Making HDBs More Affordable

In case you have the misconception that I am one of those anti-PAP Singaporeans after reading my views on the proposed Medisave Life and PSLE changes, let me correct it with the next sentence. The government has to be commended for introducing the latest set of housing measures to provide Singaporeans with “More Help, Stronger Support and Better Homes”. After reading HDB’s press release today, I guess Foreign Affairs and Law Minister K Shanmugam was right in labelling the recent National Day Rally a “game-changer”.

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Enhancing HDB Grants for Singaporeans

To be honest, even after PM Lee’s role as a housing agent during the National Day Rally, I wasn’t fully expecting grants to be increased substantially for most middle income households. So I am glad to be proven wrong.

With this round of housing policy changes, households with a monthly income between $2251 and $5,000 will now be getting an additional $20,000 more in grants! Previously, these groups wouldn’t have qualified for this Special Housing Grant. It’s akin to a one-off 5-10% discount off the purchase price of the flat. The government is stepping in with a strong intent to make housing more affordable for the sandwiched class, the 20th to 50th percentile of Singaporeans who are just starting out. Let me illustrate with an example that is similar to PM Lee’s:

Mr and Mrs Tan are both 25 years old and recently ROMed. They earn $2,000 each and are balloting for a new BTO in Fernvale Riverwalk which cost about $270,000. Together with the Additional Housing Grant of $15,000 which they qualify for, they will receive $35,000 of grants altogether.

Since the flat will be ready only in 3 years or more, they will also be able to save up another $40,000 in their CPF OA for the downpayment. As a result, they will only need to loan the balance of $195,000. If they take up the HDB Concessionary Loan (there might be better options) and opt for a shorter repayment period of 25 years, the monthly instalment would be $885, which is fully covered by their monthly CPF OA contributions.

As such, I would consider the above flat to be affordable to the Tans. In fact, the focus on households like the Tans is so strong that after the latest enhancement of the SHG, the middle class will receive a bigger boost in grants as compared to those with very low incomes. For a household earning <$1,500, there is actually no increase in the SHG dished out. They will be getting the same $20,000 from SHG.

What?! This government is turning from bad to worse. They are turning regressive and benefiting the more well-off members of society at the expense of the poorest 10%! We need Robin Hood to salvage the situation.

Before you hurl these complaints, let me also clarify that households earning <$1,500 will also qualify for the AHG which is already very progressive in nature. In total, these households will receive a $60,000 grant which is very substantial and go a long way towards the purchase of a 2 or 3-room flat. Easily more than a 30% discount.

Furthermore, the government is also introducing a new step-up grant of $15,000 for lower income households who intend to upgrade from a 2-room to a 3-room flat in a non-mature estate. So this group is definitely not being marginalised.

To simplify matters, I would actually suggest to merge AHG and SHG. This would show the overall progressive nature of the grants. From my understanding, they exist separately to cater to buyers of larger flats or other BTOs in mature estates. However, do we really need to provide a grant for these buyers of more expensive flats? 

Shorter Loans and Differentiating Citizens From PRs

Instead of 30 year loans, HDB would only be providing a maximum of 25 now. MAS will also restrict banks to offering loans of no longer than 30 years (compared to 35 previously) for HDB flats. Not surprisingly, the reaction on my Facebook hasn’t been that great, due to one obvious reason: Monthly instalments would increase! 

Using the Mr and Mrs Tan’s example above, instalments would have decreased by $100 or 12% if we had increased the loan tenure to 30 years.

However, my prediction and the government’s expectation is that in the middle to longer term, this set of loan restrictions would help to rein in the rise of HDB resale prices. There could even be a price drop, but before you hold your hopes too high, it is really unlikely to be that much to fully offset the increase in the monthly mortgage. Still, even a 2-3% drop would help a lot. I, for one, would rather pay $1,100 per month for 25 years compared to $1,000 per month for 30 years.

Previously, the government also proclaimed that PRs were not responsible for the increase in HDB prices in recent years since they only comprise 10% of transactions. Unfortunately, one could easily poke holes in this hypothesis with some basic and general knowledge of Economics.

If the demand for an inelastic good increases by 10%, the prices would increase more than proportionally, easily by >20%.

Apparently, with the latest measure forbidding new Permanent Residents (less than 3 years) from buying resale flats, it seems that the authorities have finally understood what the man in the street was implying all along. Although it falls short of sending the message that “If you want to enjoy these subsidised flats, you had better serve National Service like us true sons of Singapore”, it’s a pretty good start to ensure clearer distinction between Singaporean citizens and PRs with regards to state benefits/subsidies.

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So congratulations to all aspiring home owners. You should be enjoying more grants if you’re balloting for a BTO or paying a lower price in the resale market after these latest measures are implemented.