Khaw Boon Wan: Prices of new HDB flats remain affordable

Khaw Boon Wan:

Replying to questions in Parliament today (5 Feb), Minister of National Development, Khaw Boon Wan said the prices of new HDB flats remain affordable.

They are set based on the typical household income of families, the market price of similar resale flats in the vicinity, and the flat size and location

He assured that the core principle behind the pricing of new HDB flats remains affordability.

He added that HDB does give substantial price discount to eligible first-time home buyers. Housing grants for first-time Singaporean buyers can be as high as $60k.

A MP asked, “If I heard correctly just now, minister mentioned that the resale price of the flats in the vicinity is taken into consideration. I thought recently minister mentioned the price of new BTO flat has just been de-linked from the resale price?”

Mr Khaw said, “The member has not heard wrongly. Both statements are correct. We take into account those factors, and we apply a discount, and then further we give extra grants to the members. But in recent months because when I de-linked – the meaning of de-linking means, I vary the discounts, so that the prices can maintain, steady.”

In the 70s, a graduate’s starting pay was around $1,000 per month. Then, in HDB Marine Parade Estate, prices of 3-room, 4-room and 5-room new flats were $17,000, $20,000 and $35,000 respectively. A young graduate then can easily afford a 5-room flat at a Price-to-Annual Income ratio, also known as the Affordability ratio, of slightly less than 3 (i.e, 3 years of annual income to match the price of the house).

The World Bank considers a ratio of 5 or under as affordable for local residents, while the United Nations have set the standard lower, at 3 (see also Link). Anything above 5 is not considered affordable

By 1990, the average price of 5-room new flats was $70,000 and a young graduate could get about $2,000 per month. The Affordability ratio in this case is still less than 3.

However, young graduates nowadays will have no such luck.

From the online brochure of HDB Jul 2012 BTO launches [Link], the cheapest 5-room at Keat Hong Axis (Choa Chu Kang) is $300,000 while the cheapest one at Waterway Cascadia (Punggol) is $380,000 (prices are inclusive of grants).

According to the recent Hay Group’s Fresh Graduate Pay Survey 2012, the average starting monthly pay for a general degree holder is $2,678 (‘Higher starting pay for current fresh grads?‘).

Hence, if the fresh graduate decides to buy a new 5-room flat in present times, the Affordability ratio works out to be 9.3 for Keat Hong Axis and 11.8 for Waterway Cascadia, certainly way above what the present batch of fresh graduates can afford.

The fact is, previously, fresh graduates CAN afford to buy a new 5-room flat immediately after their graduations. The present batch of fresh graduates CAN’T. Quality of life seems to be regressing under the Lee Hsien Loong govt.

Minister Khaw seems to have conveniently forgotten about the past.

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Ref:TREmeritus

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