We will assess affordability based on your standards

“Since you like to compare apples to apples, let me make the picture clearer, and based on your own standards, you are basically putting your foot into your mouth.” – Contributed by Oogle.

However, Mr Mah Bow Tan questioned why the people kept thinking HDB flats were not affordable.

He said, “With their (homeowners’) CPF contributions, few have to pay any cash for their mortgage payments. In total, more than 80 per cent of Singaporeans live in 900,000 HDB flats today. Yet, people still worry that HDB flats are not affordable. Why are there such sentiments?”

He explained how HDB ensured that the prices were affordable, “To ensure that first-time buyers have access to affordable housing, we do several things. First, HDB prices its new flats below market value, taking into account the income of homebuyers. Hence, first-timers enjoy a substantial subsidy when they buy new flats from HDB.”

He then talked about the different measures of housing affordability, “One is the housing price-to-income ratio (or HPI), which compares median house price to annual household income.”

He added, “While the HPI is relatively easy to understand, it does not consider factors like loan availability and financing costs, which are important for many deciding to buy a flat. Therefore, another widely-accepted measure is the debt-service-ratio (DSR), which looks at the proportion of the monthly income used to pay mortgages.”

“Next, we consider the suitability of the debt-service-ratio (DSR) as a measure of affordability for national planning purposes. There are several shortcomings, the most serious being a pre-qualified sample – the DSR is calculated based on existing home owners. These are people who can afford to buy the flat. Those who cannot afford to buy a HDB flat would not have bought one and hence would not be captured by the DSR. The loan application process would also have weeded out those whose DSR would exceed the ‘30-35 per cent international benchmark for affordable expenditure on housing’.”

“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?”

If Mr Khaw had his way to offer BTO flats at HPI of 4 (i.e, 4 times of annual income), then a 4-rm flat price with applicants’ median household income of $4,000 would work out to be $192,000.

Comparing with the price of current ones at $250,000, can we expect a further drop of at least 23% in prices of BTO flats in future?

Author: Gilbert Tan TS

IT expert with more than 20 years experience in Apple, Andriod and Windows PC. Interests include hardware and software, Internet and multimedia. An experienced Real Estate agent, Insurance agent, and a Futures trader.

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