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Govt repeats: families with S$1,000 income can afford HDB flats

TODAY, 2012
TODAY, 2012

When Deputy Prime Minister and Finance Minister, Tharman Shanmugaratnam, said in Parliament in 2012 that “a family with a monthly income of as low as $1,000 can now purchase a small flat”, it caused an uproar.

Many felt that Mr Tharman and the government were out-of-touch and being unrealistic.

Minister for National Development, Khaw Boon Wan, later explained the math behind Mr Tharman’s remarks.

The Finance Minister, who was speaking during the debate on the Budget, was referring to new two-room HDB flats, Mr Khaw said. And if government grants were factored in, such a home buyer “will also be entitled to housing grants of up to $60,000.”

“So the net selling price to him is about $40,000, and the monthly mortgage payment of such an HDB loan can be fully recovered from his Central Provident Fund contribution,” Mr Khaw said.

Nonetheless, Singaporeans still felt that the claim was incredulous, and does not reflect the reality of daily living.

In his letter to the Wall Street journal, Singapore’s consulate-general in Hong Kong made the same claim – that “families earning just 1,000 Singapore dollars ($800) a month can afford to own a two-room apartment.”

“Indeed, 80 percent of households in the bottom income quintile own their homes, with an average of more than S$200,000 net housing equity,” Mr Jacky Foo, the consulate-general, said.

Mr Foo’s letter was in response to an article written by Dr Chee Soon Juan on 28 November in the same newspaper, in which the latter wrote about Singapore’s income inequality.

On Thursday, Singapore’s Minister of Social and Family Development, Chan Chun Sing, reiterated the government’s position.

“Singaporean families earning $1,000 a month can indeed afford their own flats because of various housing grants,” Mr Chan said in a letter to the local press. “As a result, the lowest 20th percentile of households have an average net home equity of $200,000. That is an achievement no other nation in the world can boast of.”

The home equity of $200,000 was first mentioned by Prime Minister Lee Hsien Loong in his speech at the Economic Society of Singapore Annual Dinner in 2012.

“In fact, households in the lowest income quintile (20%) have on average more than $200,000 of equity in their HDB flat!” Mr Lee said then.

Nonetheless, Singapore has one of the widest income inequality in the world, with the gini co-efficient reflecting the stagnation in wages in recent times.

“The number of older workers taking home less than $1,000 a month has doubled to nearly 35,000 over the past decade,” the Straits Times reported last August, citing Ministry of Manpower (MOM) statistics.

“One out of 10 working Singaporeans earns less than $1,000 a month,” says this website, also citing MOM’s data.

A study by the National University of Singapore’s (NUS) Social Work Department in 2013 found that the “working poor” in Singapore were not making enough to make ends meet. (See here.)

“It has been reported that there are more than 300,000 Singaporeans and permanent residents who earn less than S$1,500 a month (excluding employer CPF contributions) despite working full-time,” the TODAY newspaper reported, citing the NUS study.

The concern over income inequality was also expressed by six economists in 2012.

“[Although] the government has increased its spending on lower-income groups through Workfare, Comcare, and discretionary transfers, its redistribution has not been aggressive enough. This is shown by the fact that the Gini after taxes and transfers had increased at almost the same rate as the Gini based on market incomes,” the group said in a paper titled, “Inequality and the Need for a New Social Compact”.

They also said:

“While large numbers of low-skilled foreign labour help to keep Singapore’s costs low, they are also likely to have contributed significantly to wage erosion at the lower end of the income distribution.”

“At these wages, households in the bottom 10 per cent would have barely enough to meet basic needs, let alone invest in human capital formation. While Workfare and Comcare go some way towards addressing hardship, they may not be sufficient, or provided regularly or widely enough. For these segments of the Singapore population, poverty remains a real problem.”

“Among lower-middle to middle income Singaporeans, the lack of retirement adequacy is in large part due to the fact that so much of their CPF savings are locked up in housing.”

The reaction of incredulity over the government’s claims that families with a S$1,000 income are able to afford a HDB flat stems from the experience of daily living in Singapore, which has been ranked one of the most costly countries in the world.

Indeed, some ask what is the whole point of “owning” a flat when in the end, due to inadequate retirement savings in the CPF because savings are drained by housing costs, one has to “sell back” the flat to the HDB in order to monetise it to afford retirement in old age.

As one blogger put it in 2012:

“So what is the purpose of this whole exercise? ….To show that you can struggle for 30 yrs to own a flat that you have to give back when you finish paying….and prove Minister Tharman right!? To perform this feat with no financial buffer serving as margin for error…many of these families will lose their home along the way due to unemployment, illness, emergencies, inflation in cost of living etc.

“You try to make those low wages do wonders when you should be asking why wages are so low – no developed nation has workers who work full time earning $1000 a month except in Singapore. Minister Tharman in making his extraordinary claim simply expose the extraordinary income disparity the PAP system has created.”

So, while a family may technically be able to afford a two-room HDB flat (or even a bigger one), the issue perhaps has moved beyond such simplistic claims.

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