Thursday, 5 May 2011

Are HDB flats (public housing) affordable?

There’s lot of intellectual discussions on this interesting topic ever since MBT offered his viewpoint.

One quick way to find out:

Look at the take up rate of new Built-To-Order HDB flats. If all sold out, then the facts prove MBT right. But if there are lots of new HDB flat left unsold, then MBT is so “blond”. Let the facts speak for themselves. Or?

If we are not buying a HDB within this year, then the discussions are merely shooting the breeze NATO kind of kopi-tiam talk talk.

For those who must locate to a HDB flat this year (marriage or can’t stand your family), you would like to say: “Show me the money!” 

With this target group in mind, I would like to share my real life experience for your reading pleasure and hope it can help you cut to the chase.

My first property purchase

When I hit 35, I bought my 3 room resale HDB (single mah!) in Queenstown at the end of 2003. I paid $125,000 for it.

To rent a 3 room HDB in Queenstown during 2004 is $1,000 per month.

I took the max 30 years loan of $100,000 from OCBC (Yup, owe bank until 65!). But the monthly bank repayment is $450 per month.

Fast forward to 2011, what’s the rent for a 3 room HDB in Queenstown now?  Around $1,800 or more? My monthly bank repayment is now $500.

Now you understand why I use the word locate above. There’s no ifs or buts. You have to move out within this year – must either rent or buy. Period.

If new HDB flat with 30 years loan is cheaper than renting, buy! If renting is cheaper than buying with 30 years loan, rent!

And if you can’t afford to rent or buy, then the focus is not whether new HBD prices are too high. It’s whether you should consider looking at a smaller HDB flat or accepting a place further from the city centre.

If still cannot afford, then perhaps it is more self-reflection why your cohorts can afford you cannot – caution, this may hurt.

Perhaps you could explore HDB ownership schemes for the “disadvantaged” and/or talk to your MP? Take action. You need a place within this year remember?

What talking him?

I was scratching my head when I read in a blog that 99 lease cannot be counted as asset…… That means when it’s time for him to upgrade or downgrade – he will give it for free? Maybe it’s my lack of formal education, but with great humility, my instinctive response is: “What talking him?” 

Of course he is technically right. So is comparing the “wonderful” returns of a whole-life policy when we cash it at 100 years old. In the long run, we are all dead.

By the way, how many in Singapore can afford free-hold and 999 years lease properties?

Wait, not that simple!

Ah! Some alert ones may say but if we take a 30 years loan, will it not incur lots of compound interests?

We have already settled the can afford or not equation. Now this loan interest thing is another thing else. It’s more about “heart pain” and being blinded by percentages….

Don’t pay any loan interests

If paying bank interests hurts, then the best solution is don’t take any bank loan at all! Pay in full. No? See affordability is not a problem for you mah!

Now let’s do some scenario playing using my personal example. If I don’t have the extra $100,000 cash/CPF I needed in 2003, and I don’t want to take a bank loan; I have to save first then pay in full.

Let’s assume I can save $20,000 per year. In late 2008, I happily take my $125,000 to the HDB resale market, what is the resale HDB price during 2008 for a 3 room flat HDB in Queenstown?

Exactly! Penny wise; pound foolish…..  

It works the same if you compare 2003 new HDB prices versus 2008 prices.

Pay yourself first

OK, let’s say I take a 10 years bank loan instead of 30 years, my monthly bank repayment is $1,500? (I using simple logic to make things simpler; don’t split hairs hor)

30 years loan = $500 per month; 10 years loan “pretend” = $1,500 per month.

Let’s assume $1,500 is my savings every month. Taking a 10 years bank loan would mean I pay the bank first every month, I leave nothing for myself.

But if I take a 30 years bank loan, I would have $1,000 every month for myself first, while the bank gets the remainder $500 second.

This $1,000 I can accumulate for my opportunity fund (Imagine the pain when opportunity knocks during 2009 but I no money to invest!), have an emergency fund to take care of life’s uncertainties, give myself a treat from time to time – travel or buy toys (Yes, grown man still plays with adult toys you know? Hey! Not that kind lah! I meant handphones, notebooks, etc.)

So what we save in loan interests may cost us more in non-monetary terms. Life is not always about money.

Would we want the words on our tombstone to read: “Joe saved/made $XXX, XXX, XXX”? (I got read “A Christmas Carol” by Charles Dickens)

Timing the market

Of course 2011 is not 2003. Another dimension to consider is whether new HDB prices will go down in the coming years. This you can research yourself - how many times have new HDB prices dropped over the previous years? My promotion of financial literacy is self-help. Beware of free advice – trust but verify yourself.

But if you are considering resale HDB flats, do tread carefully. Those who bought at the top prior to 1997 Asian financial crisis have to wait 10 years to break-even.

This is a totally different ball game. It’s trying to time the property cycle and your guess is as good as mine! Good luck to you!

If you think prices will drop, rent first and hope it does then buy!
(You so clever!)

If you think prices will increase, buy and pray you are right!
(You so brave!)

Inflation protection

One last parting word:

If we believe inflation will get worse in the coming years, a new HDB flat that rise in valuation in tandem with inflation, and an outstanding loan that gets “cheaper” and “cheaper” since money is worth less and less – is a 30 years bank loan still horrible?


  1. insightful and humourous views on this hot button issue! Thanks!

  2. Hi SMOL,

    You make a lot of sense...i esp love the part on the fact that saving money and neglecting the present needs :)

    Looks like you're building up a reputation in the blogosphere :)

  3. Hi Isaac,

    Thanks! I'm just having fun and at the same time doing my bit to liven up our ecosystem - it's not always doom and gloom.

    LP, you are too kind!

    I've been receiving so much from the quality of discussions at your cbox tavern and blog. Slowly I am finding my niche to contribute back.

    I can share my experience and perspective from someone who started work at 16.

  4. Wow! Flats in Singapore are so cheap in 2003, what's the price now? Over here, you can get nothing with $150,000+. Average house price in Sydney is over $650,000. And that would be very old cottages with limited space. A decent house or apartment will be around $1.6 millions for 3 bedrooms.

  5. Hello Ah Siang

    A 3 room resale HDB is now around SGD 340,000 in the Queenstown area where I am staying (nearer to city centre).

    Lesser if further from city centre.

    Yes, like US and UK properties now, property prices were "cheap" during 2003 when we were having a slowdown in Singapore due to SARS and Iraq war. Those who bought Singapore properties from 2002 to 2004 basically doubled - even more for private properties!

    Australian property is not cheap since you are not much affected by the recent financial crisis of
    2008. Commodity boom at your end!

    It's a good time to be in down under now. Strong AUD makes travelling overseas cheap too!

  6. Hi SMOL

    I like this : tombstone to read: “Joe saved/made $XXX, XXX, XXX”?

    1. Frugal Daddy,

      Just poking fun at those who practice extreme fanatical financial independence.

      Turn out they are just money-grubbers.

      Caterpillars who are so busy getting fat that they have forgot to become butterflies...

    2. Hi SMOL

      Good reminder for myself too. :)

  7. Very enlightening post. Apparently I haven't read it before splitting hairs lol.

    1. Rainbow girl,

      What to do?

      I no study much, and no paper qualifications.

      So must find short-cuts (heuristics) to help me decide on the fly.

      Sometimes speed in decision making can be more important than "getting it right" ;)


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