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Written by Ng E-Jay
12 March 2013
The Singapore government has delayed acting on the issue of housing affordability for far too long. In the past several years, they have allowed property prices to rise so fast that lower and middle income Singaporeans gradually found themselves priced out of the market. Married couples who had to purchase their first home from HDB found themselves saddled with expensive, lengthy mortgages that often stretched 25 to 30 years. It meant being in mortgage debt for virtually all of their productive years just to own a ninety-nine year lease PigeonHole.
Last Friday, National Development Minister Khaw Boon Wan pledged that prices of new HDB flats will become almost 30 per cent cheaper than current levels. For example, new homes in non-mature estates will be priced at 4 times the annual median income of flat applicants, compared to the current level of around 5.5 times.
In 2011, the National Development Ministry had de-linked Build-to-Order (BTO) prices from the resale market in an effort to keep the prices of new flats stable.
Mr Khaw also announced that singles aged 35 years old and above who earn less than $5,000 per month will be able to buy new two-room flats from July.
But even with these new measures, public housing in Singapore will still be expensively priced and mortgage period will still be long. These measures are steps in the right direction, but they do not go far enough.
For a start, the government should aim to price new homes at 3 times the annual median income of flat applicants. This would mean that a new home owner earning the median salary would have to take out a mortgage of around 14-15 years (inclusive of interest payments) assuming he or she spends 25% of income on mortgage repayment. This is a more reasonable figure, because it would leave more savings to be accumulated for retirement. The key is to get people to be financially independent by owning their own homes outright quickly as possible while at the same time saving enough for retirement needs.
To make homes affordable in the long run, the government should eventually move to a system where new flats are priced based on the cost of construction rather than on the income level. This would ensure that housing remains affordable for even the lower income groups. The system of making a fat profit from public housing must be done away with once and for all. The government should not treat public housing as a cash cow from which citizens are to be milked.
The resale market will also have to be tackled aggressively. The resale price index has shot up nearly 100% since 2007, due largely to the huge influx of foreign buyers. This has caused immense financial hardship to divorcees, singles and other property buyers who are unable to qualify for a BTO flat. This group of disenfranchised buyers are suffering from 30 year mortgages that are now running close to the one million dollar mark.
This situation is ridiculous given that the pace of wage growth in the last 5 to 7 years has been tepid for the lower and middle income.
Clearly, much stricter rules for foreigners buying HDB flats as well as far more calibrated intake of PRs and new citizens must be enacted. Continued GDP growth simply cannot be allowed to happen at the expense of a run-away property market that is spiralling out of control.