Leong Sze Hian
The Housing and Development Board (HDB) has shortened its maximum loan tenure from 30 years to 25 years and the mortgage servicing ratio (MSR) limit has also been cut from 35 per cent to 30 per cent of the borrower’s gross monthly salary.
From today onwards (Aug 28), financial institutions will in tandem reduce the maximum tenure of new housing loans and re-financing facilities from 35 years to 30 years.”
In his National Day Rally (NDR) speech, Prime Minister Lee Hsien Loong cited the example of how a family with a household monthly income of $2,000 can afford a 3-room BTO flat at $170,000.
Under the new and reduced 25-year loan tenure, the family’s monthly mortgage repayment would be S$694.11, based on a HDB Concessionary loan of $153,000 at 2.6 per cent.
With CPF contribution of $420, the flat-owner would have to pay the difference of $274.11 in cash.
After deducting his CPF contribution, he would be left with S$1,600. With this, he has to pay the cash portion of his mortgage (S$274.11), the Service and Conservancy Charges (SCC), and other expenses.
If he has a family of four persons, his cash flow will be quite tight.
How many get grants and how much?
Even if he received all the grants available to him, he would still face a mortgage repayment of S$503.57, based on a loan of S$111,000.
This is still about S$84 more than the S$420 CPF contribution which he can use to pay the mortgage.
Moreover, how many flat-owners actually get such high grants and how many don’t qualify for any grants at all?
All the examples used to show that HDB flats are affordable are based on Singaporeans who are employees who contribute to CPF.
What about the 312,700 self-employed (15.3 per cent of the total labour force) who may not have any CPF contributions they could use to service their housing loans?
Using the same example of someone whose salary is S$2,000 monthly, a self-employed person with the same income may take home about S$1,126, after deducting for Medisave contribution and monthly housing mortgage of S$694.
With further deductions for S&CC, utilities, and other expenses, the family could find daily living quite a challenge.
As the trend points to more becoming self-employed – with an increase of 4.3 per cent from 2011 to 2012 – it is unclear if our flats are really affordable.
More may take bank loans?
In contrast, since banks will be allowed to offer a longer 30-year loan, compared to the HDB’s 25 years, the monthly mortgage repayment would be much lower, at only $529.50 at the current rate of 1.52 per cent. This is $164.61 less than the 25 year HDB loan.
So, particularly for lower-income Singaporeans, they may be forced or be more inclined to take a bank loan, which would also come with its attending risks.
There are also no statistics on the foreclosure and delinquency rates of HDB bank loans.
Market may cool finally?
The new purchase criteria for Permanent Residents (PRs) may finally help cool the HDB resale market. PRs will now have to wait 3 years upon receiving their PR status before they can purchase a HDB flat from the resale market.
This may have a knock-on effect on the private property market too. As it is, the private property resale market’s prices have already been correcting in the last three months, as well as transaction volumes in the overall private property market – a whopping 73 per cent drop last month.
Hope price don’t increase by more the grant?
However, it remains to be seen how HDB Build-to-Order (BTO) and resale prices will move. For example, just a $5,000 increase in the BTO price may wipe out the $5,000 grant that higher income ceiling flat-owners may get.