HDB raises income ceiling to $10,000

[Musicwhiz]

The Straits Times
Aug 15, 2011
HDB raises income ceiling to $10,000
First revision in 17 years will enable more people to qualify for new flats

By Jessica Cheam

THE Housing Board (HDB) is breaking away from its long-held income ceiling - unchanged for the past 17 years - and raising it so that more young couples can qualify for its new flats.

The ceiling will go up from the current $8,000 to $10,000 for HDB's build-to-order (BTO) flats, and from $10,000 to $12,000 for executive condominiums, Prime Minister Lee Hsien Loong announced in his National Day Rally speech last night.

He emphasised that housing was 'a key expression' of the Government's push to put Singaporeans ahead of non-citizens working and living here.

'Our home ownership policy ensures every family has a stake in Singapore,' he said. He acknowledged that in the last two years, record-setting property prices have unsettled many; young couples are nursing a growing concern that they cannot afford to buy a home.

One group, specifically those earning just below the current HDB income ceiling of $8,000, are the most anxious, he said. They worry that their next promotion will tip their income past the $8,000 mark, thus barring them from qualifying for new HDB flats.

There are more such couples now, as incomes have gone up and people are marrying later, when they are further along the salary scale.

The raising of the income ceiling will 'bring more people into the HDB net', said PM Lee.

As this is expected to swell demand for new flats, the HDB will offer another 25,000 BTO flats next year to meet the demand.

Mr Lee said he has discussed this issue with National Development Minister Khaw Boon Wan and is confident that with these measures, the demand can be met, and the prices of new flats can be kept stable and affordable.

Yesterday's news will bring sharp relief to the middle-income group, also known as the 'sandwich class', who earn in the range of just below $8,000 to $12,000. These couples will now have a wider option of homes - new BTO flats or executive condo units - depending on their income.

Before the change, a couple's combined income had to be below $8,000 a month for them to qualify to buy a BTO flat from the HDB, which is typically 20 to 30 per cent cheaper than a resale flat.

Analysts The Straits Times spoke to said they had seen this move coming, especially after former national development minister Mah Bow Tan revealed in the run-up to the recent general election that the HDB would review the income ceiling.

That announcement was viewed as a surprising policy turnaround, given that he had defended the ceiling as still relevant as recently as two months before.

Some opposition parties criticised it then as a move to garner votes.

Mr Mah's successor, Mr Khaw, has in recent months paved the way for the ceiling to be raised, with a recent blog post noting that the median age of first-time applicants had been increasing.

'There is therefore justification to revise the HDB income ceiling, given the rising age of applicants,' he wrote.

ERA Realty key executive officer Eugene Lim said the latest move could deflect demand for resale flats to HDB's flat queue. Recent statistics from Mr Khaw showed that nearly a quarter of resale flat buyers are first-time buyers, he noted.

'A number from this group, previously unable to buy new flats, will now be able to. This could ease the demand for resale flats and the COV could start stabilising,' he said.

The COV or cash-over-valuation - what buyers pay sellers above a flat's valuation in the resale market - had spiked recently amid tight supply.

Mr Lee in his rally speech also touched on the shortage of rental flats, announcing that the HDB will add 7,000 such units to the market in the next two years.

It will postpone the redevelopment of some blocks under the Selective En bloc Redevelopment Scheme (Sers), and use those as rental units for the time being.

Ms Lee Bee Wah, chairman of the Government Parliamentary Committee for National Development, told The Straits Times the moves are timely.

She said she has noticed more couples appealing to their Members of Parliament on the income ceiling.

'If you push these couples to the private property market, it's a strain on them. They often have aged parents to look after,' she said.

Noting that rental rates have leapt in the open market, she said bumping up the supply of HDB's rental flats would be a boon to those in lower-income groups.

Army regular Raymond Ang, 28, was among those cheered by the news of the revised income ceiling. He and his girlfriend earn a combined income just below the $8,000 ceiling.

He said: 'We were afraid of being promoted and busting this ceiling, so this is really good news for us.'

The couple said they cannot afford the high COVs in the resale market and are hence balloting in as many HDB exercises for new flats as they can.

'It's not easy to ballot for a flat, so the new income ceiling will give us more time to try again,' he said.

Mr Lee did not say when the revised ceiling will take effect, but Mr Khaw is expected to give details today.

jcheam@sph.com.sg

[d.o.g.]

Mr Mah's successor, Mr Khaw, has in recent months paved the way for the ceiling to be raised, with a recent blog post noting that the median age of first-time applicants had been increasing.

'There is therefore justification to revise the HDB income ceiling, given the rising age of applicants,' he wrote.

If HDB flats are truly meant to be affordable for the masses, then new flat prices should be pegged to the median income, since that's the target group of buyers. Annual revisions will enable the flats to always be affordable at X times the annual household income etc.

Although the HDB will have to forego profits or even make losses from its homebuilding program as a result, this should be easily defended both in Parliament (since the HDB is/was meant to be a mass housing program) and during elections (since the electorate benefits directly). Also the installed base is quite large so there is no need to build huge numbers of flats every single year so losses will be limited. The current period is an exception due to undersupply under the previous Minister.

Such repricing of flats will be a move away from the commercial mentality of the past 2 decades (privatisation of GLCs, REITing of government properties, listing of GLP etc) but I personally see no problem with it. If HDB insists on being commercially sustainable, privatise it too and shut down the government homebuilding program. Then there is no need to pretend that the HDB builds affordable homes for the mass market.

[Musicwhiz]

If HDB flats are truly meant to be affordable for the masses, then new flat prices should be pegged to the median income, since that's the target group of buyers. Annual revisions will enable the flats to always be affordable at X times the annual household income etc.

I always found it strange that the statistics had been available for the longest time for median salary range(s) in Singapore, yet somehow MND had steadfastly refused to peg the housing prices to this measure! All the endless arguments about affordability and loan tenure could simply be solved by pegging the housing price to the median income level, to ensure a couple has a decent chance of paying off the loan in say 15-20 years.

With the HDB becoming more "proft-oriented" (despite what the Ministers say), it now seems that the Government is sponging off its citizens and PRs!

[egghead]

I feel that the housing debate cannot be as simple as pricing to median household salary.

How about household size? I see that it is common for young couple applying for 5-room / executive BTO; versus a middle age executive household of 7. They may have similar household income but are their needs similar?

[kazukirai]

I feel that the housing debate cannot be as simple as pricing to median household salary.

How about household size? I see that it is common for young couple applying for 5-room / executive BTO; versus a middle age executive household of 7. They may have similar household income but are their needs similar?

Well, you have a point. But I think what d.o.g. and MW mean is that new HDB flats should have been pegged to median household income or at least some variation of it (e.g. a per household member version of median household income).

Personally I don't think it's feasible or possible for the government to dictate what kind of unit size someone can buy (e.g. households with 2 pax can only buy 3 roomers and households with 6 pax to buy 5 roomers) It doesn't make sense because situations are dynamic (a household of 2 today can become 4 in just a couple of years) whereas BTO supply is relatively inelastic (i.e. takes time to build).

And if the government wants to take on that role (i.e. housing as more of a social good) then they should be as small as possible, probably catering to the lowest 10-20% in income of Singaporeans.

Housing prices will probably rise since SG is a open economy with regards to capital and quite a few might have to become renters but I say better that than an entity that takes 17 years to revise their policies. Otherwise, if HDB is to be open to most Singaporeans, I say let market forces have a big enough influence in determining demand.

[yeokiwi]

And if the government wants to take on that role (i.e. housing as more of a social good) then they should be as small as possible, probably catering to the lowest 10-20% in income of Singaporeans.

Housing prices will probably rise since SG is a open economy with regards to capital and quite a few might have to become renters but I say better that than an entity that takes 17 years to revise their policies. Otherwise, if HDB is to be open to most Singaporeans, I say let market forces have a big enough influence in determining demand.

Hong Kong follows the model of having the private sector developing the bulk of residential properties. I think the Hongkongers are even more unhappy than Singaporeans. The property prices are ridiculously high due to hoarding of units and lands by developers.

Market forces tend to skew towards those with large resources. When a private developer reaches a certain size (Li Ka Shing's empire), it simply dictates the selling price.

HDB should be less ngeow in giving out grants and the grants should be given out in phases rather than one whole lump sum.
Eg. 30,000 for initial purchase
20,000 after 5th yr of occupation
40,000 after 10th yr of occupation

The grants should be kept in CPF special account to provide for retirement needs.

[egghead]

I bring up this one point to highlight the fact that the housing debate is a multi-faceted one. The differences between the two cases can be large. While the young double income graduates worry about their household income exceeding the ceiling, the middle aged executive worries about real housing needs, financially supporitng the family and job security and probably has to worry about more competition (from people of 8-10k bracket) for BTO.

[mrEngineer]

I think the income ceiling is still flawed on the perspective for young couples. There should not be any income ceiling for couples below 30s. The first timer young couple should always be given the chance to buy a new HDB and perhaps have a variable subsidy depending on the income level.

From my peers born in 1984, I have friends in private sector earning above 4.5k-5.5k and with salary review next year 10k income ceiling will not be sufficient. Personally, my partner and I are already slightly above 10k now. If we do not manage to get housing this year, I wil not know how to qualify for next year. Although we can be considered high earners, but what about our savings? With only 2-3 years of working experience, how much can we save to buy private? And are these high salaries sustainable?

The computation of the income in income ceiling is completely unfair. The income computed does not include annual bonuses. I know of plenty govt related jobs that received 4-6 months of bonus but lower base salary able to qualify for the 8k income ceiling instead of private sector jobs where bonuses are miserable (1 months w/o AWS) but higher monthly salary. On top of that, for sales personnel, it is required to calculate the entire year commission and basic salary and average out as monthly figure. If the sales personnel has to include its commission, then why not the govt related jobs include the bonuses as well? Moreover, sales personnels usually have much lower annual bonuses as they should be motivated by earning the commissions. I simply do not understand why HDB do not want to use the annual income figure reported on income tax to assess.

[kazukirai]

Personally, my partner and I are already slightly above 10k now. If we do not manage to get housing this year, I wil not know how to qualify for next year. Although we can be considered high earners, but what about our savings? With only 2-3 years of working experience, how much can we save to buy private? And are these high salaries sustainable?

Hi mrEngineer,

If you're already above 10K, that means you only qualify for EC- which I think is pretty expensive too (my point of reference being that a colleague recently got a 4 roomer at RiverParc Residences, @ $700psf, I estimate he's paying some $700K for that unit).

Therefore, why not consider HDB resale? After all, by Tan Kin Lian's 5 yr annual income affordability benchmark, you and your partner can safely afford a place worth up to $600K- which I believe, can get you most 4 roomers.

[mrEngineer]

Hi Kazukirai,

Thanks for your concern. I know I can still purchase resale flats but I am just pissed off with the fact that there are people (esp those in public sector) who earns more than me in total annual income but can meet the income ceiling requirements due to their extremely high bonuses.

Nonetheless, on the topic of resale flats, I find not only the high COV is ridiculous but the valuation itself is crap. Over 5 years span, the valuation of resale HDB has increased by 30-40%. I doubt we see our salaries increasing that much if you are holding the same job (max 5% for inflation adjustment). In my current view, it makes no sense at all to get resale when there are steep discounts in getting new BTOs given the fact if you are willing to wait for 3-4 years.

Simply said in general, at the current resale prices, it does not make sense for any fresh graduates with less than 5 years of working to purchase resale flats. They will be subjecting themselves to lesser valued homes of almost same product (less room for capital appreciation) and unnecessary higher maintanence of loans.