Are HDB flats affordable

The Workers Party proposed pegging the HDB flat prices to the Median Household Income. What does that mean?

Here's what I worked out.

First I need to know the price of HDB flats.

From a 24th Mar 2011 Press Release

Boon Lay Fields

• $168,000 to $199,000 for a 3-room flat;
• $270,000 to $321,000 for a 4-room flat; and
• $334,000 to $391,000 for a 5-room flat 

Compassvale Ancilla

• $77,000 to $112,000 for a Studio Apartment;
• $194,000 to $232,000 for a 3-room flat;
• $303,000 to $359,000 for a 4-room flat; and
• $375,000 to $444,000 for a 5-room flat

Eligible first-timers with a monthly household income of $5,000 or less can apply for the Additional CPF Housing Grant (AHG) of up to $40,000, which can be used to offset the initial down-payment.

This is the AHG scale. The AHG has been enhanced with more grants, and a higher cap (from $4000 to $5000).

Average Monthly Household Income	Additional CPF Housing Grant (before 6 Feb 09)	Enhanced Additional CPF Housing Grant (from 6 Feb 09) **
$1,500 or less	$30,000	$40,000
$1,501 - $2,000	$25,000	$35,000
$2,001 - $2,500	$20,000	$30,000
$2,501 - $3,000	$15,000	$25,000
$3,001 - $3,500	$10,000	$20,000
$3,501 - $4,000	$5,000	$15,000
$4,001 - $4,500	-	$10,000
$4,501 - $5,000	-	$ 5,000

According to SingStat, the median income of a resident household is $5000 per month.
Scenario A: Couple earning $3000 and $2000 pm with combined CPF in their Ordinary account of about $30,000 after working for about 3 to 4 years.
They don't intend to use any cash top up for their mortgage payment. Maximum Loan is $249,700. They are eligible for AHG of $5000, plus the $30k in their CPF, they can afford a flat up to $285,000 which is within the range of a 4-rm flat in Boon Lay.

Scenario B: Same couple, but this time they intend to put up cash up to $1000 a month for their mortgage. Maximum Loan they can take is $499,500. With the AHG of $5000 and the $30k in their CPF, they can afford up to $535,000. Which means they can buy any flat up to a 5-room flat (but they will need cash savings to top up the deposit for flats over $350k as the CPF and AHG only covers up to that price).

If the couple wants to shorten the loan duration to 20 years, they will be able to get a $373,900 loan, and afford up to $409k flat or most 5-rm flats.

Scenario C: The same couple but this time they take the middle road and just put together $500 cash each month for the mortgage. They can get $374,600 in loans, plus the AHG and the CPF, they can afford to pay $410k and buy most 5-rm flats. If they cut their loan duration to just 20 years, they can get a $280,400 loan and afford to pay up to $315k for a flat or most 4-rm flats.

It would seem then, that the current policy provides the households below the median with additional housing grant, and together with the pricing, a young couple (one grad and one diploma-holder) exactly at the median could easily afford a 3-rm flat, or a low-end 4-rm flat without needing to stump up cash top-ups every month. 

Should they choose to scrimp a little, and top up with $500 cash each month, they can even afford a 5-rm flat. If they prefer to shorten their loan duration to just 20 years, they can still afford a 4-rm flat.

The PAP should tell the WP that HDB prices are already priced for affordability for Median household income.

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