Archive for the ‘Day-to-day Issues’ Category

How to make HDB housing affordable (Part 1)

Thursday, May 5th, 2011

My Proposed Solutions – Plan A

(This is a continuation of a previous post.)

This is based on the existing housing system and policies.

1. Fix the Valuation process. The current valuation system is as mentioned previously, a big part of what has caused housing prices to balloon.

Yes, the surveyors are independent from HDB, and should value the property value fairly. However, they should stop trying to include COV prices with every new valuation. How can a flat cost $15-$20k more in one month? It’s human nature to always want to sell your flat above valuation. That doesn’t mean that the flat’s value is such.

2. Raise the HDB income Ceiling. Doing this will allow more people to be eligible for HDB loans and housing grants. This would lower their down payment to 10%, and with the grants, this sum is more attainable. Furthermore, the only cash they have to fork out upfront is the COV. (Bank loans require 5% cash). On top of that, interest rates will be pretty steady at 2.6% per annum.

3. Come up with new kinds of flats. Actually, HDB already has shown some flexibility in this area. I viewed the Dawson floor plans some time back, and they allowed different configurations for their new 4-room flat.

You could choose to have 2 bedrooms and 1 larger living room (for when you do not yet have kids), and then subdivide an extra room out of the living room in the later part of life (for when you have 2 kids wanting their own rooms), or simply get rid of all the rooms except the master bedroom (for when your children have moved out, and now have kids, so that there’s more space for the extended family to mingle during visits).

My suggestion is a modification of the above – Let home owners have a home that can grow with them. Instead of selling a 4-room flat, package it in a 2+1 configuration – A 2 bedroom flat connected to a studio via a door in the middle which can be locked on both sides. (similar to the connecting doors in hotel rooms). Locking it creates 2 flats, while leaving it makes it a single unit. It takes up exactly the same floor area and has exactly the same number of toilets and room. The only difference is that it has two separate main entrances.

What’s the point of selling these kinds of flats? Refer to the diagram below, and consider the following:

    Stage 1 A young couple can choose to live in the studio first (yellow), and then rent out the 2 bedroom flat (brown). The rental can help pay for their mortgage + some extra cash*, and help them save money to start a family.

    Stage 2 When their first kid comes along, they can then move to the 2 bedroom flat (brown), and then rent out the studio (yellow). Their rental income will decrease, but it’ll still help cover most of their mortgage, with the rest payable through CPF*, leaving them enough money to raise a family.

    Stage 3 Another kid comes along, and soon their kids are old enough to have their own rooms. The studio (with the connecting door) can then be used as the master bedroom, and each kid can have their own room. At this point, there is no rental income. But by this time, the parents should have established their careers, and should earn enough.

    Stage 4 The kids have grown up and have married. The nest feels empty now. The couple can then choose to retire in the studio (yellow), and rent out the 2 bedroom flat (brown). (Or live in the 2 bedroom flat and rent out the studio.) The rental becomes their ‘retirement income’.

In this way, the flat grows with the family’s needs, providing rental income to cover their mortgage when they first start out, and in old age, provides income for their retirement. At the same time, since not all their OA is used to pay for the flat, there is actually some money to contribute to the minimum sum.

Note that the above scenario does not take into account the fact that rental income will increase as the years go by.

With the Additional Housing Grants available, the lower income will also have the chance to get a 2+1 (4rm flat), and be able to service most of the mortgage with the rental. This beats limiting them to getting a 2-room flat, and then never being able to upgrade due to limited funds. Of course different flat configurations like 1+1 (3rm flat) or 2+2 (5rm flat) can also be offered to suit different income levels.

Some may question, “you can already rent out your spare rooms currently, so why divide the flat into 2 flats?” The answer is simply this: Privacy leads to higher rents. Room rentals only fetch about $500-$600k. And for this amount, you lose your privacy, you have to pay for their utility usage, and sometimes, they mess up your house or kitchen.

Besides, like I mentioned before, it’s still takes up the same space as an existing 4-room flat! I mean, if the Government intends to open the doors to foreigners, at least let the locals benefit in some way.

*Based on a 4room flat price of $350k, 30 year loan @ 2.6% interest
– Monthly Installment = $1,261
– Current 2 bedroom flat rental = $1.5-$2k
– Current 1 bedroom flat rental – $1.1k (based on 1 rental. It’ll probably be lower, at perhaps $800)
– Figures based on HDB Website

And that’s the end of Plan A. Got to hit the sack. Need to work tomorrow. Check back tomorrow night for Plan B.

*Update* Plan B has been posted.

Singapore HDB Public Housing is getting expensive

Thursday, May 5th, 2011

Something is not right with the housing system in Singapore. Last I check, our HDB has risen 32% in value in just 2.5 years. That’s not normal right? 10-15% increase, I can still understand. But 32%? I mean, we ARE talking about public housing here.

I shudder to think what would happen if we did not buy our flat back then. We would have to fork out extra $90k if we bought that same flat today.

Yes, I get that HDB flat prices moves in tandem to the economy. But do you know that during the most recent economic crisis, private housing took a tumble, and most expected HDB flats prices to follow suit. But during this whole crisis, HDB flat prices DID NOT fall at all. In fact, it just continued going up and up.

Amazing huh?

What Happened

How did this happen? Demand and supply. The newly weds, new citizens and PRs, great influx of foreigners, all of them need a roof over their head. Some bought, some rented. Only, HDB didn’t build enough new flats, so the pool of available flats remained small and thus the prices of flats went up.

Now, HDB has decided to ramp up the total supply of flats, by releasing more BTO for the public. Apparently about 22,000 flats are going to be released within a year. This releases the pressure put on the resale market, but as these flats will not be ready till 3 years later, there is still a demand for resale flats now. So prices are still going up!

Another reason for why flat prices are going up – VALUATION. The crazy system on how valuation is determined is a big part of the problem.

The Opposition’s Proposed Solution

The opposition parties have varying views on how to make sure housing is affordable for us all. WP proposes new HDB flats be pegged to median income of Singaporean households. NSP proposes HDB flats be sold at slightly above cost of building flat plus discounted land price. Pretty much all the opposition parties are pushing for uninflated flat prices.

PAP stands by the current system of being pegged to market prices. They argue that if HDB releases new flats at low prices like the Opposition proposes, this will affect all HDB owners, and their flats will decrease in value.

Yes that is true. Flat prices will go down. However, as I have stated earlier in this post, 2.5 years ago, flats cost about 30% less. If HDB were to sell flats at 30% less, the only people whose will be adversely affected are those who bought their flats within the last 2 years. Anyone who bought their flats before that will still have a positive value.

But even at 2008 prices, flats were still considered pricey. Most believe that the government is still making a hefty profit, even after selling new flats at approximately $50k below prevailing market value.

If flat prices were to be halved, an even greater pool of people will have loans costing more than their flats are worth. But this pool of people will still be a small percentage of all the flat owners in Singapore. Don’t forget, when 3 room flats were first built, they cost only $7k. Now, 3-room flats cost over $200k. Flat prices only ballooned in recent years.

The Opposition argues that these hypothetical low cost flats will take a long time to filter into the market (about 8 years), and thus will not adversely affect property prices in the short term. But they will affect property prices eventually. Property prices may dip, or maybe they will just stagnate.

Actually, even without the Opposition’s hypothetical flats, flat prices are still going to be affected down the road. I mean, these 22,000 flats being built are going to enter the resale market 8 years down the road. That’s a lot of flats at one go.

So there obviously is a problem, and the current proposed solutions need plugging.

Check out my proposed solutions …