- Meeting diverse housing aspirations
- Commitment to young couples, first-timers
- Focus on affordability and financial prudence
- Focus on owner-occupation

Mr Chairman, Sir, Public housing is a hot topic every year, but it is especially hot this year. That’s not surprising, since it is a subject that concerns every Singaporean. I thank Members for raising the concerns of the people and giving me a chance to respond.

This year, HDB celebrates its 50th birthday. It has been an outstanding half century. Recently, the international news service AFP described HDB as “a powerful agency whose projects have taken Singaporeans out of the slums and ghettos that once blighted the island and into multi-storey apartment buildings surrounded by shops, markets, banks, transport links and other essentials”. The United Nations and the World Bank have also commended our success in achieving quality public housing.

When HDB was formed in 1960, less than 10% of Singaporeans owned their homes. Housing was basic and functional. Today, 80% live in HDB flats that are of high quality and good design, in well maintained estates all over the island. Most importantly, they own their flats, a valuable asset which appreciates in value along with the long term growth of our country. This is a remarkable achievement, unique to Singapore.

Meeting diverse housing aspirations

But with success come new challenges. Having to house over 80% of the population means catering to a broad spectrum of flat applicants, from young couples to the elderly, from the low-income to higher-income households, as well as upgraders, singles, new immigrants, and others. Our housing policies have to adjust to meet the demands of these groups.

That is why we cannot just build the standard flats of the 1960s, there is now a wide variety of housing to meet diverse aspirations – HDB’s Build-To-Order (BTO) flats, Design, Build and Sell Scheme (DBSS) flats, and Executive Condominiums (ECs), with different design features, in various sizes and across many locations.

Through our home ownership policies, growing up in HDB flats is a common Singapore experience for many of us. Let me tell you my story. When I was young, I lived in various places with my mother, who was a domestic servant. I lost my father when I was 3 years old, so we moved around a lot; a kampong in Lorong Ah Soo, which has now become HDB flats in Mdm Cynthia Phua’s constituency, a shophouse in High Street where MTI and MOF are today, a room in Bugis Street, where Bugis Junction is today. There were 10 of us living in that room. We had one bed which slept 5. It was raised so that another 5 could sleep underneath. Then, I moved to Kim Keat Avenue with my aunt and her family – 8 of us in a 3-room flat, sharing one toilet and bathroom, while my mother stayed in a 1-room rental flat in Whampoa Road. Later, we upgraded to a 4-room flat in Toa Payoh. My story is a typical Singapore story for my generation. Start in a modest flat, work hard, accumulate savings, and upgrade over time. If need be, there is also the option of downsizing to a smaller flat.

But times have changed. Our rapid progress has brought a new generation of HDB flat buyers who start from a different baseline. It is no longer a rental flat or a kampong house, but more likely a 3, 4 or 5-room flat, even private property.

The challenges we are tackling in public housing today are no longer just about providing a simple roof over the head, but also about meeting rising expectations. Some Singaporeans are worried that they or their children might not be able to afford a home to call their own. I understand these concerns and I hope to allay some of these concerns. Our mission is clear: HDB is committed to provide an affordable home for first-time Singaporean families. We will provide them with a place to call home, a place that is within their means. But on their part, flat buyers must be prudent and realistic.

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Commitment to young couples, first-timers

Mr Cedric Foo and Madam Cynthia Phua asked about the adequacy of housing supply. Let me give this categorical assurance to all Singaporeans, especially young couples buying their first homes, that the Government is committed to helping you.

Our new flat supply has been more than sufficient to meet demand. Even at the height of the last boom, between 2006 to 2008, HDB offered a total of 36,400 new flats, or an average of about 12,000 flats per year. The actual take-up was lower, at an average of 10,400 new flats per year. Chart 1 shows that 1,000 to 2,000 new flats were left unsold each year.

For 2009, we started conservatively with a smaller planned supply of 6,000 BTO flats, due to the depressed economy then. Global economies were in disarray, and Singapore was not spared, and so we adopted a conservative approach. But when sentiments improved sharply in the second half of last year, we responded swiftly by increasing BTO supply to 9,000 units. Together with DBSS and other sales, 13,500 new flats were offered in 2009.

For 2010, we will provide 12,000 new BTO flats or more if there is demand. This is a substantial number. Currently, there are about 23,000 flats in Clementi and Jurong East respectively . At the rate of 12,000 flats per year, we will offer enough flats to equal Clementi or Jurong East town in 2 years. HDB will launch at least one BTO project each month for next few months. In addition, HDB has launched new EC sites and will be launching new DBSS sites for sale. For the whole of 2010, I expect total flat supply to be in excess of 12,000.

Therefore, flat buyers need not fear that there are not enough flats. Chart 2 shows the various locations of the new BTOs this year – Sembawang, Punggol, Sengkang, Yishun, Woodlands, etc. When Punggol is fully built up, we will consider building in new areas such as Tengah and Simpang.

So why this perception that there are not enough flats? Perhaps it is because of the high application rates for recent BTO launches, at 3, 4, even 6 times of the flat supply. However, these high application rates do not reflect the true demand for flats. First, about 22% of the applications for BTO projects in the last 4 months (Nov 09 to Feb 10) are repeated applications from the same households. In other words, some of these households could have applied every month. Second, not all applicants are in urgent need of a flat. The true test of demand is not when they apply for a flat, but when they actually book a flat.

HDB monitors the drop-out rates for BTO flats. Last year, the overall drop-out rate was close to 50%. In other words, 1 in 2 applicants did not book a flat when invited to do so. Take the most recent BTO project that completed selection – Fernvale Palms. When Fernvale Palms was launched in Oct 2009, the application rate was 4 times the flat supply. However, Chart 3 shows that by the end of the selection exercise just this week (1 March 2010), 44% of first-timers who were invited to select a flat did not do so. Even when all the flats were available on the first day, 34% of applicants gave up their chance to select a flat. The results were similar for the most recent selection exercise which has completed first-day selection for all flat types, at Boon Lay Meadows. Chart 4 shows that about a third of the applicants dropped out on the first day. This is quite consistent in all recent BTO launches.

When asked for their reasons, applicants told us that their choice units were taken, or they were considering other housing options. I can only conclude that these applicants were not in urgent need of a flat and preferred to wait for their choice flat. Unfortunately, they drive up application rates, and create undue anxiety that demand far outstrips supply. So I hope greater clarity of the situation will help allay concerns.

I have also received appeals from MPs and the public who tell me that they cannot get a flat, despite many attempts. I ask HDB to review all these cases carefully to ensure that our commitment to our first-timer Singaporeans is met. In the last 6 months, we received 477 such appeals. I was pleasantly surprised to discover that only 29 cases or 6% of these applicants genuinely did not have a chance to choose a flat in at least two BTO exercises in non-mature estates.

The rest of the appellants were either only interested in flats in mature estates, which were in short supply, or they had given up one or more chances to select a flat. Let me share a recent case with you. Mr C wrote to me complaining about his lack of success in getting a flat, after several tries. HDB checked and found that he had indeed submitted 4 flat applications, but only 1 was for a BTO flat in a non-mature estate. What was more astonishing was that he had actually been offered flats on 3 occasions, but he rejected them all. When HDB pointed this out to him, he replied: “…. you are right, however, those we are asked to select is not of our choice. So how would one want to proceed when choice units we would like to select is taken?”

I was puzzled – what did he mean by choice units? I asked HDB for more details. Chart 5 shows that for his first chance in Feb 09, there were 121 flats in Punggol and Sengkang available for his selection. He turned them all down because he was (I quote), “targeting the unit in Buangkok which is just opposite to where I am putting up”. Shortly thereafter in Apr 09, he was offered BTO flats in Punggol, which he also rejected, despite having 143 units to choose from. His reason was that “the units that are left are those facing the mosque.” But HDB tells me there were actually 118 units remaining not facing the mosque. On his third chance in July 09, there were 14 units available for his selection, across different locations, Serangoon, Yishun, Ang Mo Kio, Tampines and Woodlands. Again he rejected his chance to select, because these were not his “choice” flats. Within a span of 6 months, he rejected 3 chances to select a flat, when there were many flats available for his selection.

I can understand flat buyers wanting to get the best flat available, if they can. After all, buying a flat is a major investment. However, they also have to be realistic. The Government is committed to helping Singaporeans own their first homes. But it is not possible to promise every applicant who buys direct from HDB his “choice” flat, at the floor of his choice; at the place of his choice; at the time of his choice; and at the price he wants. Our land is limited, especially in the mature estates. So is our housing budget, generous as it is. Buyers have to decide on the tradeoffs they want to make – whether they should keep on trying for their “choice” flat, and delay setting up their home, or to settle first for one within their budget and move to a better flat later when they have built up their finances.

Last year, 10,228 Singaporean families bought new flats, of which about 8,200 were first-timers. 3,500 of these first-timers bought their flats under the Fiance/Fiancee scheme. They should be able to move into their new homes soon after they get married.

Mr Cedric Foo asked if the lead time for supply of new flats could be shortened. As I pointed out earlier, it is better for building plans to be based on real demand as shown in the booking of flats. If we built ahead of demand, we could end up with a large stock of unsold flats if that demand disappeared, as in the early 2000s. If we piled in advance, we could end up with idle sites with piles in the ground. Nonetheless, I will still consider the member’s suggestion to explore reducing the wait for BTO flats through the building up some buffer flats, though I would like to clarify that there is actually a buffer in existence today. This is because we do not wait until 100% booking of flats before commencing construction.

Generally, we start building when around 60% to 70% of the flats are booked, so that, in essence, there is the buffer along the lines that the member suggested. And it is because of this buffer that we are able to offer every year, or thereabout, a stock of flats that are either ready for flat buyers to move in or almost ready to move in. But that cannot be our mainstay, because then we are going back to the time when we try to anticipate the demand, and we build a large stock. Obviously, when these flats are put up for sale because they are near completion or because they are in mature estates, their application rates would definitely be much higher. Therefore, we do need both BTO flats and balance flats for sale as part of our sales programme.

The BTO system offers the certainty of a flat in 3 years plus. Is 3 years unreasonable? Well, we can shorten it further by moving the subscription rate down to commence construction, and we will look into that. But 3 years is in fact no different from the waiting time for private developments. It is a reasonable time. For significant decisions in life, such as buying a flat or planning for marriage, most people would plan ahead and save up for this commitment. While we may be able to shorten the wait, I wish to clarify that it is not ideal to have flats left on the shelves waiting for somebody to walk in and book. For those who cannot wait, they can buy from the resale market immediately, but at a premium for speed and choice.

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Focus on affordability and financial prudence

Mdm Ho Geok Choo and Mr Lim Biow Chuan asked how we define affordability and how we will ensure affordability. Mr Ang Mong Seng suggested ways to increase affordability for the lower-income. My assurance to Singaporeans is that we will provide sufficient flats that are priced within your reach.

In terms of affordability, there is a very generous subsidy framework I place, with more help given to the lower-income group. On top of the CPF Housing Grant of $30,000 or $40,000, the Additional Housing Grant (AHG) was introduced in 2006 to give extra help to lower-income families and young couples to own their first homes. Members will recall that we enhanced the AHG for a second time just last year, extending it to those earning up to $5,000, and increased the maximum grant to $40,000. As at 31 Jan 2010, we have disbursed a total of $330m in AHG to more than 20,000 families. Last year, 9,400 families received $176m in AHG. This is double the amount in 2008. This is very significant additional help given to the lower-income to buy their HDB flats.

How do we measure affordability? One way is to compare the median house price to the median annual household income, using the housing price-to-income ratio. In a recent article by NUS professors published in the Straits Times on 27 Feb, it was noted that Singapore had a house price-to-income ratio of 5.8, which was more affordable than Hong Kong’s 19.8, and London’s 7.1. I am not saying this is the idea way, but it is one way. Another well-established and commonly used benchmark of housing affordability is how much of the income is spent to service housing mortgages i.e. the Debt-Service Ratio (DSR), which Mr Cedric Foo asked about. Financial planners generally recommend that households should have a DSR of less than 30-35%. Anything more would be considered unaffordable.

In the case of new HDB flats in non-mature estates, the average mortgage payment for new flats in non-mature estates sold in 2009 was 22% of monthly household income, which translates to a DSR of 22%. This is 1-2% marginally higher than the level seen in the last decade, but well within the affordability benchmark of 30-35%. This also means that about 80% of Singaporean new flat buyers are able to service their housing loans entirely from CPF without any cash payment. In my opinion, this is a significant fact and a very real measure of affordability.

Let me walk the House through an actual example of a couple in Chart 6. Mr and Mrs S with $4,500 monthly income bought a new 4-room flat in Punggol priced at $297,900. They received $10,000 in AHG to offset the price of the flat. They took a loan of $268,100 (90% loan from HDB) at concessionary rate. The couple’s monthly instalment is $1,073 or 24% of their income. They can use $1,035 from CPF to service the instalment and only pay $38 in cash. This leaves the household with the bulk of their take-home pay for other expenses.

I want to stress that housing affordability is also a function of how people make choices. HDB builds a wide variety of flats – of different sizes, in different locations, and with different features – to cater to different aspirations and budgets. I would like to assure Mr Lim that we will continue to build basic flats. In fact, the bulk of our new flat supply is through HDB’s BTO system, with many 2-, 3- and 4-room flats on offer. But those in demand are the larger flats like the 4- and 5-rooms. Why are these flats in demand? Because they offer good value for money. And when you come to a development like The Pinnacle and Dawson, they see huge demand because they represent the greatest value for money. So we have to build basic flats, but we also have to build some of the more premium flats. The DBSS is one of them. It constitutes only 10% of flat supply, to offer choices to those who are willing to spend more for premium flats. Affordability is about buying a flat within your means. There are many choices available – 2, 3 or 4-room flats at various locations. Given these choices, buyers must exercise financial prudence and carefully consider what they can afford, taking into account their income and other commitments.

Take Mr and Mrs S, the couple I mentioned earlier, who bought a flat at Punggol with a monthly income of $4,500. Chart 7 shows that they could also have chosen from many other BTOs, or any of these resale flats: a 3-room flat in Bukit Merah at $300,000, a 4-room flat in Yishun at $294,000 or a 5-room flat in Jurong West at $370,000. Clearly, flat buyers have choices, but there are trade-offs to be made in location and flat size.

Mr Ahmad Mohd Magad and Madam Ho Geok Choo asked what could be done to help families in financial difficulty, because they bought flats that they cannot afford. At my Meet-The-People sessions, I am saddened to see households which have over-stretched themselves, ending up in arrears. HDB has helped many households facing financial difficulties to reduce or defer their loan instalments, and in some cases, even offered them another HDB loan to help them right-size their housing.

Mr Cedric Foo asked if we can provide loans for those who want to downgrade. Some MPs also gave me feedback that by providing the second concessionary loan to households only for upgrading, this may inadvertently drive some to upgrade even though it may be more prudent for them not to do so.

With greater economic volatility, the flexibility to right-size will become more important. Therefore, I have decided to remove the upgrading condition for the second concessionary loan. What this means in future is that both upgraders and those who downsize will be eligible for the second HDB loan, with the focus on helping families to right-size their housing choices.

To further encourage financial prudence, HDB will reduce the second concessionary loan quantum – by the full CPF balance, and half of the cash proceeds from the sale of the first flat. The household will get to retain at least $25,000 in cash proceeds. Let me illustrate what this means. Chart 8 shows that if a couple sell their flat and receive $60,000 in CPF refund and $80,000 in cash proceeds, they will need to use their CPF money ($60,000) and half of their cash proceeds ($40,000) to pay for their next flat. In other words, HDB would then grant them a loan, which is $100,000 less. In this case, the household retains $40,000 in cash proceeds.

The changes to the second concessionary loan will help Singaporeans right-size to a home that they can sustain over the long term. It will help homebuyers manage their finances for their flat purchase upstream, and avoid financial difficulties downstream.

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Focus on owner-occupation

Let me now turn to the members’ concerns about the Mininum Occupation Period of HDB flats. As we strive to provide sufficient flats to meet the housing needs of Singaporeans, I want to emphasize that HDB flats are provided primarily for owner-occupation and not speculative profit or rental return.

Dr Lim Wee Kiak and Madam Ho Geok Choo were concerned about high prices and Cash-Over-Valuation (COV) levels. They asked what could be done to curb speculation. Mr Masagos Zulkifli also asked about the outcome of our review to curb speculation, whether Permanent Residents (PRs) are driving up flat prices, and how we have dealt with illegal subletting.

Firstly, we have to make the decision whether to control resale flat prices. If we control the market, we are essentially going back to the regime where we sell the flat to you at a controlled price, and you sell it back to us at the same price. This way, an HDB flat will not be an asset. Basically, what you are doing is you are collecting rental upfront, and this is akin to a rental scheme. The Home Ownership Programme, where we allow owners to enjoy the increase in value of their flats, is what makes the Singapore public housing programme different from other cities in the world, and I believe this is the best scheme for Singaporeans. And that is why we should not interfere in the resale market. If we interfere, we are essentially moving backwards, and this could be detrimental to the 800,000 homeowners or more. So why was there high COV? Because people are willing and prepared to pay for that particular flat. The COV is the result of negotiation between willing buyers and willing sellers. At the end of the day, buyers can walk away if they do not want to pay the COV.

Mr Hri Kumar also asked about subletting, and whether private property owners (PPOs) should be allowed to own flats. The majority of resale flat buyers are citizens who do not own any private property. Those who are eligible get CPF housing grants to buy resale flats. We should not make a distinction whether the buyer is a Singaporean, PPO or PR if the flats are bought and sold at full market price with no subsidy.

There is no evidence that specific buyer groups, like PRs and PPOs, are driving up prices. The median COV paid by PRs have been the same as the overall median COV paid for resale flats for the last two quarters. Therefore, PRs are not more cash-rich than average Singaporeans. Cases of PRs paying high COV are the exception, not the rule. Of the 37,205 resale transactions in 2009, 58 cases had COV exceeding $70,000. Of this, only 8 cases or 14% involved PRs. The rest of the 50 cases were Singaporeans. Hence, there is no evidence to suggest that PRs are driving up prices.

While PPOs pay higher COVs in general, their numbers are not large enough to drive up prices . If we banned PPOs from buying HDB resale flats, what about HDB owners buying private properties? Should we disallow that too? Surely not. I would urge that we take a longer-term view and not over-react, and do things we regret and have to unwind down the road.

Although flats are mainly for owner-occupation, we do allow flat owners to sublet their flats if they meet the Minimum Occupation Period (MOP). Under the current MOP policy, flat owners are allowed to sublet their entire flat after 3 or 5 years, depending on whether their flat purchase was subsidized. Of the 682,000 flats that have fulfilled the MOP and are eligible for subletting, only 23,200 or 3% are sublet. This suggests that most flat owners are buying their flats for occupation, and not rental. The extent of subletting whole flats is not as prevalent as what people suggested.

Just to make sure, I have asked HDB to step up enforcement against unauthorised subletting of flats. HDB has the power to compulsorily acquire flats or impose a heavy fine on those found subletting without authorisation. The public can help HDB by reporting such cases if they know of them.

Mr Ang Mong Seng has asked us to review the 1-year MOP for resale of flats bought without subsidies. While there has been an increasing trend of flat owners selling their flats shortly after MOP, especially among those who had bought non-subsidised flats with shorter 1- and 2.5-year MOP , the numbers are not large. However, if the trend continues, buyers who genuinely need housing could be crowded out.

To reinforce the principle of owner-occupation and reduce the possibility of speculation, HDB will be raising the MOP for resale of non-subsidised flats from 1 and 2.5 years to 3 years. This will align the MOP for home owners to resell and fully sublet non-subsidised flats.

Sir, the Government has provided high quality public housing for the last 50 years. For the next 50 years, we face new challenges. But I assure Members that we will strive to enable the majority of Singaporeans to meet their housing aspirations, which is to own a home, that is comfortable, of good quality and yet affordable.

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(via TodayOnline)

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SINGAPORE – When he said he was feeling the heat, National Development Minister Mah Bow Tan was not referring to the weather, but the “exceptionally” high number of questions in Parliament on housing, he said in jest.

The 15 Members of Parliament who put questions and issues to his ministry included those who have been pushing for changes to certain housing policies for years – and on Friday, they got a significant concession.

Mr Mah announced that Singaporeans can now take a second concessionary loan from the Housing and Development Board (HDB) to downgrade or buy a similar-sized flat.

This will benefit some 1,000 households per year.

Previously, they could only qualify for a concessionary loan, which incurs 2.6 per cent in interest, if they upgraded to a bigger flat. Earlier in the day, MPs Cedric Foo, Cynthia Phua and Ahmad Magad had pointed out again – for the final time – that they had constituents who, after selling off their existing flats, struggled to even downgrade and did not qualify for a bank or concessionary loan.

Noting how MPs have been raising this issue for a long time, Mr Mah said: “Some MPs also gave me feedback that by providing the second concessionary loan to households only for upgrading, this may inadvertently drive some to upgrade even though it may be more prudent for them not to do so.

“With greater economic volatility, the flexibility to right-size will become more important.”

The big policy change comes with conditions, though.

“To further encourage financial prudence”, HDB will reduce the size of the second concessionary loan by an amount equal to the full Central Provident Fund refund and half the cash proceeds from the sale of the first flat.

For instance, if a couple sell their flat and get a $60,000 CPF refund and $80,000 in cash proceeds, the CPF refund and $40,000 will have to go toward paying for their next flat.

“In other words, HDB would then grant them a loan which is $100,000 less,” he said.

But HDB will allow buyers to keep at least $25,000 of the cash proceeds if they get back less than $50,000.

Property firm Propnex chief executive Mohamed Ismail believes the policy change may lead to “an increase in market activity due to an increase in downgraders”. However, he said it was too soon to say if resale flat prices would rise.

On whether it will be cheaper for downgraders to take the second concessionary loan, Ngee Ann Polytechnic real estate lecturer Nicholas Mak told MediaCorp it was difficult to tell with variables such as loan tenure and fluctuating bank interest rates.

In Parliament, Mdm Phua (Aljunied GRC) asked if the 50-per-cent criteria for cash proceeds could be lowered. Mr Mah said this applied to nett proceeds and that he would review “whether it’s too high or too low” after the scheme has been implemented.

The minister also announced that HDB will raise the minimum occupation period (MOP) for all resale flats bought to three years. Currently, flats bought with a concessionary loan have an MOP of 2.5 years, while those bought without have an MOP of one year.

The extension of the MOP is to “foster owner-occupation, and (is) not about affordability per se”, said Mr Mah.

Property experts felt this measure would have little impact on prices. “Most HDB buyers are not buying their flats with the aim to flip,” said Mr Ismail.

Last year, 9 per cent, or 3,000 households, sold their resale flats within three years of purchase.

(via TodayOnline)

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SINGAPORE – Going greener is just a lift ride away.

Residents in Canberra constituency used to haul their recyclables to a bin that could be located a few blocks away. Now, they need only bring them downstairs.

A six-month pilot project now provides for one recycling bin per Housing and Development Board block instead of one for every five blocks.The first of its kind in Singapore, it was launched yesterday by the constituency, the National Environment Agency (NEA) and SembWaste.

It involves about 1,500 units in 14 blocks in Admiralty Drive.

But there is a trade-off – the fortnightly door-to-door collection of recyclable rubbish within the blocks has been suspended for the same period to gauge residents’ willingness to bring their items down for recycling.

Member of Parliament for Sembawang GRC Lim Wee Kiak said he does not expect many complaints. Residents like to get rid of their recyclables as soon as possible, rather than collecting them for two weeks.

“We want to increase the recycling rate. The current (national) rate of 56 per cent is very good, but the target of 60 per cent recycling rate by 2012 is something we all have to work together,” said Dr Lim.

“Some residents complain it’s too far for them to walk (to the bins). So to entice them further, (it’s) better to bring the recycling bins closer.”

Dr Lim said he will push for the project to be a national programme if NEA’s evaluation shows the pilot project to be successful.

An additional 10 bins plus more manpower is now required and these will increase costs by up to 15 per cent, said SembCorp Environment’s senior vice-president for asset management C K Lim.

A corresponding 15 to 20 per cent increase in recyclables is needed to generate more revenue as the company is not charging extra for its service.

For now, one challenge is to educate residents on which items can be recycled.

The bins can be contaminated by food waste which turn all the recyclables into “rubbish”, said Mr Tan Puay Cheow, NEA’s executive engineer for waste minimisation.

Resident Oh Ah Moy, 70, said, “It’s very convenient to have the bins downstairs … (going to the bins) is like exercise.”

Having a recycling bin under each block might also increase their awareness. Mdm Li, a resident for 10 years, did not even know there were such bins in her estate. ALICIA WONG

(via todayonline 11Jan2009)

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The 5room flats for SkyVille @ Dawson and SkyTerrace @ Dawson and ranges between $532,000-$643,000.

According to HDB estimates, taking a midpoint pricing for the 5room flats, with a median salary of $6,500, the monthly installment over 30 years would be $2,108.

Gross pay: $6,500
Nett pay (after CPF): 0.8*6500 = $5,200
Mortgage payble via CPF = approx $856
Remaining pay (after mortgage): 5200-(2108-856) = $3,948

Going to the extreme end, because only applicants with salaries $8k and below can apply for new HDB flats, the people buying the most expensive HDB flats would be making at most $8k. Monthly installment would be $2,317.

If you have a car, petrol, car installments, insurance and maintenance costs could easily knock off $1,500 from the remaining pay, making it really tight for a family to get by on. Add in a maid to care for the kids, and that’s another $512 gone. The remaining pay has to pay for property tax, conservancy fees, mobile lines, gas/electricity/water, food, cable, holidays etc.

If the family is debt-free (ie. no credit line or credit card loans to pay off, no car installments to pay), the monthly installments are quite still manageable. If laden with huge financial responsibilities, it’s wiser to get a cheaper flat.

What about looking at it from an investment standpoint?

Comparing the Dawson flat prices with recent sales of resale HDB flats at Strathmore Ave, which is right next to the Dawson site, 5room flats sold between $618,000-$750,000. Comparing to Duxton launch prices of $532,000-$643,000, it’s considered getting the flats at a discount, especially with the 5room-loft units.

Pinnacle @ Duxton is the most recent ‘expensive’ project to be completed. There were some left over units after the 1st round of balloting in 2004, and these units were released in 2008. A $439,400 flat rose 47% over the 4.5 years of construction. Imagine what these flats would be worth, with it’s prime location, in 5 years time, when these new flat owners are then eligible to sell off their flats?

So is Dawson worth subscribing for? If you can afford it, and from an investment standpoint, it seems to make sense. But yet on the other hand, it is a gamble if you’re stretching yourself to pay for the flat. HDB prices could always take a tumble if something happens in future.

You may also enjoy:

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• HDB loans soon to be available to downgraders
• Investment strategy pays dividends
• No, you cannot take up a fresh mortgage for your paid-up HDB
• SG Citizenship is worth about $7,503-$10,583 more than PRs a year
• How do I find a suitable Bank loan?
• How much do property agents actually make?

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Recently, a friend of mine migrated to Australia. He told me that in Australia, they’ve taken lottery to a whole new level: You can now buy lottery online, with a just a few clicks! And what’s even more interesting, is that it is not only restricted to Australians, but virtually the whole world. Imagine the amount of revenue collected by the Australian government each year from international gamblers.

I wonder how long it’ll take for Singapore Pools to get online, especially with Singapore on the path to becoming a gambling hub. They already have account phone betting through their ‘Poolz Connect’. Ka-ching! The sweet sound of money rolling into the Government coffers!

I don’t think Singapore’s online lottery will attract much people from around the world though. Our prize pool is too small. Imagine, our lottery only hit amounts as high as $10 million a couple of times a year, whereas Australia’s 2nd January draw is a whopping AUD$30 million, and with weekly lotto draws in the millions! How to compete?

And to encourage people to try them out, the first game is on them. Good marketing I must say. Everything is so streamlined and automated. You pay online, and your winnings are automatically credited into the payment of your choice, which includes paypal.

The odds of being struck by lightning is higher than that of winning the lottery. But the fact that such lotteries exist proves that people would still buy lottery tickets. How much does hope cost? Apparently, hope starts from just $1, and the first one’s on the house!

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This is what I’m kinda aiming for, though in my case, it’s our monthly mortgages that I wish to cover, because I’m investing with CPF funds. Currently payout from our investments can only cover half the monthly mortgage. Better than nothing I guess.

Imagine though, when it does cover all our mortgage, it’s like getting an already overpriced HDB for just a fraction of it’s cost!

Imagine having a payout from your investments that more than covers your monthly expenses.

Canny investor Ng Wai Chung is in this happy position at the age of 34.

Mr Ng, a senior IT manager – and an author of investment books – achieved this a year ago. But rather than retire, he stays in full-time employment.

His investment income stream is the result of a plan he set in motion three years ago. That was when he decided to sell his investments in unit trusts and buy stocks that pay high dividends.

‘Today, I am able to yield about $24,000 a year on my investment portfolio, enough to cover my expenses in most months,” he said.

This enviable portfolio consists of real estate investment trusts (Reits) and shares that yield high dividends, such as mainboard-listed Singapore Press Holdings (SPH). Dividends are the portions of profits which a company distributes to shareholders.

Mr Ng has an engineering degree and a master’s in Applied Finance from the National University of Singapore (NUS). He obtained the latter part-time while working.

The senior associate in IT governance at commodity and futures exchange Singapore Mercantile Exchange has published three books on finance: Growing Your Tree Of Prosperity (2005), followed by Harvesting The Fruits Of Prosperity (2007), and this year, Sowing The Seeds Of Prosperity. They are available in bookshops.

Mr Ng is married to quantity surveyor Pang Yoke Loo, 31. They have no children.

Q: Are you a spender or saver?

Very much a saver. In most months, my expenses are paid fully from my investment income, which arrives every quarter in the form of dividends. However, I dip into my work income for discretionary expenses, such as a trip to Korea. I can save up to 100 per cent of my salary in some months.

Q: How much do you charge to your credit cards every month?

I have only one credit card. I use it to save money by making purchases over the Internet. Normally, my credit card charges do not exceed $500 monthly. I try and pay the bill even before I receive the statement. I withdraw about $400 from the ATM about twice or three times a month.

Q: What financial planning have you done for yourself?

I invest 80 per cent to 100 per cent of my take-home pay directly in the stock market.

I had about $130,000 in my stock portfolio early this year; this has grown to $250,000 from capital gains as well as monthly cash injections from my savings. I have about 20 counters.

About half my portfolio consists of business trusts like Cityspring Infrastructure and Hyflux Water, or shipping trusts such as First Shipping and Pacific Shipping which, on average, give dividend yields of about 10 per cent. The rest are Reits like Suntec and Cambridge, which give me similar yields.

With the economic recovery, I’m focused on channelling my income into income stocks like SPH and Singapore Post, which will give me about 7 per cent yields. I have also invested about $30,000 of my Central Provident Fund savings in stocks such as M1, StarHub, Lippo Mapletree Reit and Cambridge Reit.

Q: Moneywise, what were your growing-up years like?

My financial habits were shaped mostly by my years as a kid hanging out in my parents’ pet shop at Shaw Centre in the 1980s. Life was hard. My parents were at the mercy of the landlord and the consumer. As an adult, I crave job and income security. I am very averse to debt.

Q: How did you get interested in investing?

In my final year at NUS, I picked up Robert Kiyosaki’s book Rich Dad, Poor Dad. This spurred me to pursue financial programmes like the Chartered Financial Analyst. Armed with investment know-ledge, I took to writing books to present my financial ideas from the perspective of a non-commission agent.

When I stock-pick, I find out first how much in dividends have been paid out over the past year. I used to aim for 10 per cent but have now lowered this to 6 per cent to 8 per cent. I check if there are any red flags raised by auditors. The free cashflow (operating cashflow minus capital expenditure) must exceed dividends declared. This ensures a company can sustain the dividends. Once the yield drops to, say, 4 per cent, I switch to a better counter. I monitor my portfolio daily.

Q: What has been your worst investment to date?

I had a very painful experience investing in McArthurcook Properties Securities Fund. I accumulated about 108,000 shares through 2007 and last year, and its yield was initially about 30 per cent. The price plummeted to 16 cents, from $1, when the recession hit. And last year, it stopped declaring dividends altogether. I exited in October last year at a loss of about $40,000.

Greed and my obsession for yields created an aversion to letting go of this. I learnt that I should not let my stubbornness get the better of me.

Q: And your best investment?

At the bottom of the market some time last year, I invested about $5,000 in Capital Retail China Trust at 60 cents per share. It had a dividend yield approaching 15 per cent. I have since doubled my money as the price is now $1.18. Most of my high-yielding counters have been doing well since December last year. My entire portfolio has almost doubled in size since early this year.

Q: What property do you own?

I am an only child; I live with my parents in Woodlands – my dad picked up a single-storey semi-detached house in the early 1970s for $70,000. The current value is estimated to be $1.6 million. I do not own any property.

Q: What’s the most extravagant thing you have bought?

My iRex Digital Reader 1000S which allows me to download electronic books for easy storage and reading. It cost $1,400. I save 60 per cent to 70 per cent compared to buying the actual books.

Q: What’s your retirement plan?

None, if I can help it. Work is a function of ability, and not one’s state of financial independence. My personal expectation is to increase my investment income by about $6,000 a year for each year of gainful employment. The rest largely depends on whether I can continue to remain employed and whether my health will allow it.

Q: Home is now…

The semi-detached house in Woodlands.

Q: I drive…

Sometimes I drive my wife’s recently purchased weekend car, a white Hyundai Avante.

(via Asiaone)

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“A Home to Call your Own”
- Fully paid HDB flats cannot be mortgaged for a loan
- HDB: Prevent flat owners from losing their flat in the event of a loan default
- Why the different treatment between HDB and other 99 leasehold property?
- Some HDB cost as much as private property
- People these days are more sophisticated
- Is it any different from taking a normal bank loan?
- Time to eases restrictions on flats as loan collateral and let owners decide

“Too Many Risks”
- Most HDB dwellers are low-middle income earners.
- HDB wants to ensure ownership through paid off flats.
- Not much cash equity in flats as most flats are paid with CPF
- What will people do with money unlocked from their flats?
- HDB does have other safer suggestions for flat monetization.

My Views:

I think renting out part of your flat is a much better way to ‘unlock’ your flat’s value then taking out a fresh mortgage. Somehow, “Lehman Brothers” pops to mind. There have been private home owners who have tried to make a killing in the stock market by using their homes as collateral, and end up losing their homes in the end when the market went the other direction.

The other thing that pops to mind is ‘Subprime crisis’. In the US, many home owners took opportunity of their rising home equity and taking out fresh loans based on how much their homes were worth then. Thus instead of having, say, a $200k mortgage, they now have a $250k mortgage, and $50k cash in their pockets. When the property market crashed, many home owners owed more than what their houses were worth, and that $50k cash was long gone.

Yet on the other hand, I’m also for HDB owners being allowed to make their own decisions, and to live by their decisions.

By the way, our HDB flat valuation has risen 15% since we bought it 1.5 years ago. At this rate, our flat price will double in 7 years. Now if only we could unlock that money with a fresh mortgage … $44k in our pockets …. NOT!

A HOME TO CALL YOUR OWN

THE Housing and Development Board (HDB) has received numerous awards and kudos over the nearly 50 years of its existence, including the 2008 United Nations Public Service Award for providing affordable homes to the vast majority of Singaporeans.

For the most part, the commendations are deserved. More than 85 per cent of Singaporeans now live in an HDB flat with 95 per cent of them considered home-owners, according to HDB chairman James Koh Cher Siang. This must be the highest ratio of home-owners of any country in the world.

But while you can rent out your flat under certain conditions, and even do a lease buyback to unlock value if you are an elderly, you cannot mortgage your apartment for a loan even if the property is fully paid up for.

Why not? I could not get a proper answer from a phone call to the HDB.

So I went to its website where it said: “HDB flats can only be mortgaged to banks or financial institutions to finance the purchase of the flat itself. You are not allowed to use your HDB flat, which has been fully paid for, as collateral to banks to raise credit facilities for private reasons. This is to avoid exposing flat owners like yourself to the risk of losing your flat should you be unable to repay the bank loan.”

This begs the question: Why this difference between an HDB flat, which in effect comes with a 99-year lease, and any other leasehold property?

Perhaps HDB’s reasoning was valid and even necessary during those days, now long past, when most buyers were less sophisticated and less knowledgeable in the ways of modern finance. But people these days are more sophisticated.

And in any case, some HDB flat-owners already make themselves vulnerable to banking foreclosure rules when they take out a home loan from a financial institution. In other words, they are already exposed to the risk of losing their flat – allowing them to take out a mortgage loan does not add to that risk.

So why not let the flat owner have a shot at putting his asset to better use? Furthermore, shouldn’t the financial institution be the best judge as to whether one’s flat is good enough collateral for a loan?

Then there are those residents eligible for lease buyback – applicable to the elderly in three-room and smaller flats, who under the scheme would have the tail-end of their lease bought up by the HDB and given a monthly payment through an annuity for life. Why not offer them the alternative of using the flat to get a loan?

Over the last few years, the HDB has been easing its rules, especially on selling and tenanting out its flats. For instance, since 2003, anyone wishing to sell his flat bought with bank loans and without a Central Provident Fund housing grant, has been able to do so after living in it for a year, compared with two-and-a-half years previously.

The same time-lock applies to those who bought resale flats without housing grants, and who choose to refinance their mortgages with a bank loan.

You can also sublet your entire flat after living in it for five years in the case of a subsidised unit, and only three years if you did not use an HDB subsidy.

Yet, one cannot use the flat to get a private loan. And we are not talking small beer here. These days some HDB flats – especially those near a Mass Rapid Transit line – can cost almost as much as a private apartment.

Singaporeans these days are financially more sophisticated, and the HDB’s rules ought to change with them. It’s time the board eases its restrictions on using housing board flats as loan collateral, and let HDB dwellers really feel that they own their homes.

(Via Todayonline, 9 Nov 2009)

TOO MANY RISKS

I REFER to “Let owners mortgage their HDB flats for private loans” by Conrad Raj(Nov 9).

I read with alarm how the writer encouraged people to take up more personal debt.

The statement that “Singaporeans are financially more sophisticated …” is a casual generalisation. Let us not forget that a large number of Housing and Development Board (HDB) dwellers are families with household incomes of less than $8,000 a month. The restriction on an owner taking up a second mortgage is exactly the reason to ensure continued ownership of his HDB flat so that, by the time the owner finishes paying off his housing loan, he has a roof over his head.

However, by allowing a cash loan secured with their HDB flats, the owners risk losing their flats in the event of loan default. In the event of a foreclosure, the flats are repossessed and sold at the best price achievable. HDB flat owners can, at best, preserve the CPF they have used to pay for their flat or, at worst, lose part of their CPF that is meant for their retirement.

Moreover, the majority of HDB flats are valued at less than $400,000. Most people service their monthly instalment with their CPF, stretching their loan for the maximum tenure. The HDB flat is more or less paid fully with CPF and, if we minus the outstanding loan, the CPF used and the accrued interest, there is not much equity to unlock from it.

I would like to ask the writer what he thinks people will do with the money unlocked from their HDB flats? Pay off their credit card debt, loan sharks? Invest in risky financial products? Place it in fixed deposits that earn pathetic interest?

You must pay off what you borrow. Owners are better off considering the monetisation options recommended on the HDB website.

(Via Todayonline, 12 Nov 2009)

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• Why home values may take decades to recover
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They break it down this way:

Child Birth: Baby Bonus + Ward Stay = $531/year (based on 1 kid)
Childcare Subsidy: $3600/yr
School Fees: $180/year
Housing: Insignificant
Health Subsidies: $4511/year

Salary.sg treats housing advantage as insignificant since most would turn to the resale market, like PRs. However, by not including HDB Grants and access to HDB loans, this greatly distorts the yearly figure!

Take a 3-rm HDB resale flat for example:

If a local couple gets a $40k grant and a HDB loan, it gives them a $2,992/year advantage in housing. If they are low income earners and qualify for a $80k grant, it gives them a $6,032/year advantage*.

Now add these figures to the $4,511/year churned out by salary.sg, and your citizenship is actually worth an advantage of $7,503-$10,583/year, more so if you buy a flat bigger than 3-rooms. Even more if your flat undergoes lift-upgrading (PRs pay full amount). Even even more when ‘gahmen’ gives out rebates for gas&electric bills, and conservancy fees. You get the drift.

So for an advantage of $7,503-$10,583/year, yes a Singaporean male has to serve his NS obligations. But hey, at the end of the day, like PRs, you can sell your flat at a higher price, be a ‘quitter’, and migrate to a cheaper country. Singaporeans will whine, ‘you need to be rich to migrate!‘, but hey, not all PRs are rich okay.

I think some times, we forget, that just 1 or 2 generations ago, our parents or grandparents were immigrants too. If our ancestors didn’t take a boat over to Singapore, we might very well be one of the foreigners coming into Singapore today, and getting PRs too, all for the hope of a better life (comparatively). Thanks to our ancestors for the slight advantage/headstart.

* Figures are calculated based on a 2.6% HDB loan for locals, and a 3.5% Bank loan for PRs. Bank loan rates fluctuates, so actual figures could be higher.

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Valuation is important to both sellers and buyers. Sellers have to get apply for a valuation, where a HDB accredited surveyor would come down and value the flat, and buyers would need to pay for that valuation report, so that they can get a loan from the bank.

The purpose of valuations is to protect the lenders. If Mr Ang is asking $300k for his 3 room flat, but its current market value is only $250k, banks will only lend Mr Ang $200k. The other $100k, he would have to pay cash. This way, if Mr Ang defaults on his payments in future, and the bank repossess the flat, they would still be able to recover some, if not all their money after selling the flat to someone else. If they had lent him $240k, and they can only resell it at $200k, they would have instantly lost a lot of money. That’s how valuations came about.

What’s this all got to do with HDB prices? Simple. These days, almost every buyer is asking for Cash over Valuation (COV). They feel their flat is worth more than market value. So buyers complain, complain … complain. Why COV keep rising, wah … flats so expensive. But some people still pay those COV and get their flats.

Then the next wave of valuations come out. The surveyors look at recent past transactions, and see that “oh, 3-room flats here have been selling for $240k, even though we valued it at $220k“. So they raise their valuation estimates to match the current selling prices. So now, buyers need not pay much COV right?

But sellers still want their $20k COV! It doesn’t really matter what it’s valued at, ultimately, it’ll still be priced at a crazy COV. So buyers complain complain complain. Notice, they are always complaining about the high COV, and seldom about the flat valuation price. This is because Singaporeans (and PRs) are CPF-RICH but CASH-POOR. So the cycle continues.

1. Buyers complain about high COVs
2. Surveyors tries to lower COV by raising valuation to match market sale price
3. Owners maintain their asking COV
4. Some buyers will still buy cause they can’t wait
5. Sale price increase, which means market price increases
6. Go back to pt 1

The cycle continues. Get it?

And here’s the funniest part of it all. Some Singaporeans have overcommitted on loans in order to get their own place, and if some more serious crisis happens, and more of them start defaulting, it’ll be like a ‘sub-prime – Singapore edition‘. When HDB prices finally crash, lenders will suffer. The whole concept of valuation has failed to protect their pockets.

But in the meantime, as long as high demand for limited HDB flats continues, and valuations keep rising like the high tide, HDB flat prices will continue rising.

(This is part of “The Almost Complete Goondu’s Guide to Buying a HDB Flat in Singapore” series.)

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The main difference between the former and the latter however, is for the IAS and IOL, you had to meet the loan requirements (eg. have the required earnings to prove you can pay for the sale), whereas for the DPS, you didn’t need to sign a loan at all, till the property TOP.

The ban on all such similar schemes with immediate effect would certainly some speculation, because while some may qualify for loans now, not everybody can afford to pay installments for an apartment which they aren’t even living in yet. So while they may chase away speculators, they may also chase away potential buyers, who might decide to look at completed condos instead, which they can move in immediately, or rent out till they are ready to move in.

———

Measures to ensure a stable and sustainable property market

1 Mr Mah Bow Tan, the Minister for National Development, announced today that the Government would take the following measures to ensure a stable and sustainable property market:

a. Reinstatement of the Confirmed List for the 1st Half 2010 Government Land Sales (GLS) Programme.

b. Removal of the Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL), with effect from today, i.e. 14 Sep 2009.

c. Non-extension of the Jan 2009 Budget assistance measures for the property market when the measures expire.

Reinstating the Confirmed List in 1st Half 2010 GLS Programme

2 Demand for uncompleted private housing units has picked up strongly since Feb 2009. The 10,017 units sold by developers in the first seven months of 2009 had already exceeded the 4,260 units sold for the whole of 2008. In response to the strong demand from home-buyers, developers have triggered four sites to date this year from the Reserve List of the 2nd Half 2009 GLS Programme, which together could yield about 1,600 units.

3 The Government will reinstate the Confirmed List for the GLS Programme in the 1st Half of 2010. While there are still 16 residential sites in the current Reserve List that can be triggered for sale by developers, MND will also replenish the supply when drawing up the 1st Half 2010 Reserve List to meet possible increases in demand. MND will announce the details of the 1st Half 2010 GLS Programme towards the end of the year.

Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL)

4 The Monetary Authority of Singapore will disallow the IAS and IOL with immediate effect from today, i.e. 14 Sep 2009. This measure will apply to all private residential projects. The only exception will be uncompleted private residential projects where the units had already been offered for sale under the IAS before 14 Sep 2009. The IOL will be disallowed with immediate effect.

5 The IAS and IOL are currently offered to buyers of uncompleted private residential properties. These schemes could encourage property speculation in a buoyant market where prices are rising rapidly, as they are forms of housing loans that entirely eliminate or substantially lower regular installment payments for property purchasers in the first few years before the properties are completed i.e. issued Temporary Occupation Permit. Under the schemes, a property purchaser will not have to make any significant payment, apart from the upfront 10-20% down-payment, until the housing project is completed.

6 Genuine home-buyers can continue to purchase private housing under the standard payment scheme. The removal of the Interest Absorption Scheme and Interest-Only Loans will also encourage prospective home-buyers to consider carefully their ability to afford the properties over the long term and not rush into any purchases. This will promote a more healthy and sustainable property market in the long-run.

Property-Related Budget 2009 Assistance Measures

7 A number of measures were announced in Budget 2009 in January this year to help stabilize the property market, in view of the sharp fall in demand and considerable uncertainty in the economic outlook at the time. These measures provided developers greater flexibility to adjust supply in response to a property market downturn.

8 In view of the recent strong demand for private housing and improved conditions in the property market, the measures will not be extended when they expire. The measures are:

a. Allowing one-year extension of project completion period

b. Allowing re-assignment of Government Land Sale (GLS) sites and private land owned by foreign developers

c. Giving developers up to four years to dispose of all private residential units in the development

d. Allowing developers to rent out unsold private residential units for a maximum of four years

e. Allowing up to 2 years of property tax deferral for land under development

9 The first four measures will expire on 21 Jan 2010, and the last measure on 21 Jan 2011.

Issued by: Ministry of National Development, Ministry of Finance, Ministry of Law and Monetary Authority of Singapore ⿨Date: 14 September 2009

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• How to enjoy 36% discounts off big ticket household items
• Investment thoughts
• Ever wonder why HDB prices keep going up?
• What are we teaching our kids?
• Singapore Lover, Singapore Hater
• Pricetag to raise a child — $291,570, says U.S.
• America’s Cheapest Family (Part 6): On Staying Healthy, Entertainment & Recreation
• Calvin and Hobbes on the Bailout

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