Why HDB Income Ceiling Should Not Be Revised Again

Just recently someone made a comment and asked for the HDB income ceiling to be revised again.

There may be merits to the case but I feel that the HDB income ceiling should not be revised for the following reasons:

• Developers of Executive Condominiums (ECs) benefit

By increasing the income ceiling, developers benefit as the pool of prospective buyers is enlarged. Prices in the property market now are constrained by many factors notably the Mortgage Service Ratio (MSR) and Total Debt Servicing Ratio (TDSR). Even with the MSR, prices of ECs can theoretically be priced at $1,000 psf if there are buyers (see my earlier post in October 2014 - How High can EC Prices Go?). If the income ceiling is raised, it means that more of the household income can go towards housing and gives the developers more room to raise EC prices when the market is buoyant. For the buyers, it is back to square one again as they will be squeezed by the higher housing loan.

• Housing is a personal lifestyle choice

Let's face it. Housing is a personal lifestyle choice. Similarly for cars. There are many people who aspire to own a private condominium or EC. I have seen many people with a household income of $6,000 to $8,000/month applying for an EC. And they apply for the largest or best (ie. top level or best view) unit they like. These units cost between $1 and $1.3 million. Some of these people own a car and maybe have a domestic helper to help. This group of people are likely to stretch their spending to the max and complain that the cost of living is very high. I shudder at the thought of what will happen to their family when there is a loss of income.

• The beneficiaries are a small pool of people

By raising the income ceiling, you are benefiting a small group of people. Worse still, you allow the higher income people to compete for public housing. The increased demand for public housing will put a strain on public resources which can be better channelled towards social spending.

• Contrary to some Government policies

The Government is encouraging people to get married earlier and has been controlling the housing prices to lower the stress on families. Couples who apply for a HDB flat before age 30 need only put a downpayment of 5% for their flat. By increasing the income ceiling, couples may put off their wedding to a later date since there is more room for their income to rise. Getting married later will affect the chances of conceiving although having a baby or babies are personal choices. So it is not in line with other Government policies.

• Repercussions on Government subsidies

Many if not most of Government subsidies are based on income for example housing grant, childcare etc. With the revision in income ceiling, should all the income ranges for these subsidies be revised as well? If yes, where will the money for these expenditures come from? More taxes - direct and indirect?

• Upsetting the balance in the property market

While the group of beneficiaries from a revised income ceiling is small, it can upset the balance in the property market. More people will try to apply for a BTO flat instead of buying from the HDB resale market, EC or private market. Some sellers of HDB resale flats might have to reduce their asking prices to sell. If HDB resale prices weaken further, existing owners will not be happy and this affects their ability to upgrade. The other spectrum of the property market like EC or private property gets affected as well. It will further affect the weak property market.


The revision in income ceiling can be a vicious circle. It may increase property prices, put a strain on public resources and possibly upset the balance in the property market. It should not be done and I hope the Minister for National Development does not consider it.

How High Can EC Prices Go?

Last week I discussed about the high return rate among Executive Condominium (EC) buyers. Today I shall look at how high can an EC unit on a per sq ft (psf) basis be priced.

The latest EC project to open for e-applications or e-Apps is Lake Life at Taman Jurong. On 6 Oct 2014, it was reported that 1,200 applications was submitted for the 546-unit project. The strong turnout was no doubt aided by the Government plans for the Jurong Lake district.

But what was eye-popping was the psf quoted for the EC project. At $880-$890 psf, this will be the most expensive EC project to-date.

Type	Size (sf)	Quoted Price Range (psf)	Estimated Price (Top Range)
5 bedroom	1,604-1,711	$880-$890	$1.42-$1.52 million
4 bedroom	1,195-1,701	$880-$890	$1.06-$1.51 million
3 bedroom	1,023-1,711	$880-$890	$0.91-$1.52 million
2 bedroom	743-969	$880-$890	$0.66-$0.86 million

Source: Lake Life e-brochure, news reports, Real Property Advisory Singapore


Can a family with an income ceiling of $12,000/mth afford the EC?

For a couple age 30 years, their affordability would look like this:

Household Income	$12,000/mth	$10,000/mth	$8,000/mth
Mortgage Service Ratio (30%)	$3,600	$3,000	$2,400
Total Debt Servicing Ratio (60%)	Pass	Pass	Pass
Loan Tenure	30 years	30 years	30 years
Interest	1.50%	1.50%	1.50%
Loan Amount	$1.04 million	$869,000	$695,000
Purchase Price (80% loan)	$1.30 million	$1.09 million	$869,000
Size of 3 bedroom	1,023 sf	1,023 sf	1,023 sf
Maximum psf	$1,271	$1,065	$849

Source: Real Property Advisory Singapore


For a HDB upgrader, with more equity on hand, their affordability would look like this:

Household Income	$12,000/mth	$10,000/mth	$8,000/mth
Mortgage Service Ratio (30%)	$3,600	$3,000	$2,400
Total Debt Servicing Ratio (60%)	Pass	Pass	Pass
Loan Tenure	20 years	20 years	20 years
Interest	1.50%	1.50%	1.50%
Loan Amount	$745,000	$620,000	$497,000
Purchase Price (70% loan)	$1.06 million	$886,000	$710,000
Purchase Price (60% loan)	$1.24 million	$1.03 million	$828,000
Size of 3 bedroom	1,023 sf	1,023 sf	1,023 sf
Maximum psf (60% loan)	$1,212	$1,007	$809

Source: Real Property Advisory Singapore


Looking at the numbers above, theoretically the developer can price their project at above $1,000 psf if there is no mortgage service ratio (MSR) and maximum loan tenure limit.

To afford the most expensive unit, the family has to have plenty of liquidity so as to fulfill the MSR.

Whatever it is, the applicants will be busy calculating how much cash they can afford to put for the downpayment so that they can catch the potential upside from the rejuvenation of Jurong Lake district.

Will the Buyers Return in Force for Lakeville?

Tough days are coming and developers know it. No longer are the days where you can achieve sales of more than 50% during the launch. The Santorini for one, sold only 40% or 80 units of the 200 units launched for sale.

Analysts blamed the Total Debt Servicing Ratio (TDSR) for the quieter market. But I would say most of the demand has been soaked up. The TDSR helped to arrest price increases and return some sanity to the market.

More effort and even greater product differentiation is needed to move units. An article by Business Times on Tuesday (see below) highlighted that developers are spending or doing more marketing to sell their projects. Some examples are listed below.

• Seminars
• Multiple estate agencies

I have seen more TV ads placed by one of the largest developers in Singapore. Another foreign developer even invited the public to name their executive condominium project - not one but two.

All eyes are on Lakeville now which is expected to be launched soon. The developer said the average selling price is between $1,250 to $1,350 psf on balloting day. If sales disappoint, the negativity will hit the market and perhaps trigger even lower prices for other projects yet to be launched.

New Cooling Measure on the Property Market

Although that the new Total Debt Servicing Ratio (TDSR) have been done and dusted and even well covered by the media, we feel that the analysis in the media have missed out certain pertinent points even to the extent of dismissing the new measure as mild. Some analysts even say it is not a cooling measure. How can we say it is not a cooling measure when it will affect demand?

• As an analyst, I have brought up the issue of financial institutions granting loans where the debt servicing ratio (DSR) was as high as 60% and different financial institutions have different ways of assessing the ability of borrowers to repay the loan to the media.

• The Monetary Authority of Singapore imposed a mortgage servicing ratio (similar to DSR) of 30%/35% on the HDB market on 12 January 2013. It is a matter of time this is extended to the private residential market. 

• This measure has bite in our opinion. The TDSR takes into account all the outstanding debts a borrower has. These debts can include car loans, credit card installments, study loans and all kinds of debts the borrower is repaying at the moment.

• Unlike previous cooling measures where the Government has hinted that it will be temporary, Minister Khaw has said that this measure will be permanent because the financial institutions did not have a structured way of assessing the ability of borrowers to repay loans. And the ratio can be lowered too!

• The interest rate used to compute TDSR is not the current low rate of 1% but the medium term rate of 3.5% for housing loans. This means to comply with the TDSR of 60%, the borrower has to cough up more cash, borrowing less from the financial institutions.

• Guarantors have to be the co-owner of the property. This effectively closes the loophole where cash rich parents used their child’s name to buy a property to qualify for a 80% loan and avoid paying the Additional Buyer’s Stamp Duty.

• Demand will come down for sure be it near term or long term.

• Interest rate will go up. Why? Imagine a financial institution has $1 million to lend. When the borrower can borrow up to 80%, the bank need only to find one or two borrowers to take up the $1 million. The tighter loan to value ratio implemented previously means the financial institution means the financial institution has to source for two to three borrowers to take up the $1 million. Now with the TDSR, the financial institution needs more than three borrowers to take up the $1 million. But the number of borrowers will decline with the new TDSR as well. This means to maintain the profit margin (which is already razor thin now), interest rates have to go up.

• Developers will build smaller units to keep them affordable to buyers. Currently the average unit size in new launches is around 81 sq m in the first six months of 2013. This is expected to go down to 70 sq m which is the minimum set by the Urban Redevelopment Authority.

• Resale market will see dip in demand as their unit sizes are bigger than the new launches.

What will be the impact on the property market?

The Government still has a few more tricks up their sleeves. If I may guess, they might require buyers to have the full cash in their bank account before they can buy from new launches. Some buyers do not have 50% cash in their banks when they take a second property loan. They may have 40% cash and because payment to the developer is on a progressive mode, the remaining 10% will be saved up over a period of one to two years.

The thing to note is this measure is not the last and it will stay even if the market corrects!