Oral Answer by Ministry of National Development on affordability of HDB flats and measures to ensure housing remains affordable for Singaporeans

Oct 4, 2022

*3532. Mr Yip Hon Weng: To ask the Minister for National Development given that salaries within the 30th percentile and below are significantly less compared to the median percentile on the salary scale (a) whether affordability of HDB flats should be pegged to (i) median household incomes or (ii) other income or wealth indicators instead; and (b) if so, what will these be.

*3533. Mr Yip Hon Weng: To ask Minister for National Development (a) what measures are being taken to address the growing sentiment that Singapore property market is unaffordable for the masses; (b) how will the recent adjustments to manpower policies impact property prices; and (c) beyond existing cooling measures, what else will the Government do to ensure housing remains affordable for Singaporeans if housing market conditions do not improve.

Answer:

1        Mr Speaker Sir, question 2 on today’s Order Paper on the issue of marriage and parenthood is also relevant to this question on public housing affordability.  As such, may I request that the answers to questions 1 and 2 be provided first, and the supplementary questions from MPs on both questions be taken together thereafter.

2        This reply will also respond to the Member’s question for 3 Oct on affordability benchmarks for public housing.

3        Over the past 2 years, there has been strong, broad-based demand for housing, including in the HDB resale market. There are a number of reasons for this. First, we have seen more households forming as the echo-boomer generation – those who are in their 30s today – getting married, especially with the easing of COVID-19 measures^[1]. Next, we also see societal trends shifting to smaller households, as young couples, singles, as well as adult children choose to buy their own homes instead of living together with their parents^[2]. These aspirations for more personal space may have been accentuated during the pandemic.

4        Third, more homebuyers have also turned to the resale market because of longer waiting times for BTO flats due to construction delays caused by COVID-19. To be clear, foreigners are not allowed to buy HDB flats and would not have contributed to the increase in demand for public housing. They also account for only a small proportion of overall private residential property demand^[3].

4        These demand factors, alongside the previous low interest rate environment that made it cheaper to service a housing loan, have put upward pressure on HDB resale flat prices. Since the Government implemented a broad package of measures in December 2021, the HDB Resale Price Index has increased by 5.3% in 1H2022. We understand the concerns about housing affordability, and have been carefully monitoring the housing market.

5        We are committed to keeping public housing affordable and accessible, to meet the housing aspirations of Singaporeans, and to help Singaporeans own their home. This is a key national priority, and provides the basic foundation for us to raise our families, bring up our children, and build strong communities.

6        That is why we continue to build and sell new HDB flats at prices below the market as they come with significant subsidies. The average price for a new 4-room flat in a non-mature estate has remained relatively stable at $341,000 in 2019 and $348,000 in the first three quarters of 2022. We have managed to keep prices relatively stable as market subsidies have been increased, to keep new flats affordable. Eligible first-timer buyers can also receive Enhanced CPF Housing Grants (EHG) of up to $80,000, with more help for lower-income buyers.

7        For new flats in prime, central locations, we have introduced the Prime Location Public Housing (PLH) Model which provides additional subsidies on top of the substantial subsidies already provided for Build-To-Order (BTO) flats. This is to keep flats in such locations affordable for a wide range of Singaporeans.

8        The Member has asked if we should have affordability benchmarks and if these should consider families at the 30^th percentile of income, instead of just median income. Our affordability benchmarks do not only consider median incomes, as we provide a wide range of BTO flats for first-time homebuyers with different housing needs and budgets. Take for example a first-timer household earning about $5,000, which is slightly less than the 30^th percentile of resident household incomes. They may buy a 4-room flat in any of the three non-mature estate projects in the recent August 2022 BTO exercise, namely in Woodlands, Jurong East, and Choa Chu Kang. These projects come with typical prices comparable to or lower than the average price of BTO flats in non-mature estates at about $348,000. After factoring in the $45,000 in grants they would receive, they will need to use 23% of their monthly income for their housing loan, which means they will be able to service their mortgages from their monthly CPF contributions with no cash outlay. This also works out to a home price-to-income ratio of around 5 for this family, which means the price of their home is about 5 times their annual household income. 

9        For a first-timer couple who are both fresh tertiary graduates, a typical combined starting salary would be about $6,500. They would receive $30,000 in grants, and would only need to use 18% of their monthly income for their housing loan, to afford the same new 4-room flats in any of the non-mature estate projects in the recent August 2022 BTO exercise, with typical prices comparable to or lower than $348,000. This works out to a home price-to-income ratio of around 4 for this family, and they would also be able to service their mortgage fully from their CPF contributions.

10       As a broad comparison, the ratio of the median home price to the median household income in other comparable cities such as London, Los Angeles, and Sydney are much higher, at between 8 to 15 times. In Hong Kong, it is more than 20 times.

11       For resale flats, the Government provides significant housing grants of up to $160,000 to ensure that resale flats remain affordable for eligible first-timer families. We review our grants regularly to ensure that resale flats remain affordable.

12       Generally, the mortgage servicing ratio (MSR), which is the proportion of monthly income used to service mortgage instalment payments, has remained below 25% for most new and resale first-timer flat buyers taking on an HDB loan. This is well below the international benchmark of 30%-35%. This means that most first-timer buyers can service their housing loans using their monthly CPF contributions, with little or no cash outlay.

13       The Member also asked what the Government will do to ensure housing is affordable for Singaporeans in the wider Singapore property market. We have announced on 30 Sep 2022 measures to moderate demand in the HDB resale market to ensure that HDB flats continue to remain affordable, as well as measures to encourage prudent borrowing amidst the rising interest rate environment.

14       First, we introduced a wait-out period of 15 months before private property owners are allowed to purchase a non-subsidised HDB resale flat. This measure aims to moderate demand and slow the momentum of price increases in the HDB resale market, by deferring demand from private property owners, so that HDB resale flats will continue to be an affordable option for first-time HDB flat buyers. We intend for this measure to be temporary and will review this, depending on overall demand and market changes.

15       Previously, private residential property owners looking to buy a non-subsidised HDB resale flat do not have to serve a wait-out period, but they will need to sell their private properties within six months of the HDB flat purchase. This group accounts for about 1 in 10 resale flat buyers in the past five years. Private residential property owners generally have more financial means to buy resale flats, as compared to first-time home buyers or existing HDB-owners. Some may not even need to take loans to complete their purchase. They therefore tend to pay higher amounts of cash-over-valuation when buying resale flats. Having said that, we recognise that not all private residential property owners are in the same situation. Some seniors need to sell their private property and move to an HDB flat to strengthen their retirement adequacy. So, we are exempting seniors above 55 who are moving from a private property to a 4-room or smaller resale flat from the wait-out period. We also know that there are private  residential property owners, whatever their age, who face genuine housing needs or who have to sell their homes because of extenuating circumstances such as financial difficulties. They should approach HDB for assistance, and my colleagues will see how best to support them on a case-by-case basis.

16       Next, we also recognize the challenges posed by the rising interest rate environment. From 2013 to 2021, we have enjoyed exceptionally low interest rates, especially from financial institutions. But market interest rates have risen over the last year, with further increases expected over the medium term. This will increase borrowing costs for those who are buying a home, and for those who are servicing existing home loans pegged to floating rates. Therefore, we have decided to move now to safeguard home buyers, and ensure they are able to service their long-term home loans. We have thus implemented the following measures to tighten the maximum amount that can be taken for home loans and ensure prudent borrowing.

17       We have raised the medium-term rate floor used under the Total Debt Servicing Ratio and Mortgage Servicing Ratio frameworks to compute a borrower’s maximum loan quantum for residential property loans granted by private financial institutions from 3.5% to 4% per annum. The actual rates that private financial institutions charge for home loans will continue to be determined by them.

18       Next, HDB will introduce an interest rate floor of 3% p.a. to compute a borrower’s eligible housing loan amount. This is 1% below the MAS rate floor for private financial institutions. This will reduce the maximum loan quantum for home buyers taking HDB loans but will not increase the monthly instalment borrowers have to pay, as there is no change to the HDB concessionary interest rate of 2.6%.

19       We have also lowered the Loan-to-Value (LTV) limit for HDB housing loans from 85% to 80%^[4], so that home buyers borrow prudently in view of the uncertain economic outlook and rising interest rate environment. This is not expected to affect first-timer and lower-income flat buyers significantly, as they receive housing grants of up to $80,000 when buying a subsidised flat directly from HDB, or up to $160,000 when buying a resale flat, and can tap on their CPF savings to pay for the flat purchase.

20       These measures are necessary as property loans are long-term commitments and often a household’s largest liability. The higher floor rates ensure that today’s borrowers take loans that reflect the likelihood of rising interest rates and avoid overstretching themselves. If we do not move now, we may find people defaulting on their mortgage payments and running into housing difficulties. This is already happening in other countries.

21       Beyond the cooling measures, we recognise that there is genuine demand from homebuyers. We have therefore also increased supply in both public and private housing markets. For HDB, we have ramped up our BTO supply and are on track to launch 23,000 flats per year in 2022 and 2023, or a 35% increase from 2021. We are prepared to launch up to 100,000 flats in total from 2021 to 2025, if needed. We also endeavour to launch more projects with shorter waiting time of less than 3 years where possible. The supply of private housing on the Confirmed List of the Government Land Sales (GLS) programme has also been increased by 75% from 2021 to 2022. We are prepared to increase supply further to meet demand for private homes, if needed.

22       The Government will intervene and do what is necessary to ensure a stable property market, and affordable public housing for Singaporeans. This has been our approach and should come as no surprise. We will do so decisively and carefully, being cognizant of the uncertain global economic outlook and rising interest rates, which will affect home prices and contribute to uncertainty in our property market. We will continue to monitor the market and adjust our policies as necessary on both housing demand and supply, to ensure that prices move broadly in line with economic fundamentals. This Government is committed to the stability of the wider Singapore property market, and to keeping public housing inclusive, affordable, and accessible to Singaporeans.