Saturday, 20 July 2013

HDB (un)affordability: What YOU can do about it.

Singaporeans are (in)famous for being a nation of whiners and complainers. Even the dear Gahmen is no different. We complain about anything and everything. In turn, Gahmen complains about us complaining about them, be it through the MSM or the PAP internet brigade bombarding blogs and forums with detailed-but-rubbish rebuttals.

This post is not to slam anyone. Not HDB, and not the Gahmen. Let's focus on the here and now, and what some of you could do right now to buy a HDB flat that serves your basic needs.

A and I live in a three-room flat. We bought it for under $90k about six years back. It was from the HDB's Sale of Balance Flats scheme, which is still available at time of writing. As you can see for yourself, flats were much cheaper back then, and I remember that for our round, there were probably double the number of three-room units (henceforth abbreviated as "3R") as there are today. The upper price limit which I saw back then was in the low 100s, which is currently the cheapest for the 3Rs available. Woodlands back then had quite a few going for around 80-85k, next to the old CIQ complex.

Fast forward six years, and HDB's asking price of a 3R in our area has increased by about 2.3 times of what we paid. Ridiculous? Sure. Unaffordable? I wouldn't say that. Assuming a combined household income of $2000 (yes, I know some people earn less than that) and some savings, you can have basic renovation and furnishing, minimal outlay of cash for your home installments, and be done with home repayments in just 20 years. However, there are some conditions you'd have to fulfill, and it really doesn't have to be so difficult depending on how you see things.

Limit yourself to 3R

In this world, you can't have your cake and eat it. If you don't earn that much, want a five-room (5R) in a good location, want to pay off your home loan in 15 years, own car, want kids, and want to blame the government for not being able to have it all, I think you should stop dreaming and wake up from LaLaLand.

Life is all about compromise, and there are too many people I know who don't seem to understand the meaning of compromise. If you are willing to compromise on your commute and personal security, among other things, I know of one security guard who owns a landed property in JB and makes a 50km motorbike commute to get to work. He probably earns not more $1.5k a month, but that arrangement works beautifully for him.

Not all of us wish to compromise on our safety, or beauty sleep, or security, in order to live in a 'big house'. Perhaps for you, living in Singapore is still the way to go. As mentioned above, 3Rs are still affordable and if you must have kids and can compromise on space, I do know reasonably well-off friends (as in, families who could afford 5Rs) who live with their parents in 3R. It can be done, and it has been done.

With 3R still selling for as low as $148k without grant, and $113k with grant, what are you waiting for?

Moving in quickly, good choice of flat, good price. Choose ONE

You have the sale of balance flats scheme with flats ready to move in. Among these, you can choose between 'mature estates' and 'non-mature estates'. The prices are there for you to see. No prizes for guessing which is cheaper. You cannot have everything your way.

If you are willing to wait, then BTO is for you. A plus side about BTO is that you get everything spanking new (although I've heard a thing or two about the newer projects which I presume were built by construction companies using inferior materials) and you get the full lease (minus just a couple of years for construction, etc).

Our flat was built in the year we were born, so we had over 20 years of our 99-year lease 'used up' from day one. We can still see the cinder block/brick outline in the walls. The floor was supposedly done up by HDB as it was an ex-rental flat, but the quality was (and of course still is) inferior. The tiles are uneven, and when we moved in, it wasn't an inspiring sight.

This isn't a complaint per se, because our budget was tight then, so we just lived with it. A few hundred dollars of our reno budget went towards re-plastering the hall, so that the walls and ceiling looked nice and smooth. The bedroom had one wall plastered, where our bed and lighting was. The study was au naturale, and doesn't look too beautiful. With furniture, the imperfections became less obvious, and it was a compromise we were happy to live with. "Were", because we are planning to ship out soon. But we still like our current flat!

What we got was a place less than 10 minutes brisk walk from the MRT, and somewhere we could move in within a few months (HDB seems to promise around six months for Sale of Balance Flats, and delivers early). So we are very happy with what we got. Had we about $20k more for reno, all the issues could have been sorted out perfectly too!

Children or space. Choose ONE first

See my reasons for not having children, and A's. It did factor into our buying decision. A 3R is plenty for two, and we have stuff like scuba dive gear, two mountain bikes, and at one point, up to 30 hamsters.

A smaller flat obviously costs less to renovate, takes much less of your precious time to clean and tidy, and can be done up nicely and cosily. I've known a family of four to live reasonably comfortably in a 3R, so it's really about mindset. Having lived in a really large executive HDB and a three-storey terrace house, I'd much rather have holidays and other luxuries, but less living space, than the other way around. And I have been there, done that. So I know what I am talking about here.

Of course, either way, it's a personal choice. It's perfectly fine to choose a very frugal existence in a bigger flat, instead. Just don't expect to be able to have everything, unless you are of 'ministerial caliber'.

You actually can have children AND space. If your income grows

It sounds bloody obvious, but it isn't. Not to everyone I know. In the past, my parents had nagged me to buy a large flat. In fact, they advised me to start with a 5R. I might even have settled for a 4R straight up, until faced with the reality of having to move out there and then, without having much finances. That period of my life is a story for another day.

But the reality is that you can only buy twice directly from HDB, and the second time has to be an upgrade (unless you are divorced or widowed, and a parent). If you have no problems affording the bigger flat from get-go AND you want or need the space, go right ahead! For the rest of us, starting small gives us the option of upgrading. The fact remains that selling your first flat from HDB still produces a tidy profit, which can be used to cover a large chunk of the upgrade cost if required. To put things in perspective, our flat could be sold for close to four times the initial purchase price, six years after we bought it. Conservatively, one could assume a 1.5-2x profit even with the cooling measures in place. Do your math, instead of being fixated by pipe dreams of having your dream home as your first home.

Starting small is also about keeping options open. If you start big and want to encash your flat, your only option is the resale market. Under normal circumstances, you can't buy a 'subsidised' larger flat from HDB and buy a smaller flat subsequently. We all wish we could do that but it doesn't work that way, and I think the reason is fair.

Problems with income ceiling

A post purportedly by someone who used to work at HDB offers some good suggestions. Separately, I have corresponded with people who have 'circumvented' the income ceiling legally by simply having one half of the couple go on course during the time they wanted to qualify for a 3R. On course = no income, in that case anyway. Use your imagination. Since the income ceiling was raised, I think it should not be an issue for those who live within their means.

Ballot number

We got a good number. This one, obviously depends on your luck/blessing. But do your homework, so that you have an idea of which of the remaining flats are suitable.

What we did was visit all the sites offered by HDB to assess the estates and rank them according to preference. Call it blessing or whatever, but we somehow managed to secure our first choice, although our number wasn't good enough to secure it. Somehow, the person who had chosen our unit backed out and we were next in line.

Do note that HDB probably releases units bit by bit, instead of all at one shot. Our neighbours had bought their flat at an earlier Sale of Balance Flats exercise, for about $3k less. So if you miss out this time, you may not have to wait too long for the next exercise, because HDB just might have more flats in the same area. In fact, you can miss twice or thrice, it's still faster than waiting for BTO. Of course, if there are units leftover but you reject, then good luck. You cannot expect to be fussy AND have HDB grant you the increased priority for first-timer applicants or second-timers who didn't even get to choose a flat on their first try.

If you do a detailed recce and speak to residents, you may be able to have a feel of how many more units HDB has in store for subsequent release. No harm trying.

Now, to demonstrate affordability with some numbers...

I tried to demonstrate zero cash outlay with my $2k combined income example, but failed. So I amended my earlier claim to "minimal" cash outlay.

Demonstrating loan eligibility for our $2k couple. Assuming $1k each, for a couple born in the 80s.

That's a total of $434 per month from the OA, with which to pay home installments.

Cash outlay is slightly over $100 per month, for a 20-year loan.
If the example couple increases their loan tenure to 30 years, which is IMHO rather ridiculous:
Voila! 'Zero cash'!

Of course, assumptions were made that the income remains stagnant, no bonuses whatsoever, neither husband nor wife loses their job, interest rate remains at 2.6%, only the 10% minimum downpayment was paid, etc.

And other questions could be raised, like what kind of a life can one have at $2k combined income? Is such an environment conducive to having the 2.1 kids that the Gahmen wants us to have? There is no end.

As Vivian famously said:
"How much do you want? Do you want three meals in a hawker centre, food court or restaurant?"

My point is that, sometimes we have no choice. Just 'eat at a hawker centre first'. And if you have a problem with that, just remember why this is so.

- S


  1. This is the best writings I have read for a long time. No distracting pictures, just honesty and pure genius. I really love this. A property is the most expensive purchase for most, so it has to be taken with a lot of extra care. It is odd that we haggle over a dollar but don't mind if we are paying for extra space that we don't need or have no plans to monetize it by renting a room out. The common thinking is that a larger profit will be made in a future sale. But that seldom happens because we find ourselves unable to sell up our only place to live. You are right, first home, go small.

  2. Great insight. Screenshot many parts for SO to read about getting smaller units at better locations.