Is your BTO less affordable today? Let’s dive into the math for the answer.

If we compare the prices of HDB flats today with the prices of HDB flats built 20 or 30 years ago, of course prices have gone up. But so has income. The rise in the prices of HDB flats are in line with income growth.

The question is: is the BTO less affordable today? Let’s dive into the math for the answer.

1980

In 1980, the median household income was just $990.

This works out to an annual household income of $11,880.

In 1980, the average price for a new 4-room BTO was $80,000.

This is 6.7 times the annual household income in 1980. This was the cost of a new 4-room flat to our parents or grandparents.

Fast forward to today

Fast forward to today, the median household income in 2021 was $9520.

This works out to an annual household income of $114,240.

The average price of a new 4-room BTO in 2021 was $376,300.

This is 3.3 times the annual household income. This is the average cost of a new 4-room BTO to you.

What does the math point to?

HDB flats have become more affordable!

The math points to the conclusion that HDB flats have become more affordable.

Indeed, prices of BTOs have gone up. But so too have incomes which have grown faster than the prices of HDB flats.

To look at it from another perspective, the price of the average 4-room flat has grown by 4.7 times since 1980. But median household income has grown by 9.6 times in the same period.

Is CPF still adequate to service HDB housing loans?

Statistics says ‘yes’ with little or no cash outlay.

HDB uses benchmarks such as the Mortgage Servicing Ratio (MSR) to determine affordability and provides a range of flat types and selling prices to meet different household budgets and needs.

In the first half of 2022, 90% of buyers who collected keys to their flats in non-mature estates and more than 80% of those who did so in mature estates spent 25% or less of their monthly income on their mortgage.

This is to say the MSR is 25% or less and compares well with the international benchmarks of around 30% to 35%.

These flat buyers are able to service their HDB loans using their monthly CPF contributions, with little or no cash outlay.

Why are prices of BTOs not uniform across projects?

New BTOs are not priced uniformly across projects. The pricing takes into account the different attributes and locational factors of the flats.

This way, it ensures fairness for the different buyers as these HDB flats can be bought and sold in the resale market after the 5-year Minimum Occupation (MOP) period.

When the flat is sold after MOP, its location and whatever attributes it enjoys will be reflected in the resale price, benefiting the seller/owner.

Let's understand!

When the flat is sold after MOP, its location and whatever attributes it enjoys will be reflected in the resale price, benefiting the seller/owner.

Suppose BTOs are uniformly priced regardless of attributes or location.

Suppose a 4-room BTO in Ang Mo Kio is priced the same as a 4-room BTO in Choa Chu Kang at $220,000 (after housing grants).

Now, a 4-room flat in Ang Mo Kio resales for around $690,000 to $918,000 while a 4-room flat in Choa Chu Kang resales for around $462,000 to $540,000.

After MOP when the owner of the 4-room BTO in Ang Mo Kio sells his flat, he will hit a windfall of as much as more than half a million dollars compared to the owner of the 4-room flat in Choa Chu Kang.

Such a scenario is not only unfair, but it will also lead to a mad rush to book new flats in mature estates. This will further push up prices in mature estates while leaving non-mature estates with fewer takers.

Singapore is 4th most expensive Asian construction market.

Singapore is the fourth-most expensive Asian construction market to build in according to the Turner & Townsend’s International Construction Market Survey 2021, exacerbated by the pandemic and supply chain disruptions.

Prices of key construction materials such as steel bars rose by 36.2 per cent, with cement rising by 6 per cent.

In its media statement, HDB says that construction costs in the last 2 years have increased by almost 30%.

Land costs are not a part of pricing mechanism

HDB pays fair market value for land that is developed into public housing. The fair market value is determined independently by the Chief Valuer in accordance with market conditions and established valuation principles.

Some statistics for FY21/22:

Land development costs	$3,167 million
Building development costs	$2,077 million
Other costs (largely from cost of flats acquired from ex-flat owners)	$102 million
Total	$5,346 million

In the same financial year, HDB recorded a deficit of about $3,850 million in its Home Ownership Programme.

Home Ownership Deficit

(mainly from the Gross loss on flat sales completed (i.e. keys issued to buyers), CPF Housing Grants for resale flats expected loss for flats under development)

$3,850 million

While land costs are part of costs for HDB to build flats, they are not part of the considerations for pricing these flats. If they were, then home buyers would have to pay much more to make up for the $3.85 billion in deficit incurred by the HDB.

HDB's pricing approach

In pricing new BTO flats, HDB first establishes the market value of the flats by considering the prices of comparable resale flats nearby, which is influenced by prevailing market conditions, as well as the individual attributes of the flats.

Private developers do this too, taking reference to market prices.

Unlike private developers which then marks up the price for profits, HDB marks the price down with affordability in mind. It does this by applying a significant subsidy (market subsidy) to the assessed market values.

HDB’s flat pricing approach is thus totally separate and independent from the BTO projects’ development costs.

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