Why concerns over housing affordability linger despite homes being generally affordable

Jan 09, 2023

SINGAPORE has a high level of homeownership, and housing affordability appears to be good. Still, affordability concerns linger, perhaps for good reasons.

In the first half of 2022, 90 per cent of buyers who collected the keys to their new Housing and Development Board (HDB) flats in non-mature estates had a mortgage servicing ratio of 25 per cent or lower for their HDB loans. This was also the case for over 80 per cent of buyers who collected the keys to their new flats in mature estates, according to the HDB.

These flat buyers can service their HDB loans using their monthly Central Provident Fund (CPF) contributions, with little or no cash outlay. The HDB said the median home price-to-income ratio for all buyers who collected the keys to their new flats over the same period was four or below. 

The average selling price of HDB build-to-order (BTO) flats in non-mature estates rose by 16 per cent between 2012 and the first three quarters of 2022, from S$311 per square foot (psf) to S$362 psf. For mature estates, the figure climbed 22 per cent, from S$479 psf to S$584 psf. The median resident employed household income grew by 26 per cent in this timeframe.

Are complaints over unaffordable homes invalid?

Excluding the private housing aspirations of some people, and the difficulty that some people face in securing a BTO unit, there are valid concerns over affordability.

Multi-year home loans

Firstly, some young adults may be uncomfortable committing to a home loan with a long tenure of 20 years or more. The repayment period for a young couple, who take a loan from the HDB to buy a BTO flat, is capped at 25 years. The annual interest rate on an HDB housing loan is pegged at 0.1 per cent above the prevailing CPF Ordinary Account interest rate, which works out to 2.6 per cent – a competitive rate versus what banks charge for new home loans.

For couples who use dual incomes to service a home loan, there is little room for one partner to stop working to care for children or parents, if needed. Also, jobs may be rapidly disrupted. One may face bouts of unemployment or take time off to retrain for new roles. Moreover, some people freelance, where monthly income can be more volatile than in salaried jobs.

Secondly, life expectancy is generally rising, and people may feel a greater need to ensure retirement adequacy. In 2021, about 56 per cent of CPF members were able to set aside their Basic Retirement Sum (BRS) at age 55, up from 54 per cent in 2020. The BRS is S$96,000 for those who turned 55 in 2022, and S$99,400 for people who turn 55 in 2023.

Setting aside S$96,000 in the Retirement Account at age 55 will allow one to get a monthly payout of S$790 to S$850 from age 65 under CPF Life. If one sets aside S$192,000, which is the Full Retirement Sum for those who turned 55 in 2022, the monthly payout from age 65 is S$1,470 to S$1,570. 

Perhaps some people are keen to limit the amount of funds used to service the purchase of a home, so that they have more funds in their CPF accounts or elsewhere for retirement needs.

Housing options

Thirdly, affordability of BTO flats is reduced if one opts to buy a BTO unit in a mature town. In the November 2022 BTO exercise, the price of a four-room flat at Queenstown Canopy, which is in a mature town, was S$551,000 to S$695,000. At Garden Waterfront I & II @ Tengah, a non-mature town, similar units were priced at S$307,000 to S$397,000.

Generally, homebuyers should have little to complain about when living in non-mature towns, as transport connectivity can be good, especially with an expanding MRT network. One may need to exercise some patience, and the non-mature town can have comprehensive amenities over time. Still, some homebuyers may be drawn to get a flat in a particular mature town to be close to other family members or specific schools or one’s work place.

Also, some buyers, who can buy BTO units, may choose costlier HDB resale flats because they need a home for immediate occupation.  

Fourthly, like in many major cities, apartment living is the norm here. But, while a Briton who lives in a small flat in London when working there can subsequently move to live in a landed home at a reasonable price elsewhere in Britain, such an option is not available for a Singaporean who lives in Singapore. One may have to live in Malaysia to avail oneself of cheaper landed housing.    

The HDB sells BTO units at subsidised prices. It expects to incur an estimated loss of about S$270 million, after taking into account housing grants for the Central Weave @ Ang Mo Kio BTO project, which has 896 units of two-room Flexi, four-room, five-room, and three-generation flats.

However, some Singapore citizens cannot buy BTO flats. This group includes singles who are under 35 years old and couples whose monthly household income exceeds S$14,000. A new executive condominium (EC) unit, which is roughly the size of a four-room HDB flat, may cost S$1.25 million, or nearly seven times an annual income of S$180,000. Moreover, one may not find an EC in a suitable location.  

Some of the angst over housing affordability likely stems from the recent strong increase in private home and HDB resale prices. Between Q4 2019 and Q4 2022, the Urban Redevelopment Authority’s private residential property price index rose 22.5 per cent, and the HDB resale price index rose 30.6 per cent, based on flash estimates.



Still, many locals can take heart that the HDB is building more BTO units and prices BTO flats to ensure they are affordable relative to residents’ household incomes and their mortgage servicing ability. One can sell one’s BTO flat in the future, likely for a substantial profit, or rent out a room in the flat, to help fund retirement needs.

While people may naturally fret over paying for a big ticket item such as a home, potential homebuyers should draw comfort that the government has shown by words and deeds a strong commitment to keep housing affordable.

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