HDB changes may make it even less affordable?

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Housing loan reduced to 25 years

It states that “With immediate effect, the Housing and Development Board (HDB) has shortened its maximum loan tenure to 25 years and the mortgage servicing ratio (MSR) limit has also been cut to 30 per cent of the borrower’s gross monthly salary.

Mortgage Servicing Ratio reduced to 30%[You must be registered and logged in to see this link.]

Previously, HDB loan tenures were at 30 years and the MSR limit was at 35 per cent of the borrower’s gross monthly salary.

Bank loans longer at 30 years

From tomorrow (Aug 28), financial institutions will in tandem reduce the maximum tenure of new housing loans and re-financing facilities from 35 years to 30 years.”

$2,000 can afford 3-room even less viable now?

Using the example given in the National Day Rally (NDR) speech that a family with household monthly income of $2,000 can afford a 3-room BTO flat at $170,000 – the new reduced 25 year loan tenure on a HDB Concessionary loan of $153,000 at 2.6 per cent, gives a monthly mortgage repayment of $694.11.

This would also exceed the MSR limit of 30 per cent. So, the maximum loan that he may get is only $132,255, $20,745 short of his desired loan of $153,000.

As the CPF monthly Ordinary Account contribution on a $2,000 monthly income is only $$420, the flat-owner would have to pay the difference of $274.11 in cash.

With a take home pay of just $1,600 after the employee CPF contribution – after paying the the $274.11 cash monthly mortgage, Service and Conservancy Charge (S & CC), property tax, etc – the cashflows for a family of say four persons may be quite tight.

How many get grants and how much?

Even if the example of the net price of $111,000 (after all the grants) in the NDR is used, the monthly mortgage repayment on a HDB loan is $503.57, which is still $83.57 more than the $420 CPF Ordinary Account contribution. Moreover, how many flat-owners actually get such high grants and how many don’t qualify for any grants at all?

Self-employed?

The other problem is that all the HDB’s examples of affordability are based on Singaporeans who are employees who contribute to CPF. In this regard, there were312,700 self-employed or 15.3 per cent of the total labour force – who may typically not have any CPF contributions to the Ordinary Account for housing usage.

For a self-employed Singaporean using the same $2,000 monthly household income example, his take home pay after Medisave contribution and $694.11 monthly mortgage repayment, may mean that the take home pay is only about $1,126.

It may be financially rather stretched for a family of four to make ends meet on just $1,126 before S & CC, property tax, etc.

As the trend is that more people are becoming self-employed – with an increase of 4.3 per cent from 2011 to 2012 – this problem of the example of a $2,000 self-employed being able to afford a HDB flat may fly in the face of reality.

More may take bank loans?

In contrast, since banks will be allowed to offer a longer 30 year loan, compared to the HDB’s 25 years – the monthly mortgage repayment would be much lower, at only $529.50 at the current rate of 1.52 per cent ($164.61 less than the 25 year HDB loan).

In this connection, the mortgage example given in the NDR was based on a 25 year 1.52 per cent bank loan. This is the first time that the HDB has ever used a mortgage example with a bank loan to illustrate the affordability of HDB flats.

So, particularly for lower-income Singaporeans, they may be forced or be more inclined to take a bank loan.

Bank loans higher risk?

The problem with bank loans may be that the risk of default may be higher, as the HDB’s financial assistance schemes to help flat-owners who have difficulty in paying their HDB loans are not applicable to those on bank loans.

Also, since generally anyone who has a bad credit record, ever been sued for a debt or money related matter, bankrupt or discharged bankrupt, debt restructuring scheme. etc, may not be able to get a bank loan – the higher mortgage repayment of the shorter maximum HDB loan of 25 years may make it harder for particularly lower-income Singaporeans to buy a HDB flat.

No bank loans statistics?

There are also no statistics on the foreclosure and delinquency rates of HDB bank loans.

About turn on affordability?

How can we on the one hand say that we will make HDB flats more affordable, and yet on the other – make it more difficult to get the quantum of housing loan required?

In the final analysis, the HDB changes announced may make flats less affordable and reduce the number of Singaporeans who may be able to afford to buy a flat.

Market may cool finally?

As to “With immediate effect as well, Permanent Residents (PR) who want to buy resale flats will have to wait three years after receiving their PR status. Prior to this change, they could buy a flat as soon as they received PR status” – the reduced demand may finally cool the HDB Resale market.

This may have a knock-on effect on the private property market too. As it is, the private property resale market’s prices have already been correcting in the last three months, as well as transaction volumes in the overall private property market – a whopping 73 per cent drop last month.

AHG, SHG income ceiling increased?

With regard to “Announcing these changes today, the HDB also provided more details of the extension of the Special Housing Grant (SHG) and the new step-up housing grant, which Prime Minster Lee Hsien Loong first announced during the National Day Rally.

The income ceiling for SHG will be raised significantly, from S$2,250 a month to S$6,500 a month for families and S$3,250 for singles. Mr Lee previously announced that the SHG would be extended to middle-income households and could be used for buying new four-room flats.

Under the new step up grant, families who want to upgrade from a two-room to a three-room flat can get a housing grant of S$15,000″ - the way the housing grants have worked in the past is repeated – the increase in the income ceiling for the AHG and SHG is as little as only a $5,000 grant ($2,500 for singles) for those at the top range of the income ceiling, with the maximum grant still pegged at those whose monthly household income is not more than $1,500.

Hope price don’t increase by more the grant?

It remains to be seen in the future as to how HDB BTO and resale prices will move. For example, just a $5,000 increase in the BTO price may wipe out the $5,000 grant that higher income ceiling flat-owners may get.



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