Pegging HDB Flats to Median Income May Raise Prices
The Worker's Party goes on and on about it, and the PAP keeps saying "no no no", but no one ever seems to talk about what exactly it means. Pegging the price of new HDB flats to the median income of eligible applicants. It seems quite straight forward right? The devil, as they say, is in the details.
Does median income exclude or include CPF? If it does, are we considering only the OA component?
Given an income of X dollars, how do we translate that into a price? Do we take a third of that income for loan repayment or is it fine just as long as the couple has $1,700 left? Should the loan period be 20 or 30 years?
You get the drift. So, following-up on the first post on HDB affordability and the later update, let's figure out what "pegging to median income" might mean in terms of price. Here's guessing what the terms mean.
New HDB Flats: Not old one lah. Still got 99 year lease left.
Median Income: If everyone fall-in in one line from lowest to highest income, its what the guy standing at the very middle gets.
Eligible Applicants: The HDB website shows 8 schemes for different people. Super complicated. I shall take it to mean the most applicable Public Scheme, and limit it at $8,000 household income - the celling for the CPF Housing Grant.
With that as the basis, this is the picture we get.
Quick Explainations
Most Expensive: Top of range price from Today's sample of 4 room BTO flats in 2011
Cheapest: Bottom of range price from Today's sample of 4 room BTO flats in 2011
Average: Average price of 4 room flats in 2010
30% Income: Following the one-third of income rule-of-thumb for housing loan repayment
20% Income: For a happier and more consumerist lifestyle
CPF only: No cash out of pocket. CPF OA is sufficient to foot monthly repayment
Note: I assumed a 20yr repayment period and 90% HDB loan.
So What Does This Mean
The numbers suggest that pegging the prices of new HDB flats to the median income of eligible voters could (1) result in slightly lower prices, or (2) average prices that are way higher than what they are now.
Does this mean that the Worker's Party is secretly out to sucker you of your money, and PAP is in cahoots with them smirking behind the scenes? Of course not. The debate has always been about making sure HDB flats are affordable. The point is, it's generally better to crunch numbers to make a point, and to always ask politicians to clarify what they mean.
Happy Voting Come Saturday!
Strictly speaking, folks who earn way more than $8,000 are also eligible, but cannot enjoy the CPF Housing Grant or the same concessionary HDB loan. These folks form about 28% of households under 30.
Mah Bow Tan spoke about raising the income ceiling to $10,000, so this might expand the group of people likely to apply for new flats.
Does not take into account the 2.6% interest rate of HDB loans. Assuming that the raising income from career progression would more than cover this.
The figures are from close but different years. Top and bottom flat prices from 2011, average price from 2010 and income from 2007/2008.
CPF contributions may fluctuate with the economic cycle
There are 7 other HDB eligibility schemes, which may or may not change the figures
I looked at the 36th percentile of the households in 2008, who's main bread winner was under the age of 30. 36th instead of 50th because that was the median of households earning <$8,000. I used linear intrapolation between categories where necessary.
From the 36th percentile, I intrapolated the median income. The figure is $4,256.
Using 3 criterias for monthly repayment...
30% income - includes employee CPF as part of 30%, plus additional 15.5% employer OA CPF
20% income - includes employee CPF as part of 20%, plus additional 15.5% employer OA CPF
CPF only - Only OA component of employee and employer CPF
Multiple the monthly repayment by 12 to get a year, and then 20 years
Assume a full 90% loan, dividing the figure by 0.90 to get the full price
SingStat. Report on Household Expenditure Survey 2007/08
TodayOnline. Couple Earning $4,200 can buy 4-room flat with ‘zero deposit’
HDB InfoWeb. Eligiblity to Buy
HDB Affordability: Understanding the Issue
Distorted Picture on HDB Flat Affordability
