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Out of the blue, after three weeks from my initial email to MOF for the request of more information of the $460K assistance given to the poor family over 60 years, I receive an email from Ministry of Finance. Well, although this very late reply is far from the quality assurance that the auto-reply emails have promised of replying within 3 working days, this is better than nothing.
The reply leads me to the <a href="http://www.mof.gov.sg/budget_2010/download/FY2010_Budget_Debate_Round_Up_Speech_Appendix1.pdf">link on MOF website which is an Annex </a>to the Minister's speech. I am still looking at it closely but I believe readers of this blog could come up with their very own conclusions.
Now, back to the main issue of HDB Myth.
<blockquote>MYTH II: HDB flats are unaffordable.
HIS RESPONSE:
# On top of the CPF Housing Grant of $30,000 or $40,000, there is an Additional Housing Grant (AHG) for lower-income families of up to $40,000. As of Jan 31, the Government disbursed more than $330 million in AHG to more than 20,000 families.</blockquote>
The grants are a fixed amount and have not been revised to take into account the large increase in HDB prices. Buyers buying a flat today therefore have to pay substantially more than a buyer who bought a HDB 1 year earlier and was able to obtain the same level of grant. In fact, 30 years ago, Singaporeans also get the same amount of grant of $30K!
# The median house price is 5.8 times the median household income in Singapore. In comparison, the ratio is 7.1 in London and 19.8 in Hong Kong.
There is a need to verify the numbers. If these are based on the numbers used in the article released by Prof Tu, then there are serious statistical comparability issues. There are already some analysis put up on the net about the inappropriate comparison.
HDB flats are leasehold flats without strata titles. This is totally different from private condominiums and apartments. It would be grossly inappropriate to make such comparisons because strictly speaking, HDB flat owners don’t own the whole piece of land which thier flats are built on. i.e. Condominiums owners own the whole piece of land in strata titles. When there is an enbloc sales, the land of the whole development fenced up would be considered as part of the asset owned by each owners. i.e. HDB flat owners don’t even own the corridors and void decks below their flats!
Afternote: In HK, there are flats sold to lower income group without the land cost being imputed in the costing. These flats are comparable to our HDB flats and should be used as a comparison.
<blockquote># The average mortgage payment for new flats in non-mature estates sold in 2009 was 22 per cent of monthly household income. This is well below the affordability benchmark of 30 per cent to 35 per cent.</blockquote>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://1.bp.blogspot.com/_97gTacH4hNg/S7Dgzym7pPI/AAAAAAAAAbE/lgDZWdWg8p0/s1600/hdbbtodawsonaffordability1.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 313px; height: 400px;" src="http://1.bp.blogspot.com/_97gTacH4hNg/S7Dgzym7pPI/AAAAAAAAAbE/lgDZWdWg8p0/s400/hdbbtodawsonaffordability1.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5454106329108686066" /></a>
According to HDB website, the Median Household income is not derived from more objective source but based on applicants income in their last sales exercise. What does this actually mean?
First of all, it only shows the Median Household income of those who could afford to buy their flats and that is the reason why they have registered to buy a flat in the very first place. For those who could not afford, will not be in the data set! So how could one use such data to justify the “affordability” of HDB flats?
For example, there may be X number of couples who wanted to buy a flat of their choice but could not afford it due to the high prices. If these couples are taken into account, it would mean that the MEDIAN HOUSEHOLD INCOME would drop tremendously.
On the other hand, what we are observing is that, even if we use HDB’s measure of “Median Household Income”, it has suddenly increase from $3900 in 2009 for a “normal” 4 room flat to $4300 in 2010! Did our young couples enjoy such a huge increase of 10% in their pay checks within a year?
Moreover, this data is totally inaccurate as a measure for another two reasons. If we are interested to know about the affordability of these flats for our YOUNG COUPLES, such data is not representative at all as it includes those who are applying for their second flats as well. On top of that, if we observe carefully, for the other 4 room flat in SkyVilla and SkyTerrace @ Dawson, the Median Household Income has shot up to $6000. It means that these similar size of 4 room HDB flats are no longer affordable to the NORMAL couples. Obviously, those who couldn’t afford will have no ways to apply for these “SPECIAL” 4 room flats.
All these basically mean that such measurement of “AFFORDABILITY” is totally flawed. The goal post will keep shifting and the statistics do not represent the real picture on the ground. What is the real picture on the ground then?
For any young couples who had just joined the labor market, it is unreasonable to expect them to earn a total of $4300 per month. While a small percentage of graduates who have exceptional grades or graduates with Honors degrees may be able to get higher starting salaries, most university graduates will not be able to garner that kind of wages. Furthermore, if university graduates have difficulty in getting that kind of pay, what about those with lesser qualifications?
Most graduates from Polytechnics and Universities have to repay their study loans after they found a job. If we add all these up, it seems that it is really difficult for them to afford a flat before 30. The situation will get worse if the prices of HDB flats keep going up under the present HDB policy. It will definitely in turn affect late marriages and fertility rate of Singaporeans.
<blockquote># Four out of five Singaporean new flat buyers service their housing loans from CPF savings, without any cash payment.</blockquote>
Singaporeans who service their housing loans need to be employed in order to have CPF savings. If key members of the household lose their job, the household will have problems servicing their HDB loan. This is especially so, given that the tenure of most HDB loans is 30 years. Given the current economic environment, it is imprudent to assume that households will not face retrenchment or reduction in salary in the next 30 years.
On the other hand, when all CPF savings in OA is used for financing the 30 years mortgage loans, it would mean that there will be very little left for retirement. As I have shown in my previous article <a href="http://singaporealternatives.blogspot.com/2010/03/hdb-for-retirement-financing-think.html">here</a>, the idea of using HDB flat as retirement financing is a very DANGEROUS one, with a lot of unrealistic perfect scenario assumptions being made.
High HDB prices alone will affect more than the affordability of the flats by young couples. It will also affect retirement financing as well as late marriages and fertility rate. It will create a whole lot of social-economic problems in the long run.
HDB should discard their ill representation of “affordability” by using some self-justifying data which is inherently bias. Minister Mah and those HDB planners should walk out of their Ivory Towers to get proper perspective of the problems that our youngsters are facing before they just shoot their mouths off about the “affordability” of their HDB flats by just looking at “cold figures”. In fact, I think it would do them good if they give us the data on the age of applicants with respective to the income groups. Only then we will have a fuller picture and proper perspective of “affordability” of HDB flats.
Goh Meng Seng
The reply leads me to the <a href="http://www.mof.gov.sg/budget_2010/download/FY2010_Budget_Debate_Round_Up_Speech_Appendix1.pdf">link on MOF website which is an Annex </a>to the Minister's speech. I am still looking at it closely but I believe readers of this blog could come up with their very own conclusions.
Now, back to the main issue of HDB Myth.
<blockquote>MYTH II: HDB flats are unaffordable.
HIS RESPONSE:
# On top of the CPF Housing Grant of $30,000 or $40,000, there is an Additional Housing Grant (AHG) for lower-income families of up to $40,000. As of Jan 31, the Government disbursed more than $330 million in AHG to more than 20,000 families.</blockquote>
The grants are a fixed amount and have not been revised to take into account the large increase in HDB prices. Buyers buying a flat today therefore have to pay substantially more than a buyer who bought a HDB 1 year earlier and was able to obtain the same level of grant. In fact, 30 years ago, Singaporeans also get the same amount of grant of $30K!
# The median house price is 5.8 times the median household income in Singapore. In comparison, the ratio is 7.1 in London and 19.8 in Hong Kong.
There is a need to verify the numbers. If these are based on the numbers used in the article released by Prof Tu, then there are serious statistical comparability issues. There are already some analysis put up on the net about the inappropriate comparison.
HDB flats are leasehold flats without strata titles. This is totally different from private condominiums and apartments. It would be grossly inappropriate to make such comparisons because strictly speaking, HDB flat owners don’t own the whole piece of land which thier flats are built on. i.e. Condominiums owners own the whole piece of land in strata titles. When there is an enbloc sales, the land of the whole development fenced up would be considered as part of the asset owned by each owners. i.e. HDB flat owners don’t even own the corridors and void decks below their flats!
Afternote: In HK, there are flats sold to lower income group without the land cost being imputed in the costing. These flats are comparable to our HDB flats and should be used as a comparison.
<blockquote># The average mortgage payment for new flats in non-mature estates sold in 2009 was 22 per cent of monthly household income. This is well below the affordability benchmark of 30 per cent to 35 per cent.</blockquote>
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://1.bp.blogspot.com/_97gTacH4hNg/S7Dgzym7pPI/AAAAAAAAAbE/lgDZWdWg8p0/s1600/hdbbtodawsonaffordability1.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 313px; height: 400px;" src="http://1.bp.blogspot.com/_97gTacH4hNg/S7Dgzym7pPI/AAAAAAAAAbE/lgDZWdWg8p0/s400/hdbbtodawsonaffordability1.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5454106329108686066" /></a>
According to HDB website, the Median Household income is not derived from more objective source but based on applicants income in their last sales exercise. What does this actually mean?
First of all, it only shows the Median Household income of those who could afford to buy their flats and that is the reason why they have registered to buy a flat in the very first place. For those who could not afford, will not be in the data set! So how could one use such data to justify the “affordability” of HDB flats?
For example, there may be X number of couples who wanted to buy a flat of their choice but could not afford it due to the high prices. If these couples are taken into account, it would mean that the MEDIAN HOUSEHOLD INCOME would drop tremendously.
On the other hand, what we are observing is that, even if we use HDB’s measure of “Median Household Income”, it has suddenly increase from $3900 in 2009 for a “normal” 4 room flat to $4300 in 2010! Did our young couples enjoy such a huge increase of 10% in their pay checks within a year?
Moreover, this data is totally inaccurate as a measure for another two reasons. If we are interested to know about the affordability of these flats for our YOUNG COUPLES, such data is not representative at all as it includes those who are applying for their second flats as well. On top of that, if we observe carefully, for the other 4 room flat in SkyVilla and SkyTerrace @ Dawson, the Median Household Income has shot up to $6000. It means that these similar size of 4 room HDB flats are no longer affordable to the NORMAL couples. Obviously, those who couldn’t afford will have no ways to apply for these “SPECIAL” 4 room flats.
All these basically mean that such measurement of “AFFORDABILITY” is totally flawed. The goal post will keep shifting and the statistics do not represent the real picture on the ground. What is the real picture on the ground then?
For any young couples who had just joined the labor market, it is unreasonable to expect them to earn a total of $4300 per month. While a small percentage of graduates who have exceptional grades or graduates with Honors degrees may be able to get higher starting salaries, most university graduates will not be able to garner that kind of wages. Furthermore, if university graduates have difficulty in getting that kind of pay, what about those with lesser qualifications?
Most graduates from Polytechnics and Universities have to repay their study loans after they found a job. If we add all these up, it seems that it is really difficult for them to afford a flat before 30. The situation will get worse if the prices of HDB flats keep going up under the present HDB policy. It will definitely in turn affect late marriages and fertility rate of Singaporeans.
<blockquote># Four out of five Singaporean new flat buyers service their housing loans from CPF savings, without any cash payment.</blockquote>
Singaporeans who service their housing loans need to be employed in order to have CPF savings. If key members of the household lose their job, the household will have problems servicing their HDB loan. This is especially so, given that the tenure of most HDB loans is 30 years. Given the current economic environment, it is imprudent to assume that households will not face retrenchment or reduction in salary in the next 30 years.
On the other hand, when all CPF savings in OA is used for financing the 30 years mortgage loans, it would mean that there will be very little left for retirement. As I have shown in my previous article <a href="http://singaporealternatives.blogspot.com/2010/03/hdb-for-retirement-financing-think.html">here</a>, the idea of using HDB flat as retirement financing is a very DANGEROUS one, with a lot of unrealistic perfect scenario assumptions being made.
High HDB prices alone will affect more than the affordability of the flats by young couples. It will also affect retirement financing as well as late marriages and fertility rate. It will create a whole lot of social-economic problems in the long run.
HDB should discard their ill representation of “affordability” by using some self-justifying data which is inherently bias. Minister Mah and those HDB planners should walk out of their Ivory Towers to get proper perspective of the problems that our youngsters are facing before they just shoot their mouths off about the “affordability” of their HDB flats by just looking at “cold figures”. In fact, I think it would do them good if they give us the data on the age of applicants with respective to the income groups. Only then we will have a fuller picture and proper perspective of “affordability” of HDB flats.
Goh Meng Seng
