Tan Kin Lian's Blog: Affordable flats

Wednesday, January 27, 2010

Affordable flats

What is the affordable price of a HDB flat?

In my book, Practical Guide on Financial Planning, I suggested that the flat should represent 4 to 5 years of the combined family income (after deducting the cost of employing a maid). If the combined family income is $5,000 and the cost of the maid is $800, an affordable price for a flat is $4,200 X (48 to 60) = $200,000 to $250,000.

The monthly repayment should be within 25% of the family income and the loan can be repaid within 25 years or before reaching age 55. If the monthly repayment is more than 25% of the income, you are paying too much for your flat (or private housing).

If you have used CPF or personal savings towards the down payment for your flat, your monthly repayment should be reduced proportionately below 25%, as you need the difference to be saved to restore back the savings that have been used for the down payment.

Tan Kin Lian

12 comments:

Anonymous said...: The median household monthly income is about 5000.

200K-250K will only get a 3 rm flat.

This means half the households should just get a 3 rm or smaller flat to make it affordable.

Not much room and space to have children and also to accomodate aging parents if there is a need.

Quality of life in this respect has certainly dropped, compared to the past.; January 27, 2010 8:47 AM
Tan Kin Lian said...: Hi 8:47 AM

You are right. The 4 room flat, which is needed for a family, is overpriced. It should be reduced to be at the current price of a 3 room flat.

I think that HDB flats are now over-priced by 30%.; January 27, 2010 9:06 AM
Anonymous said...: Demand drives up Resale market prices. The new HDB will follow valuation price and adjust its selling price of new flats accordingly.

E.g. New Queenstown 4 rm flats bought in 2004 cost <$300k.Now, in resale market >$500k. When HDB launch Dawson flats nearby, the selling price is adjusted to current price. If not adjusted, we may see more residents in Queenstown flats selling and subsequently apply Dawson cos it will make sense to pay levy. Singaporeans are property savvy.; January 27, 2010 10:18 AM
Anonymous said...: Mr. Tan, to have a quality life style, flat should not take more than 15 years to pay off based on combined income. Otherwose, if it takes 25 years, what is left in life?; January 27, 2010 12:23 PM
Anonymous said...: Anon 10:18 am

You have a point. I think the culprit is the high resale price of HDB flats, caused by the large influx of foreigners turned PRs. And the govt say this it cannot control, meaning they will also have no choice but to raise the prices of new flats for sale.

Looks like it is not so easy to solve this problem, unless some drastic changes to current policies and regulations, like limiting PRs on buying HDB flats or number of foreigners coming here.; January 27, 2010 1:58 PM
Anonymous said...: I wanted to say you can still get a 4 room flat in Yishun for 200-250K.

I checked the HDB Resale Prices and discovered sadly prices in Yishun which used to be one of the cheapest in Singapore have also appreciated beyond 250K.; January 27, 2010 2:09 PM
Tan Kin Lian said...: Hi 12;23 PM

If you wish to repay your loan within 15 years and within 25% of your earnings, you have to buy a property that is less than 3 years of your annual income. It will be difficult to find any property that meets this criteria, unless the current prices drop by at least 35%.; January 27, 2010 2:31 PM
Anonymous said...: Mr. Tan,
Prices as it is are too high artificially. For ordinary people, unless you want to migrate, there is no point to have this wealth trapped in the property that you live in. It will attract higher rental, then higher property taxes All these wealth are of no use to people and affect young people badly. I am very concern on how my kids would be turn into robots and spend 25 to 30 years to work for a place to live in high up above the ground and then realise that life is gone. All of us only has one life and be on earth once, what is the point?; January 27, 2010 4:51 PM
Concerned said...: A PR can afford those re-sale prices of a HDB flat for the following reasons:-

Assume a PR bought a re-sale 4 room flat. They will borrow the money from the bank to pay after making the down payment.

The PR and family will take up one room and rent out the remaining two rooms. The rent collected can easily pay off the bank loans and after 25 years the flat will be theirs. Or a PR will just quit after a few years later and sell the flat in the second hand market at a profit. This is unlike Singaporeans where usually family members occupy all the rooms.; January 27, 2010 5:27 PM
Anonymous said...: For PRs, don't forget they can also take higher risks and overpay for flats. Speculating on even higher prices in future to take profits.

This is because they have a back-door escape route. Hence if worse comes i.e. lose job and negative equity on the flat, they can simply run-road back to original country. Abandon the mortgage and mail the keys back to the bank.

This is exactly what happened in Dubai especially since the ang-moh expats are scared of the strict Sharia laws against debtors.
And exactly what happened to GIC and the residential complex in Manhattan.; January 28, 2010 1:31 AM
Anonymous said...: 1) I think the Manhattan case is more of a rent control issue and the investor can't get rid of the current tenant.
2) How do one derive the 48 to 60 time of disposable income?
3) beside PRs (inc from 287k in 2000 to 478k in 2008)there are also Foreigner turn citizen, 2.98m in 2000 increase to 3.16m in 2008. Net increase of 369k (Citizen and PRs). Assuming an household of 4 that is an increase of 92k household (ie demand of almost 10k houses per year) which is 2k houses above the ave pte house sales. (but hav to add that this do not include investment sales and hdb devt).; January 28, 2010 7:37 AM
Anonymous said...: Hi, 4room 90sqm flats can still be had for 200-250k. Near Yishun Avenue 1.

Central Yishun, no way 250k. You're looking at 330k+; January 31, 2010 1:36 AM