Someone asked me about my recent interest in HDB flat. This is part of my research for my financial planning book.
In my book, I advised that a person should set aside up to 25% of their family income towards the purchase of a home. They should not exceed 25%.
I decided to carry out some research into the price of HDB flat, as it affects 85% of the people in Singapore. If they are able to keep their purchase commitment to an affordable level (i.e. 25% of their family income), they would be able to have sufficient savings for other purposes. This is explained in my financial planning book.
My book will be sent for printing in January and will be available in the bookstores in March 2010.
Thursday, January 7, 2010
Are home buyers prudent?
I carried out a survey in my blog about the price of HDB flats. 50 people replied. 47% replied that their monthly repayment to the housing loan (including CPF withdrawals) is within 20% of their family income. I consider this to be prudent, as it is within 25% (which is my benchmark).
Another 38% said that the repayment is 30% of their family income. 15% said that the repayment is 40% to 50% of their family income. The commitment is clearly excessive for this 15%.
I would consider that two thirds or 66% (i.e. 47% plus half of 38%) are prudent and that the remaining one third is over-stretching their finances towards their HDB flat.
Another 38% said that the repayment is 30% of their family income. 15% said that the repayment is 40% to 50% of their family income. The commitment is clearly excessive for this 15%.
I would consider that two thirds or 66% (i.e. 47% plus half of 38%) are prudent and that the remaining one third is over-stretching their finances towards their HDB flat.
Financial planning for a child
I wish to write an article on financial planning for a child. The key features are:
a) annual expenses for a child's education
b) savings for tertiary education of a child, especially if the child wishes to go overseas
c) insurance for the child's medical expenses arising from accidents and illnesses.
Are there any other special needs? What are the key concerns of a parent?
The annual expenses should be met out of current income. The parent should consider the need to spend money on enrichment programs and tuition, which seem to take a significant monthly budget. The best way to save for tertiary education is to have a savings plan that gives a good yield. The child can be insured for Medishield or private Shield, but the expense should be kept low.
Any views?
a) annual expenses for a child's education
b) savings for tertiary education of a child, especially if the child wishes to go overseas
c) insurance for the child's medical expenses arising from accidents and illnesses.
Are there any other special needs? What are the key concerns of a parent?
The annual expenses should be met out of current income. The parent should consider the need to spend money on enrichment programs and tuition, which seem to take a significant monthly budget. The best way to save for tertiary education is to have a savings plan that gives a good yield. The child can be insured for Medishield or private Shield, but the expense should be kept low.
Any views?
Wednesday, January 6, 2010
Asset enhancement
Since the mid 1980s, the Government implemented market pricing and the asset enhancement policy for public housing, i.e HDB flats. The aim was to allow the heartlanders to have a chance to enjoy the appreciation of their HDB flat, which represents the the key assets for most of them.
This policy has led to a more than 10 fold increase in the price of HDB flats during the past 30 years. For most HDB flat owners, the increase in asset price does not translate into real wealth. They still need a place to live in, as the HDB flat is the only home that they hold. If they sell the flat, they have to buy a private propety at an even higher price.
The only people who can benefit from the appreciation in the HDB flats are those who emigrate from Singapore and the few who are able to downgrade to a smaller flat. Some of these people are permanent residents who are able to cash out on the appreciation to return to their original country.
For the majority of Singaporeans, the increase in price is actually a financial burden, as the monthly installment will represent a larger proportion of their earnings. The high prices hit the future generation harder who now has to pay a much higher price and monthly replayment for a roof over their head.
Too many people are paying too much for a HDB flat. To be comfortable, a person should not spend more than four or at most five years of the combined family income (after deducting the cost of employing a maid) to buy a home. I believe that many people are over-streching to six years or more.
Tan Kin Lian
This policy has led to a more than 10 fold increase in the price of HDB flats during the past 30 years. For most HDB flat owners, the increase in asset price does not translate into real wealth. They still need a place to live in, as the HDB flat is the only home that they hold. If they sell the flat, they have to buy a private propety at an even higher price.
The only people who can benefit from the appreciation in the HDB flats are those who emigrate from Singapore and the few who are able to downgrade to a smaller flat. Some of these people are permanent residents who are able to cash out on the appreciation to return to their original country.
For the majority of Singaporeans, the increase in price is actually a financial burden, as the monthly installment will represent a larger proportion of their earnings. The high prices hit the future generation harder who now has to pay a much higher price and monthly replayment for a roof over their head.
Too many people are paying too much for a HDB flat. To be comfortable, a person should not spend more than four or at most five years of the combined family income (after deducting the cost of employing a maid) to buy a home. I believe that many people are over-streching to six years or more.
Tan Kin Lian
Improve transparency of prices of new HDB flats
The HDB (i.e. Government) should improve the transparency of the prices of new HDB flats. This can be done as follows:
(a) Publish the prices of new flats offered for sale
(b) Publish the prices of new flats purchased in recent years, with details of locations, size, floor level and other relevant factors
(b) Publish statistics on the average price of new flats by location, type and size.
This will set a good example to the market, of providing transparent information for the buyers to make an informed choice.
(a) Publish the prices of new flats offered for sale
(b) Publish the prices of new flats purchased in recent years, with details of locations, size, floor level and other relevant factors
(b) Publish statistics on the average price of new flats by location, type and size.
This will set a good example to the market, of providing transparent information for the buyers to make an informed choice.
Stabilising the market
The annual report of the Housing & Development Board (HDB) showed a variation of up to 50% in the price of a 4 room HDB estate in Punggol during 2008/09. Why should the price of the flat vary by so much for the same location, type and year? If we allow for closeness to MRT station or amenities, the difference should perhaps not exceed 15%. A large part of the difference could be due to the volatity of the property market during this year.
While the market was volatile during this period, due to speculation, it would be better for the HDB to stablise the market by setting the benchmark pricing, rather than add fuel to the speculation. If the HDB were to offer a large number of new flats at stable prices, it will give comfort to the home buyers that prices will be stable (and still reflect the market) and will not increase sharply due to supply shortage or speculative demand. It will reduce speculation and fear.
I hope that the HDB will play this important role of stabilising the market and still have prices that reflect the economic growth of the country and the income level of the people. The Singapore economy will be stronger, if the prices of housing and many other cost of business are kept stable (and still reflect the market price in Singapore or globally) and not manipulated by speculators.
Tan Kin Lian
While the market was volatile during this period, due to speculation, it would be better for the HDB to stablise the market by setting the benchmark pricing, rather than add fuel to the speculation. If the HDB were to offer a large number of new flats at stable prices, it will give comfort to the home buyers that prices will be stable (and still reflect the market) and will not increase sharply due to supply shortage or speculative demand. It will reduce speculation and fear.
I hope that the HDB will play this important role of stabilising the market and still have prices that reflect the economic growth of the country and the income level of the people. The Singapore economy will be stronger, if the prices of housing and many other cost of business are kept stable (and still reflect the market price in Singapore or globally) and not manipulated by speculators.
Tan Kin Lian
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