I carried out a survey in my blog about the price of HDB flats. 50 people replied. 47% replied that their monthly repayment to the housing loan (including CPF withdrawals) is within 20% of their family income. I consider this to be prudent, as it is within 25% (which is my benchmark).
Another 38% said that the repayment is 30% of their family income. 15% said that the repayment is 40% to 50% of their family income. The commitment is clearly excessive for this 15%.
I would consider that two thirds or 66% (i.e. 47% plus half of 38%) are prudent and that the remaining one third is over-stretching their finances towards their HDB flat.
In terms of affordability, i.e. whether the servicing ratio is 20% or 30+%, also depends on when people buy their HDB flats.
ReplyDeleteThose who bought during the last recession in 2002-2003 should be able to cover mortgage within 25%. Prices then were reasonable. I could get older resale 4-rm in Toa Payoh Central (point block just next to the library) for $280K.
Those who joined in the rush in this recession 2008-2009 will probably have to stretch their finances, unless they are high income earners.
The zoom up in property prices from 2006-2009 reminds me of the years from 1993-1996. When the property market collapsed in 1998, it took about 12 years to get back to the highs of 1996.
Hence, whenever markets have run straight up for a few years already, it may be better to hold off on purchase and stay with parents first. If really need to get own flat, it is always better to be prudent and humble, and get an average flat in an average location first.
i think a web poll isnt a realiable gauge because ppl who bother to read blogs or search the web to look for info are more prudent than others already.
ReplyDeletewhen cpf increased their max age from 55 to 62 in their loan computation, the max loan tenure increased from 30 to 35 years, and it encouraged over-stretching among the young. personally, i will think that holding 25% over 35 years isn't prudent esp if it's a bank loan.
using the repayment % alone isn't enough to conclude that the person is prudent because if the guy has a large amount of savings or he expects investment policies to mature soon, he may decide to repay at 40% over a shorter period to save on the loan interest which is also prudent.
the measure could be better if it is a combination of both repayment % and the premium % (for e.g. 35 year hdb loan at 2.6% = 91% premium or 35 year bank loan at 4% = 140%). numbers are just for illustration, not based on any bank rate.
prudent or not still need a place to live in so some one may buy a 2 or 3 rooms flats with 40% but what to do?
ReplyDeleteFor those over 45 or 50, they bought their home long ago. So it should be less than 20 % now when they do the survey.
ReplyDeleteMr Mah Bow Tan needs have coffee and talk with Mr Lim Swee Say.
ReplyDeleteMr Mah says 30 years repayment schedule imply HDB flats are affordable.
Mr Lim says job security for 30 years is not possible. Also older workers need to take pay cut. Also need to be cheaper (lower pay), better, faster.
Hmm.... Left hand don't know what the right hand is doing. The Singapore aeroplane is still flying but seems to be on autopilot