In a recent survey of nearly 1,500 residents, MND said it showed that majority of prospective flat buyers are willing to pay more than the current average prices.
However, the survey also showed that people continue to view the new BTO flats as expensive. The survey was conducted in November last year.
Last year, the average price of a 4-room HDB flat in a non-mature estate was $295,000. Eighty per cent went for under $350,000.
MND said a third of the respondents did not know how much such flats cost, while 40% overestimated the price. The most common estimate MND said, was between $300,001 and $400,000 for a 4-room unit.
That estimated price range was higher than the average $295,000, MND said.
The survey also found that those who intend to buy a flat in the next 1 to 2 years are willing to pay as much as or more than actual BTO prices in non-mature estates:
- 3-room flats (avg price $186,000 in 2014) – 58% willing to pay more than $200,000
- 4-room flats (avg price $295,000 in 2014) – 61% willing to pay more than $300,000
- 5-room flats (avg price $391,000 in 2014) – 51% willing to pay more than $400,000
However, it’s not known if MND is aware that a person willing to pay more does not necessarily mean he is happy to do so. The 2 matters are not the same.
In any case, the better approach to measure affordability of a flat is to take the ratio of the price of the flat over the annual household income of the owners.
Many BTO HDB flats still remain unaffordable
After Mr Khaw Boon Wan took over the job as National Development Minister from Mah Bow Tan in 2011, Mr Khaw told Parliament that more would be done to reduce BTO flat prices relative to income, so as to reduce the financial burden of housing on the young. He said [Link]:
“Many are now clamoring for the HDB to return to basics and its original mission of helping Singaporeans own a basic home. But what does ‘returning to basics’ mean?
The primary mission of HDB to offer an affordable flat for the majority of Singaporeans will remain unchanged. Fortunately this is within our control as we set BTO prices and HDB is the largest housing developer.
We have stopped BTO prices from rising by delinking them from resale prices. We can now pause and see what else we can do to bring BTO prices in non-mature estates to, say, around 4 years of (annual) salaryas it was before the current property cycle started.
One thing is clear. We are committed to restoring and maintaining the affordability of new HDB flats to the vast majority of first-timer Singaporean households. Their Singapore Dream of owning their own flats, like their parents’, is safe. We will make sure of that.”
Note that Mr Khaw used the term “restoring” the affordability of new HDB BTO flats, which implies that in his predecessor’s time (i.e. Mah Bow Tan), the HDB BTO flats were already unaffordable.
In the 70′s, a graduate’s starting pay was around $1,000 per month. Then, in Marine Parade HDB estate, the price of a new 3-room, 4-room and 5-room flat was $17,000, $20,000 and $35,000 respectively. A young graduate could easily afford a 5-room flat at a Price-to-Annual Income Ratio, also known as the Affordability Ratio (AR), of slightly under 3 (i.e. 3 years of annual income to match the price of the house). Even households earning $500 a month could easily afford a 3-room flat priced at $17,000 (AR under 3).
The World Bank considers a ratio of 5 or under as affordable for local residents, while the United Nations has set the bar lower, at 3 (see Link). In any case, anything above 5 is considered unaffordable by both the World Bank and the United Nations.
By 1990, the average price of a new 5-room flat was $70,000 and a young graduate earned about $2,000 a month. The AR then was still under 3 – very affordable.
Examining the affordability of current new HDB BTO launches
TRE took the opportunity to examine the affordability of new HDB BTO flats launched in November last year. A total of 7,568 flats were launched by HDB for sale in a mix of mature and non-mature towns on 25 Nov 2014 [Link]. This was HDB’s final sales exercise for 2014.
Sembawang Sun Breeze
Typical 2-room (I):
- Nett selling price less grants = $30,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 1.6
Typical 2-room (II):
- Nett selling price less grants = $50,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 2.6
Typical 3-room:
- Nett selling price less grants = $115,000
- Applicants’ median monthly household income = $2,500
- Price to annual household income = 3.8
Typical 4-room:
- Nett selling price less grants = $240,000
- Applicants’ median monthly household income = $4,200
- Price to annual household income = 4.8
Sengkang Anchovale Fields
Typical 2-room (I):
- Nett selling price less grants = $45,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 2.3
Typical 2-room (II):
- Nett selling price less grants = $70,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 3.6
Typical 3-room:
- Nett selling price less grants = $135,000
- Applicants’ median monthly household income = $2,500
- Price to annual household income = 4.5
Typical 4-room:
- Nett selling price less grants = $270,000
- Applicants’ median monthly household income = $4,200
- Price to annual household income = 5.4
Yishun
Typical 2-room (I):
- Nett selling price less grants = $30,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 1.6
Typical 2-room (II):
- Nett selling price less grants = $45,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 2.3
Typical 3-room:
- Nett selling price less grants = $115,000
- Applicants’ median monthly household income = $2,500
- Price to annual household income = 3.8
Typical 4-room:
- Nett selling price less grants = $240,000
- Applicants’ median monthly household income = $4,200
- Price to annual household income = 4.8
Typical 2-room (I):
- Nett selling price less grants = $30,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 1.6
Typical 2-room (II):
- Nett selling price less grants = $50,000
- Applicants’ median monthly household income = $1,600
- Price to annual household income = 2.6
Typical 3-room:
- Nett selling price less grants = $115,000
- Applicants’ median monthly household income = $2,500
- Price to annual household income = 3.8
Typical 4-room:
- Nett selling price less grants = $235,000
- Applicants’ median monthly household income = $4,200
- Price to annual household income = 4.7
Conclusion
For 2-room and 3-room BTO flats in Sembawang and Yishun, they are considered affordable at 4 years of applicants’ median annual salary or less. However, for 4-room flats, the AR is 4.7 to 4.8, way above Mr Khaw’s own target of 4.
In this case, 4-room BTO flats should be priced around $201,600 (4 x $4,200 x 12) instead of the current $235,000 to $240,000 in Sembawang and Yishun (i.e, prices after grants).
For Sengkang, the situation is worse. 2-room flats are priced below AR of 4 but 3-room and 4-room flats have ratios of 4.5 and 5.4 respectively, again, above Mr Khaw’s own target of 4.
In fact, Sengkang 4-room BTO flats (AR of 5.4) are considered unaffordable by the standards laid down by the World Bank and the United Nations. Sengkang 4-room flats, instead of selling for $270,000 (after grants), ought to be selling at $201,600 (4 x $4,200 x 12). They are overpriced by 34%.
One can only conclude that Mr Khaw has yet to fulfill his promise of bringing down ALL the BTO prices in non-mature estates to 4 years of annual salary, especially for first-time Singaporean buyers. The middle-income group appears to be squeezed by the higher new HDB flat prices for 4-room and above. For mature estates, the AR of new BTO flats would naturally be even worse.
So, regardless of what MND is trying to say in its recent survey, the fact of the the matter is, new BTO flats remain expensive and not affordable even by Mr Khaw’s own measure, generally speaking.
Source: www.tremeritus.com
