Length of loan is not the issue: Mah Bow Tan

[Musicwhiz]

Now the Govt says it will "revisit" the income ceiling of $8,000 for couples buying new flats. And this being said in the heat of elections and campaigning.

I think it's a little too little, too late.

The joke is that doing so will not improve "affordability". It just means more of the population will shift from buying resale flats or DBSS to new flats under BTO, thus probably pushing up their prices at the same time. Absolute values of HDB flats would not change.

So I really do not know how the Govt intends to solve this pressing problem! Or perhaps they have no viable ideas? They could certainly learn something from what WP or NSP has proposed....

[yeokiwi]

Now the Govt says it will "revisit" the income ceiling of $8,000 for couples buying new flats. And this being said in the heat of elections and campaigning.

I think it's a little too little, too late.

The joke is that doing so will not improve "affordability". It just means more of the population will shift from buying resale flats or DBSS to new flats under BTO, thus probably pushing up their prices at the same time. Absolute values of HDB flats would not change.

So I really do not know how the Govt intends to solve this pressing problem! Or perhaps they have no viable ideas? They could certainly learn something from what WP or NSP has proposed....

The problem is simply a latency problem. If HDB had been more aggressive in building the new flats since 2007, the increase in the price of the flats will be reduced, the waiting time will be much shorter and also lesser balloting.

I know there are choosy couples around but the problem can be circumvented by selling the less desired flats at a much lower price.If there is a price difference of 100k between the 30th storey and 3rd storey, I suppose the 3rd storey flats will be sold out in a blink.

Since we are looking at potentially 22000 new HDB flats for this year, I suppose the suburban apartment price should remain stagnant in the coming year.
However, the measures that they put in are too late and it will cost them heavily in the coming ballot.

[egghead]

Diverting more people to BTO will reduce demand on the resale market; and therefore reduce the BTO benchmark prices. Since BTO will take about 3 years to come to the market, this is effectively asking the buyers to defer buying now (resale) and look at the potential supplies coming on streams. The intended effect is to flatten out the demand. Whether the market will respond that way remains to be seen.

[d.o.g.]

It is not the length of the loan but the percentage of monthly income repayable to the housing loan that matters, said Minister for National Development Mah Bow Tan in response to an Opposition point that paying for a HDB flat on a 30-year loan makes it unaffordable.

The length of the loan varies and is up to the home buyer, Mr Mah said. They are free to take up 30-year loans, or even 25- or 20-year loans, he added.

To ensure that the length of the tenure, the interest rates and loan repayment are within the means of young people to buy their flats, his guidance to the HDB "is usually 30 to 35 per cent (of monthly income)".

For a 30-year loan, the instalment payment is about 25 per cent of monthly income, depending on the type of house, Mr Mah said.

What planet is this guy from? If he is correct that loan duration doesn't matter, why not take his statement to its logical conclusion and take a 99-year loan? Super low monthly payments, right? One might say the banks won't allow such nonsense, but already the banks are making 40-year loans in an attempt to "help" keep monthly payments low. In fact this increases the interest income for the banks since they can earn interest over a longer period.

The fact of the matter is that the loan duration matters because at some point you actually want to own the property. As the loan duration increases, more and more of your payments are just for bank interest and less and less for actually buying the property. Eventually it makes more sense to just rent. Then you can stop pretending to yourself that one day you will actually pay off the loan and own the place outright.

Oh wait - you don't actually own your HDB flat either - you only LEASE it from the HDB, which the government conveniently ignores when it says XX% of Singaporeans own their home. But when you actually try to buy the HDB flat the agreement says very clearly that you are merely the LESSEE. Such inconvenient truths...

[Bibi]

What a stupid and lousy argument by MBT. I thought govt candidates are of high calibre but his argument really makes one think otherwise. Might as well have 99 years hdb loan then it will truly be affordable. Below is a financial adviser (Wilfred Ling) on the impact of length of loan period.

http://www.wilfredling.com/index.php?opt...9#JOSC_TOP

[tanjm]

Oh wait - you don't actually own your HDB flat either - you only LEASE it from the HDB, which the government conveniently ignores when it says XX% of Singaporeans own their home. But when you actually try to buy the HDB flat the agreement says very clearly that you are merely the LESSEE. Such inconvenient truths...

You certainly own something - because you can sell it. Whether you call it owning the home or owning the lease is a matter of terminology in today's world.

30 year mortages are common in the US and elsewhere. It is not unique to Singapore. In some places in Europe and Japan, it gets even worse. People are just hungry for property ownership (or lease ownership if you prefer) and do not necessarily want to do the sums that lets them choose a house appropriate for their income level and accounting for interest rate risk.

Near almost 90% home ownership rate (or lease ownership) is an abnormal state of affairs in developed countries in general, and for city living in particular.

Here's an interesting link showing home ownership rates by country.
http://en.wikipedia.org/wiki/List_of_cou...rship_rate

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Just to be clear, I thought MBT was rather dumb in his statement. I'm not supporting him, but neither am I just uncritically accepting the opposite premise.

[Musicwhiz]

What planet is this guy from? If he is correct that loan duration doesn't matter, why not take his statement to its logical conclusion and take a 99-year loan? Super low monthly payments, right? One might say the banks won't allow such nonsense, but already the banks are making 40-year loans in an attempt to "help" keep monthly payments low. In fact this increases the interest income for the banks since they can earn interest over a longer period.

Actually, even before MBT made this remark, I was already wondering what planet he was from! Can't he see the suffering which young couples have to go through to pay off their 30 year loans? THen again, with Ministerial Salaries so high, I guess it never occurred to them!

Another argument could be made in favour of MBT by saying that he is advocating we invest the money at a rate higher than the low interest rates currently being offered, hence using leverage as a tool to grow one's wealth. This view is as fallacious as it is misleading - how many people know how to grow their money properly consistently over 30 years? And also, does MBT assume interest rates will stay low forever? This did not seem to factor into his "30 year" calculation, not to mention possible sickness, loss of job or incapitation/accidents.

[Ben]

Why MBT propose 30 years loan? Because 30 years later, he is not around to answer to the people Who ever is the housing minister then will have to answer that...ha...ha

Joke aside, I feel very insecure for the next generation if we have ministers who think like that today.

[flinger]

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Just to be clear, I thought MBT was rather dumb in his statement. I'm not supporting him, but neither am I just uncritically accepting the opposite premise.

I am not sure about the others, but I am very critical of the opposition, that said, this is about what MBT has done and said over a period of time.

He didn't admit he was wrong, then he said it was affordable, then he said , wait the prices would go down, then said you should let it rise and then make money from it , then now he says about loan period does not matter.

He keeps on saying contradictory statements and statements which are not financially responsible.

In regards to other countries, I do not know of any country that has public housing similar to HDB and the price of public housing to be shooting super high. What use to cost 250,000 for 4 room flat in a ulu area 3 - 4 years ago cost cost 300,000 - 350,000 now? so in another 10 yrs time, what price does someone pay if if we keep on "enhancing" the asset? and if the salary does not keep pace with the rate of "asset enhancement" price. what do we do?

So a 4 room million dollar house in Bishan? and afford it with a 60 - 90 yr loan to make it affordable? or since it is not affordable, should the family then try to get 3 room or a 2 room?

The purpose of HDB seems to have changed along the way, it has taken the CPF role of providing for retirement through the housing, but is that really true as when they sell their house can they really retire as they would need another house , and what guarantee is there that the return would be enough for retirement.

I see a lot of loopholes.

I shall end my rant here.

[psslo]

Another way HDB can lower prices is by reducing the 99yrs leasehold duration. Who knows, one day it may become 60yrs, just like industrial properties.