How HDB keeps it affordable

ST Letter by Ignatius Lourdesamy, 31 Aug 2009

WE REFER to the letters, ‘High HDB prices: Squeezed even harder’ and ‘Two shortcomings: Public housing too correlated to private market, and HDB has not regulated supply’ (both Aug 22); and ‘Flat hunting: Why was cash over valuation ever introduced?’ (Aug 20).

# Cash over valuation: Resale flat prices are the result of negotiations between willing buyers and sellers. Cash over valuation (COV) arises when buyers are willing to pay more than the market value of the flat, as determined by professional valuers.

However, for financial prudence, HDB and the banks will provide a loan of only up to 90 per cent of the market valuation. Therefore, if a buyer is willing to pay more than the valuation, the excess will need to be paid in cash, thus the term cash over valuation.

COV is not determined nor imposed by the Government. However, we can expect a flat seller to ask for as high a price as possible. On their part, buyers should first arm themselves with relevant information before negotiating with flat sellers.

To help buyers and sellers make informed decisions, HDB provides information on recently transacted resale prices and COV on its website. In July this year, 31 per cent of resale transactions were conducted with no COV. The median COV level was $7,000. Given the wide range of flats in the resale market, flat buyers should buy a flat they can afford.

# Supply of new flats: Besides resale flats, new flats form another part of the housing supply to meet demand. In response to rising demand, HDB has steadily increased the supply of new flats. From just 2,400 new flats in 2006, in the first half of this year alone, 4,300 new flats were offered. Given the continuing strong demand, HDB will increase the new flat supply under the Build-To-Order (BTO) system this year to at least 8,000 units.

# Affordability: HDB aims to make public housing affordable for eligible first-time households. These households are generously subsidised for their purchase of new or resale flats. On average, first-time households used 21 per cent and 25 per cent of their monthly income to service their loans on new and resale HDB flats respectively in non-mature estates. These figures are well below the international affordability benchmark of 30 per cent.

The monthly household income ceiling of $8,000 allows a vast majority of Singaporean households – about 80 per cent – to qualify for subsidised housing. Households whose income exceeds this ceiling can buy resale flats, where there is a wide range of supply to suit varying budgets.

For example, if a household with a monthly income of $10,000 buys a five-room resale flat in a non-mature estate at the average price of $364,000, it would need only about 15 per cent of its income to service its loan.

Ignatius Lourdesamy

Deputy Director (Marketing & Projects)

Housing & Development Board

Two shortcomings

‘Public housing too correlated to private market, and HDB has not regulated supply in line with immigration and demographic trends.’

MR TREVOR TAN: ‘Thursday’s report, ‘Cash upfront for HDB resale flats doubles in a month’, suggests that the recent ramp-up in HDB prices during the most severe recession since Independence signals that the system requires a thorough review. Two failings come to mind – that public housing has become too correlated to the private market, and that HDB has not regulated its supply in line with immigration and demographic trends. As housing is the largest financial obligation for most Singaporeans, I fear this ramp-up in prices will create a batch of young couples who are too highly leveraged and tied to their mortgages. Come the next economic downturn, we will have a demographic group unable to deal with the loss of their jobs, as they will be laden with other obligations such as their children and ageing parents.’