New HDB flats more affordable now

River Vista @ Kallang, an HDB project. Most new flats still cost more than four years of an applicant's salary, but the picture improves if overall household incomes are considered, not just those of applicants.
River Vista @ Kallang, an HDB project. Most new flats still cost more than four years of an applicant's salary, but the picture improves if overall household incomes are considered, not just those of applicants.ST PHOTO: NG SOR LUAN

Prices relative to applicants' incomes have fallen

New Housing Board flats have become more affordable relative to applicants' household incomes, compared with last year.

But while the gap is closing, National Development Minister Khaw Boon Wan's target of having new flats priced at about four times the applicants' median income has not been reached.

When Mr Khaw set that target last year, the price ratio was about 5.5 times annual salary. Now it is lower for all flat sizes.

A new two-room flat is the most affordable. At $55,000 after grants, it is less than three times the median household salary of such applicants (see table).

After grants, three-room flats cost 4.57 years of salary. Four- and five-roomers are less accessible, at 5.26 times and 5.36 times applicants' salaries respectively.

These calculations are based on average Build-To-Order (BTO) flat prices in non-mature estates, given by the Ministry of National Development in a September parliamentary reply, and applicants' median income as given in the September BTO.

High BTO prices caused unhappiness around the last general election in 2011. At the time, they were linked to HDB resale prices, which had been soaring.

After the elections, delinking BTO prices from the resale market stopped them from rising, as Mr Khaw noted during last year's Committee of Supply debate.

"We can now pause and see what else we can do to bring BTO prices in non-mature estates to, say, around four years of salary as it was before the current property cycle started," he said then.

Though the relative prices of BTO flats have fallen since Mr Khaw's speech, most of the flats still cost more than four years of an applicant's salary.

But experts pointed out that the picture improves if overall household incomes are considered, not just those of applicants.

Last year, the overall median household income was $7,030 a month.

The price of the median house type - a BTO four-roomer - was $295,000, or about 3.5 years of income, noted Singapore Management University economist Phang Sock Yong.

For resident employed households, which mainly exclude retirees, the median income was even higher, at $7,872 a month.

Using this as a reference, the price of $386,000 for a five-room flat "looks reasonable" at about four times one's annual salary, said National University of Singapore associate professor of real estate Sing Tien Foo.

NUS economist Tilak Abeysinghe prefers to compare house prices with lifetime income, with a price under 30 per cent considered affordable in the long run.

"A crude comparison indicates that a house price four times the annual income falls in the highly affordable range," he said.

Even the five-roomer, at 5.36 times the annual income, falls within the affordable range for that income group, he added.

Nor should we expect all flat types to be equally affordable by this ratio, said experts.

Larger flats cost more times one's income because public housing is priced "according to ability to pay", said Prof Phang.

Housing affordability is not just about setting prices, but encouraging a match between house type and household income level, said Prof Sing.

"Lowering housing prices for larger flats is not a good strategy or policy... it may induce some lower-income households to buy large houses, which could further distort the housing price to income ratio," he said.

janiceh@sph.com.sg