I refer to the article “New flats affordable for most buyers, says Mah” (ST, Apr 25).
It states that “A couple below the age of 30 needs to pay only a 5 per cent down payment for a new flat. This can come out of their CPF savings.
So, a couple earning a combined $4,000 a month can work for half a year and buy a new four-room HDB flat with no cash upfront, said Mr Mah “.
I think the Minister may have made an erroneous calculation.
Here’s why? :-
Since the CPF Ordinary Account (OA) contribution rate is 23 per cent, the monthly OA for the couple’s combined $4,000 income is $920.
So, after working for six months, the cumulative OA including the 2.5 per cent interest per annum is $5,549.
So, at five per cent down payment, the price of the four-room flat is $110,980.
The are no new BTO four-room flats at such a low price.
The average price is about $200,000.
(Note: The latest 25 April BTOs launched has average four-room prices of $286,000 and $283,000 for Hougang Parkview Standard Flats and Montreal Ville Standard Flats, respectively.)
March BTOs Jurong West Boon Lay Fields – $296,000.
February BTOs Fernvale Flora and Fernvale Gardens – $$276,000 and Segar Vale – $255,000.
January BTO Orchid Spring@Yishun and Vista Spring@Yishun – $254,000)
Therefore, the down payment required is $10,000.
Thus, the couple would have to work for 11 months in order to accumulate $10,000.
Chasing a moving target?
However, new flat prices are pegged to resale prices under the Market Subsidy Pricing policy.
There, if the rate of incase in HDB prices at 11.1 per cent per annum over the last five years continues, the $200,000 flat may have increased to about $221,318, after 11 months.
So, the down payment then correspondingly increases to $11,066, whuch means that the couple may have to work for about a year.
Actually, since practically everyone may have to pay for their Dependants’ Protection Scheme (DPS) premiums, we may need to add another month to make it 13.
Hence, the time that it may take to have enough, may be like chasing after an ever rising target.
But, what if the couple has pay or bonus cuts, temporary job loss, illness, children, etc? For example, in 2008 and 2009, the real median income increase of workers was negative at – 3.2 and – 1.2 per cent, respectively.
By the way, the real median income increase last year was only 0.5 per cent, despite the record GDP growth of 14.5 per cent. Real median household income growth last year was even worse at 0.3 per cent.
When real incomes decline or is almost zero, people may have less cash-flows to pay for housing related costs like the mortgage, Service and Conservancy Charges (S & CC), property tax, utilities, mortgage and fire insurance, etc, as well as other expenses.
Also, since about 40 per cent of households earn below $4,000 (as the data is not broken down into Singaporean and permanent resident (PRs), this is an estimate), how many Singaporeans may not be able to afford a four-room flat?
What about the following Singaporeans who may not be eligible or unable to buy a new flat?:-
Singles age 35 and above
Second-timers who cannot afford the Sales Levy
Second-timers who may have a very slim chance, as 95 per cent is for first-timers
Those who put their name into their parent’s flat, and are thus deemed as second-timers
HDB Concessionary Loan second-timers who may not be able to come up with 50 per cent of the cash profits and all CPF utilised plus accrued interest from their last flat sale
With about 40,000 resale transactions to about 10,000 new flats’ transactions on the average in a year, many Singaporeans may have no choice because of eligibility, financing, etc, which may just not work out for them.
Perhaps for every first-timer under the Minister’s ‘affordable’ definition, there may be a few who need a flat but do nor fall into the ‘affordable’ defination.
Being eligible to buy a new flat is one thing. To be able to afford it when you get it eventually when prices may have risen and ciscumstances may have changed, may be something else altogether.
The fact that the example used by the Minister was below 30, may also not bring to light the issue that the CPF contribution rate to the OA starts to decline from age 35 to 21 per cent, and gradually to 11.5 and 1 per cent, at age 55 and 65, respectuvely.
I would next like to touch on the fallacy of the Housing Grants – the Minister’s remarks “If they are eligible for housing grants, they can also use them for the deposit”.
Since the cut-off point for the Additional CPF Housing Grant is $5,000 household income, about 60 per cent of households may not qualify.
But, rising prices affect every buyer.
For those who earn between $4,500 to $5,000, the grant is only $5,000, which similarly fails to catch up with rising prices.
For those who earn between $3,500 to $4,000, the grant is $15,000, but as their pay is lower, it may take an equally long time if not longer depending on how fast prices rise, to accumulate the down payment, and the OA contribution may also not be enough to pay for the monthly mortgage.
For those who earn below $2,000 and $1,500, the grant is $35,000 and $40,000, respectively.
However, if your household income is below $1,500 or $2,000, how will you be able to afford to pay over the typical 30- year mortgage, as the lower -income may tend to have a higher tendency for declining income, pay cuts, job loss, sickness, etc?
So, only those who can afford will buy and therefore the Minister’s logic may be flawed, because those who can’t afford wouldn’t be in the Minister’s always ‘affordable’ population in the first place!