Why are less applying for BTO?

I refer to the article “Slower take-up for build-to-order flats in Yishun” (ST, Feb 8).

The article states that “the two projects at Yishun, featuring 1,548 flats ranging from two-room to five room units, got 1.8 times as many applicants as there were flats on offer…this showing pales in comparison to a December BTO launch for Punggol Topaz that received six times more applicants than there were flats on offer”.

Well, does that mean that the flats’ take-up rate has dropped by 70 per cent?

One reason to explain why the take-up rate has slowed may be that Singaporeans are realizing that the ever increasing BTO flat prices may not be affordable.

In the last three years, whilst HDB prices sky-rocketed, the real median wage growth registered in 2008 and 2009 was negative and clocked only 0.5 per cent last year.

Rising cost of living

So, your income is not going up, and yet the cost of living continues to accelerate. For example, the average surgery bill in six of the seven public hospitals increased by at least 50 per cent to as much as double over the last four years. In addition, you also have to take into account the rising electricity tariffs, increase in public transport fares, child-care fees, university fees, etc.

In such an environment, wouldn’t you think twice before committing to a flat purchase?

The uncertain future

When your flat comes in about five years time, wouldn’t you be afraid that your circumstances may change such that you may not be able to afford the flat, not to mention the risks and uncertainties of job losses, pay cuts, illness, etc, over a 30-year mortgage loan?

Experiencing a problem getting a loan?

Another reason why less people may be applying for the flats may be also tied with the new rule on a second HDB concessionary loan.

How many people can cough up 50 per cent of the cash profits from their last HDB flat sold, regardless of how long ago, and also have their entire CPF utilized plus accrued interest from the previous flat to pay for the new flat?

No demand for two-room flats?

With reference to the statement “The two-room units were the only ones that were under subscribed, with just 138 applicants for the 192 units available,” one of the primary reasons may be the $2,000 household income ceiling eligibility which has not changed for many years, whilst the two-room price has escalated to the typical selling price of $105,000 as of date.

After the HDB announced on 3 March 2006, after it had stopped building two-room flats in the early 1980s, that it would resume the building of the flats from June 2006, the average price of a two-room flat in November 2007 in Compassvale Beacon (Sengkang), was only $78,000 for example.

I estimate that the prices of two-room BTO flats may have increased by about over 30 per cent over the last four years or so. Since two-room flats are the cheapest option for lower-income Singaporeans, why have their prices been allowed to increase by so much?

If your household income is below $2,000, you may be finding it hard to make ends meet in the first place.

So, with the lower income group’s arguably greater incidence and fear of job security, declining wages (over the last decade, it is estimated that 30 per cent of workers have had negative real wage growth), rising cost of living, etc, would you commit to a flat purchase?

Cross referencing to the article “Most two-room BTO flats taken up eventually” (ST, Feb 8) which said that “The Housing Board explained that this happens as buyers who first pass up on these one-bedroom units for their lack of size eventually buy them when they realise these units can still meet their needs”, some of these eventual buyers may be those who were forced to vacate HDB rental flats because their incomes had gone up, or those who failed to get a bigger BTO flat after applying umpteen times etc, who did not even think about applying for a two-room in the first place.

Is it really affordable?

According to the HDB’s web site, “Affordability of a Typical Flat”, Applicants’ Median Household Income for two-room is $1,400.

If half of the two-room applicants’ household income was less than $1,400, how on earth can they afford to buy anything, including a flat?

Using $260 as the typical monthly installment for a 30-year loan, after the first-timers’ $40,000 eligible additional CPF housing grant (which is the highest possible grant for those with income of not more than $1,500; applicants must also have been in continuous employment over the last 24 months at the date of the flat application), at 19 per cent installment to income ratio which then seems to suggest that flats are affordable, how then is a family struggling with $1,400 a month can afford to squeeze $260 out from their already miserably low income to buy a flat?

Down-payment problems

Finally, many lower-income households may not even be able to come up with the initial 10 per cent down-payment for the flat.

Also, if you are not eligible for a HDB concessionary loan, your down-payment will be increased to 20 per cent from 20 February 2010 for HDB bank loans.