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    Nov 17, 2014

    New HDB flats more affordable now

    NEW Housing Board flats have become more affordable relative to applicants' household incomes, compared with last year's figures.

    But while the gap is closing, they have yet to reach the target that National Development Minister Khaw Boon Wan set last year of having new flats priced at about four times the applicants' median income.

    When he set that target last year, the price ratio was about 5.5 times annual salary. Now, it is lower for all flat sizes.

    A new two-room flat is the most affordable. At $55,000 after grants, it is less than three times the median household salary of the applicants.

    After grants, three-room flats cost 4.57 years of salary. Four- and five-roomers are less accessible, at 5.28 times and 5.36 times applicants' salaries respectively.

    These calculations are based on the average Build-To-Order (BTO) prices in non-mature estates, given by the Ministry of National Development in a September parliamentary reply, and applicants' median income as given in the September BTO exercise.

    High BTO prices caused unhappiness around the time of the last General Election in 2011. At the time, they were linked to HDB resale prices, which had been soaring.

    After the election, delinking BTO prices from the resale market stopped them from rising, as Mr Khaw noted during last year's Committee of Supply debate.

    "We can now pause and see what else we can do to bring BTO prices in non-mature estates to, say, around four years of salary, as it was before the current property cycle started," he had said then.

    Though the relative prices of BTO flats have fallen since Mr Khaw's speech, most still cost more than four years of an applicant's salary.

    But experts pointed out that the picture improves if overall household incomes are considered, not just those of applicants.

    Last year, the overall median household income was $7,030 a month.

    The price of the median house type - a BTO four-roomer - was $295,000, or about 3.5 years of income, noted Singapore Management University economist Phang Sock Yong.

    For resident employed households, which mainly excludes retirees, the median income was even higher at $7,872 a month.

    Using this as a reference, the price of $386,000 for a five-room flat "looks reasonable" at about four times annual salary, said National University of Singapore (NUS) associate professor of real estate Sing Tien Foo.

    NUS economist Tilak Abeysinghe prefers to compare house prices to lifetime income, with a price under 30 per cent considered affordable in the long run.

    "A crude comparison indicates that a house price four times the annual income falls in the highly affordable range," he said.

    Even the five-roomer, at 5.36 times the annual income, falls in the affordable range for that income group, he added.

    Nor should we expect all flat types to be equally affordable by this ratio, said experts.

    Larger flats cost more times one's income because public housing is priced "according to ability to pay", said Prof Phang.

    Housing affordability is not just about setting prices, but encouraging a match between house type and household income level, added Prof Sing.

    "Lowering housing prices for larger flats is not a good strategy or may induce some lower income households to buy large houses, which could further distort the housing price to income ratio," he said.