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.
4 thoughts on “How to make HDB housing affordable (Part 1)”
Thank you for the good writeup. It in reality was once a leisure account it. Look complex to far brought agreeable from you! By the way, how could we communicate?
“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.”
By definition, it actually DOES mean that the flat’s value is such.