How to make HDB housing affordable (Part 2)

My Proposed Solutions – Plan B

(This is a continuation of a this and this post.)

This proposal tackles the issue of providing cost-plus low price housing without adversely affecting current HDB flat prices.

The current types of HDB available:

    Rental Flats – very cheap rental housing provided for poor and needy citizen families

    Studio Apartments – only available for folks 55 years and above, and have a short lease of only 30 years.

    Build-to-order (BTO) – 2/3/4/5 room flats make up the bulk of new flats, which a range of prices depending on the flat locations.

    Design Build and Sell Scheme (DBSS) – they are essentially condo-like flats, and thus are more expensive than BTOs.

    Executive Condominiums (EC)
    – first created to allow the sandwiched class to get a condo (with full facilities), but at a lower prices. ECs are fully privatised after 10 years.

Most of the Opposition parties are proposing BTO flat prices to be slightly above cost or pegged to the median household income. Seeing how flat prices has ballooned by as much as 50% in less than a decade, selling flat prices at much lower prices will definitely affect recent flat owners. Some would be sitting on homes worth more than their loans when these flats enter the resale market in 8 years.

But with flat prices going up, and families having to take up 30 year loans just to pay it off, future generations might never be able to buy a place they can call home. So something definitely has to be done.

What if a new category of flats were to be created? Let’s call these flat “Type B” flats, while existing BTO flats shall be known as “Type A”.

Type B flats:

    – Should be pegged to median household incomes
    – Should be delinked from the market
    – When sold, price will be pegged to prevailing median household income
    – Can only be sold to other 1st time buyers or Type B upgraders/downgraders
    – Cannot be sold to PRs
    – Are meant solely for owner occupation, and whole units cannot be rented out
    (this is to prevent people for buying said flats for investment purposes)
    – Like rental flats, will be within current estates to prevent a division of classes
    – Only first timers or Type B upgraders/downgraders are eligible to purchase

Type B flats will be affordable, but owners will not “profit” from the sale of their flats, unlike Type A flats which is pegged to market prices.

Type B flat owners can choose to switch to Type A resale flats should they want to benefit from normal market prices (which would benefit those who intend to upgrade to condos).

The existence of Type B flats will keep Type A flat prices in check, but will not adversely cause a drop in prices for Type A resale flats. As most first timers will choose to go for Type B flats, eventually, the demand for Type A flats will cool, but will not drop adversely there will still be buyers in the form of PRs, 1st timers who can’t afford to wait for a new flat to be build, or current HDB flat owners who wish to move, upgrade or downgrade.

Perhaps down the road, median income will grow at a faster rate, and the gap between Type A and Type B flats will close up. At that point in time, the classification could be dropped if they no longer serve its purpose.

Of course this is all hypothetical. It may or may not work. Just some thoughts. That’s all.

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5 Responses to “How to make HDB housing affordable (Part 2)”

  1. How to make HDB housing affordable (Part 1) « Singapore Watch Says:

    […] Plan B has been posted. You may also enjoy:Singapore HDB Public Housing is getting expensiveEnsuring Property […]

  2. David Sing Says:

    It is great to read about your ideas on how to make HDB housing affordable to first-timers. It must have taken you many hours to think and write about the subject. I presume you are an architect or related to the profession to give such a thorough presentation. As I am taking my CEA’s approved REA exam in 2 days’ time, I am perhaps able to comment on your proposal since I have to study everything about Singapore housing to pass all 3 subjects or repeat all 3.

    My feedback on your Type B flat

    1. Buyers cannot rent just because they buy Type B flats. This is tough as the Buyer’s family may suffer deaths or loss of the job of the bread winner due to poor health or economic downturn.

    Renting a room may help to provide income in times of financial difficulty which can’t be predicted. Therefore, Type B flat buyers are forced to rent out illegally and risk HDB acquisition and fines. Nobody can predict the future and so for this reason alone, this prohibition on room rental should not be one of the restrictions.

    2. My proposal is to make use of the concept of the CPF Housing Grants to make HDB flats affordable for first-timers depending on the pricing. Presently the CPF housing grants are extremely generous. $30,000 for a brand new HDB flat purchase and an additional $10,000 (making it $40,000) if the buyer lives within 2 km of parents/married children. This is subsidy for the first-timer and is present only in Singapore as I doubt any government will dish out such a large amount of cash. There is still the Additional CPF Housing Grant subsidy.

    Taking an example. Assume a household income of $4,200/month per couple buying a 4-room flat with the CPF Housing Grants,(as illustrated by Mr Mah Bow Tan in one of his speeches in the Straits Times prior to polling day), the couple has no difficulty in paying the monthly instalments for the flat. Lower income groups have more grants including the Special Housing Grants introduced.

    3. Property cooling measures of new HDB flat owners not allowed to buy private property till after 5 years of occupation and private property owners having to sell their private properties within 6 months of purchasing the HDB flat are excellent measures that should have been introduced before the General Elections.

    These measures definitely will decrease speculation and property investments from the better off Singaporeans. This will make HDB prices more affordable, together with the Seller having to pay 16,12,8 and 4% of the purchase price if they sell their private properties within 1,2,3 and 4 years respectively, as the investors and speculators have been better controlled than in the past years.

    Companies can now only borrow 50% from the bank also reduce speculations by non-individuals as these companies have the monies to flip properties before the introduction of the Seller’s Stamp Duties of 16,12, 8 and 4% of the purchase price.

    There are other property cooling measures which I think are effective. However, the increasing cost of living is the issue that the government may want to look into as it affects housing and food prices.

    The cost of living continues to rise due to the government’s inability to rein in costs. I believe each Ministry has to justify its existence (to pay its own civil servants amongst other things). It has to “recover cost” and make money. So the bureaucrats think of how to increase fees, introduce new regulatory fees of as much as $20,000/item to get a permit to import and sell some pharmaceutical goods. Therefore, the cost of living will increase, making it harder for the first-timer or those with financially difficulty to be afford to purchase HDB flats.

    I hope my comments are OK with you. Keep up the good work.

  3. Justina Says:

    Hi David, thanks for your feedback!

    1. I totally agree with you that some families need to rent out a room should their breadwinner lose their job or should they need to supplement their income. Just to clarify, I’m only suggesting a ban on the subletting of whole unit for type B flat, and not individual rooms. That would distinguish them from current flats, where after the 5 year MOP, they can apply to sublet the entire apartment out.

    2. Unless my understanding of HDB grants have changed, the $30k ($40k if near parents) grant is ONLY ELIGIBLE for RESALE flats and not new flats. This is because new flats are already subsidised from current market prices. Additional Housing Grants still exist for low income earners though.

    3. As for cooling measures, I don’t think the Government can undo the sudden rise in flat prices in the last couple of years ago. Even if flat prices stay at current prices and do not go up anymore, it is still quite pricey, for public housing.

    (In comparison, a 2 bedroom 2 bath apartment in some parts of the US costs only about $75k. And these are not public housing, but fully private, with facilities).

    Good luck with your test!

  4. David Sing Says:

    You are correct in saying that the CPF Housing Grants of $30,000 and $40,000 are for new HDB flats as at May 25, 2011. HDB keeps changing the rules of the game and so we can’t presume that new HDB flat design such as the one you propose will not be eligible for CPF Housing Grants (with the new Minister now having a fresh outlook) when new. Or even when sold as resale some 5 years later based on minimum occupation of 5 years as mandated as at present.

    My point is that your title is “affordable HDB housing” or am I mistaken? You don’t mean just affordable HDB housing when purchasing new HDB flats?

    As for your prohibition of rental of the whole HDB flat after the minimum occupation period (which may be 10 years if the new Minister deems fit), why be-grudge a decent average Singaporean family of earning some honest income to cope with the high cost of living in the next 10 years?

    HDB flat owners had so many restrictions some 10-20 years ago. They could not use the fully paid up HDB flat as security for overdraft or bank loan to finance their children’s education overseas and so are already disadvantaged compared to non HDB-owners in the 1980s.

    As HDB houses around 80-90% of the Singaporean population, your prohibition has a strong impact on the average person who just wants to ensure that his family has sufficient income for education of the children and one of the means is to monetise the HDB flat (by subletting the whole flat).

    In my opinion, the heavily subsidised new HDB flat can still be more subsidised if the politicians want to make it affordable rather than making more rules to make it so much difficult for the average man to monetise his HDB flat. This is D-day today for me and thanks for pointing out my error, just in time, for Paper 1 of the CEA REA today.

  5. Justina Says:

    Hi David,

    The whole purpose of having cheaper type B flats is so that the lower income and afford to own their own flat. These group have only 1 flat to stay in. Thus imposing a ‘no subletting of whole flat’ rule doesn’t really affect them. (I mean, if they sublet the whole flat, where are they suppose to stay? Renting outside is more expensive then paying mortgage.) Rather, the rule is there as a deterrent for people whose main intention is to buy these flats for subletting.

    As for “affordable HDB housing”, the government only has direct control on new flat prices. They have no influence on the resale market, as it is due to demand and supply. Thus they can only work on making new flats affordable, and as new flat prices and resale flat prices are interlinked in some ways, should new flats become cheaper, demand for resale flats will fall, which may eventually make them cheaper too.

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