Sent to Voices, Today Paper, on 24 March 2012
I refer to the article entitled "PropertyGuru report misleading: HDB" (Today, 24 March 2012).
HDB produced figures to show that the monthly installment is about 25% of the
median household income for purchasers of the 4 and 5 room HDB flats.
The calculation is based on the average selling price of new flats bought under
the Build-To-Order scheme, less the additional housing grant. According to HDB,
this income ratio is affordable, compared to international benchmark of 30% to 35%.
The purchaser has to fork out 10% of the selling price and has to take a loan for 30 years
at an interest rate of 2.6% to achieve this "affordable" monthly installment.
It is risky for a family to commit to a large mortgage payment on a 30 year loan, especially
as jobs are not secure. If any of the income earners were to become unemployed, the
financial burden can be quite severe.
If is also risky to assume that interest rate will remain at 2.6%. Global interest rate is
now at a historical low and if the interest rate were to increase in the future to keep
pace with inflation, the monthly installments will increase.
I have recalculated the monthly installment to allow for a higher rate of 3.5%
and a more prudent repayment period of 25 years. The revised monthly installment
represents 30% of the median household income.
Looking at another indicator, the net selling price represents 69 of the
median household income for purchasers of 4-room flats and 67 times for 5-room flats.
I agree with the PropertyGuru report that a ratio of 60 times can be described as
"severely unaffordable".
We can still hope that the burden on households will become smaller, if their
income were to increase in the future. In recent years, the increase has been
modest, so we cannot expect too much help from this source.
Tan Kin Lian
2 comments:
Think from the Govt's perspective, they are more concerned with addressing the current shortage of HDB flats first, and stretch the instalment period up to 30years to appear affordable to couples hitching up and impatient to get a love nest to start marriage life. Expensive public flats, or
taking up a high ratio of household median income or prospect of sudden retrenchment do not figure in their National Agenda, at least not for the short term.
Govt horizon for planning has been shortened to only a 5 year range, beyond that time frame, it's a -
"let's see when that time comes".
Having a flat quickly for couples and start cranking up the baby making machine to make babies is the first priority now, other things being secondary.
So have to push out 8,000 HDB flats super fast, in time to catch the arrival of the stork.
Making babies is the Agenda behind, possible negative equity on the expensive flats, or future foreclosure unimportant now.
Even the private devlopers are now giving misleading calculations in recent advertisments based on 30 yrs mortgage of EC, notwithstanding the current high prices of ECs.
They tried to show no cash monthly outlays, only pay with CPF ... LOL. Is this real affordability? Based on the arguments by HDB; ECs are affordable by Singaporeans too if they have the initial savings for a downpayment.
i.e. at current low interest rate as Mr Tan had said of the HDB flats...what when interest rates shoot up, forget about "unemployment" issues ... say Singapore is shielded from global crises.
Although KBW is doing a good job pushing out BTO flats, he is re-tracing the steps of MBT for ECs ... and maybe will "re-engineer" the next exceptional reversal of PPPI especially for ECs when it should actually go through a correction. LOL.
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