First of all, the sale price of HDB flats is a common concern for both the buyers and the government. If people cannot afford it, it is useless for the government to build more HDB flats.
The fundamental difference between the government and private real estate developers is that private real estate developers seek to maximize profits, while the government seeks to make HDB flats affordable to all, and even if they can't afford them for a while, they can still rent them.
Therefore, the pricing of HDB flats must be within the range of affordability.
How should it be set? On what basis?
The main basis is naturally the purchasing power of the people. This brings us to the definition of "affordable".
We often hear government leaders assure the people that HDB flats will be sold at an affordable level. But what is "affordable"?
First, the government must take into account the income level of the people.
In this regard, the Internal Revenue Service has good data. Second, the government must also take into account the borrowing capacity of the buyer. This is generally done by taking the median of the household income percentile, which is the 50th percentile.
Recently, some MPs in Parliament suggested that perhaps it could be adjusted down to the 30th percentile. In response, National Development Minister Lee Chi San said that the government does not only base on the median household income, but also provides various types of HDB flats for people to buy according to their needs and budget.
The minister also gave an example to illustrate. Take a first-time buyer with a monthly household income of about $5,000, they are slightly below the 30th percentile.
If they choose to buy a four-bedroom pre-built HDB flat in the three non-mature districts of Woodlands, Jurong East or Choa Chu Kang, the selling price would be about $348,000.
Based on their income, they will receive an Enhanced CPFHousingGrant of $45,000 from the government. All told, the money they use to pay off their mortgage each month is about 23% of their income.
That is to say, they only need to use the CPF to pay for it.
According to HDB, most HDB flat owners pay about a quarter of their household income in monthly installments.
This is also in full compliance with the Mortgage Servicing Ratio (MSR) set by the Monetary Authority of Singapore, which means that the monthly amortization of the loan should not exceed 30% of the borrower's monthly gross income.
Based on this example, the newlywed couple bought a four-bedroom HDB flat with a price-to-incomeratio of about 5.
In other words, it is about the couple's total income for five years. This price-to-income ratio is another important indicator of whether people can afford housing and is a widely used indicator.
The average developed country has a price to income ratio of 4 to 5, so Singapore meets the indicator.
Of course, a newlywed couple cannot go without food and drink and pay off all their mortgage in five years. The average person will take out a loan from HDB and repay it over 25 years.
Let's take another example. Suppose a first-time buyer couple has a household income of $3,000 per month and they want to buy a three-bedroom pre-built HDB flat in Jurong East.
The selling price of this type of HDB flat is about $220,000, which is about $155,000 after deducting the $65,000 additional housing allowance they can get.
With the current mortgage policy, their monthly amortization would be about $554, also paid by CPF only.
These two examples should be enough to show that if the average first-time buyer can be practical and realistic, and if the government provides additional subsidies based on income level, they will not worry about not being able to afford a HDB flat that meets their family income level.
The government's introduction of measures such as additional housing subsidies may indicate that property prices are indeed higher than the affordability of the average low- and middle-income first-time buyer; but it also shows that the authorities will not sit idly by and ignore the problem of rising property prices.
On the contrary, it keeps an eye on the purchasing power of the people, and will help out whenever necessary.