Within a family’s reach

Source : Straits Times – 12 Sep 2009

I THANK Mr Ng Kok Lim (’Do the criteria reflect reality?’), Mr Hoon Tze Ming (’Home affordability fails to factor in opportunity costs’) and Mr Chew Kim Cheer (’Solve key concern – soaring resale prices’) for their letters last Saturday.

As the public housing authority, HDB has two key responsibilities: to help Singaporean families set up their first home; and to ensure flat values for the 80 per cent of Singaporeans who are home owners are sustained over the long term.

To do this, HDB adopts a two-pronged approach. First, ensuring affordability for first-time home owners; second, calibrating new flat supply to meet demand.

Affordability

THE Government provides generous housing subsidies. HDB flats are thus affordable by any measure. On average, first-time home buyers use only 17 to 29 per cent of household income for their loans, below the international benchmark of 30 per cent.

A first-time couple earning $4,000 a month buying a resale four-room flat at $300,000 will need only 25 per cent of their monthly income. Their Central Provident Fund (CPF) contributions ($920) will cover almost all of the instalment, with only $81 paid in cash. New flats are equally affordable.

Mr Ng cited some house price-to-income ratios to conclude that Singapore has one of the priciest property markets in the world. Both Mr Ng and Mr Hoon felt that HDB should use other indices besides debt-servicing ratio (DSR).

The figures quoted by Mr Ng do not reflect the situation in Singapore. They include both private and public housing. In our case, the house price-to-income ratio for first-time HDB flat buyers is only about five years, much less than that in any of the 20 cities Mr Ng listed.

DSR is the proportion of mortgage instalment to monthly household income. It is objective, simple and well- accepted. Banks and many countries use it as an accurate measure of affordability.

Flat supply

HDB determines flat supply based on population growth, including immigrants and new marriages, as well as resale flats released into the market. In response to rising demand, HDB has been increasing new flat supply. HDB will increase the build-to-order (BTO) flat supply this year to 8,000, compared to 2,400 in 2006. Most first-time applicants have a chance to select a BTO flat within two tries.

Mr Ng feels there are no willing buyers or sellers because there are insufficient new flats where and when people like. Mr Chew asked for comparisons between mature and non-mature estates.

It is not possible to build new flats ‘where and when people like’, especially in mature estates. There is not enough land to do so. However, there are ample resale flats in mature estates, which are affordable. Based on recent transactions, the average DSR for mature estates was about 27 to 28 per cent.

We understand the aspirations of flat buyers to buy a flat of their choice. But as with all purchases, flat buyers need to decide on their trade-offs, such as price and location.

HDB will continue to watch the market closely to ensure affordability, and will consider appropriate measures if the situation warrants.

Yap Chin Beng
Deputy Chief Executive Officer (Estates & Corporate)
Housing & Development Board