High cost of HDB flats a key reason for failure of Baby bonus to boost birth rate
Posted by temasektimes on October 29, 2012
In a Straits Times report, it was reported that the Baby Bonus introduced by the government has failed to boost the flagging birth rate despite the increment last year. (read article here)
$230 million was given out by the Government in baby bonus payments last year, up from $55 million just five years earlier. But there was no corresponding increase in the number of Singaporean babies born.
The Baby Bonus Scheme aims to encourage Singaporean couples to have babies by easing the financial burden on parents.
A reason commonly cited for the unwillingness of Singaporeans to have children is the high cost of living, especially that of housing.
The price of HDB resale flats and that of new flats whose prices are pegged to it have risen dramatically in recent years.
Data from the Housing and Development Board showed the resale price index rising 1.4 per cent from the previous quarter to 140.2 in Q2. This is the highest level seen since 1990.
Over 85% of Singaporeans living in public housing built by the HDB. Though it is meant to affordable to the masses, the relentless price hike have squeezed some Singaporeans out of the market, especially young couples who are first-time genuine home-buyers.
Last month, HDB launched a premium project offering 769 new flats in Punggol. It offers 615 four-roomers and 154 five-room flats in a central location just five minutes from Punggol MRT station.
Four-room flats of 91 to 96 sq m are going for $264,000 to $322,000, while five-roomers of 114 sq m are on sale from $344,000 to $409,000.
The CPF housing grant and the HDB housing loan are two schemes that have helped maintain the affordability. The combined income ceiling of $8,000 a month to be eligible for the schemes has been in place since 1994. Since then, the HDB resale price index has gone up by a staggering 190 per cent.
The CPF Housing Grant Scheme is a housing subsidy provided by the Singapore Government to assist Singapore Citizens to own a HDB flat at a cheaper rate, or we call it a HDB subsidy.
The grant can range from S$30,000 to S$40,000, however there is a catch ( or in fact many catches!), if you had obtained the grant when you purchase your flat, you will be required to pay a resale levey when you sell it. This resale level can be as high as S$50,000 for Executive flat and you need to occupy the flat for 5 years before you could purchase another flat directly from HDB.
Even with a $30,000 housing grant, a young couple buying a new 4-room flat at $250,000 will still have to fork out $220,000 which amounts to a monthly loan of between $800 to $1,200 a month payable over a thirty year period depending on the type of interest scheme.
For a resale HDB flat in a prime area like Bishan, the price ranges from $350,000 to $400,000. The monthly installments will be between $1,100 and $1,400.
The median pay of the average Singapore worker is about $3,440 a month and it has stagnated over the last few years. (source: http://www.worldsalaries.org/singapore.shtml) After the compulsory deduction of 20% to CPF, the take home pay is only $2,750. The Singapore worker will be left between $1,500 and $2,000 after paying for the mortage loan. It will be very tough for one to start a family with such a pay.
Of course the above calculations are just gross estimates and the government should be in a better position to shed more light on the affordability of HDB flats. However, till now, ministers such as Mah Bow Tan and Lim Hwee Hua remain adamant that HDB flats remains “affordable” to the majority of Singaporeans.
It defies common logic for the government to peg HDB flats to that of the private property market which is extremely volatile and inflationary in the last few years with the influx of foreigners buying up properties in Singapore. About 70% of the buyers of private properties are foreigners.
Throughout these years, it is not known if the government has made any “profit” from the construction and sale of HDB flats. What is the price of the land? A significant proportion of the land in Singapore is owned by a government-linked company, Singapore Land Limited. What is the cost of building each HDB unit? What is the difference, (if any), between the construction cost and sale price and where does it go to?
The government has refrained from answering these legitimate questions on the mind of Singaporeans for the past two decades, preferring to congratulate itself for raising the home ownership of Singaporeans to more than 95%.
Though technically, 95% of Singaporeans “own” their HDB flats, they are merely renting it from the government for a maximum period of 99 years since it is a leasehold and not freehold project. Freehold properties usually command a higher price than leasehold ones in the same vicinity by 10 to 20%. The reason why HDB flats are commanding such a high valuation is that shelter over one’s head is a basic necessity. Unlike in Malaysia, Hong Kong, Taiwan or China, where one can pack up and live in the countryside, there is nowhere to go in Singapore.
In other words, prices of HDB flats will continue to climb unless the government step in and modulate its mode of valuation because there is always a ready market for it. The influx of foreigners and PRs have also helped to artificially inflate the price of HDB flats.
Singaporeans may have “double” or even “tripled” the value of their HDB flats in the last ten years, but don’t forget after making a profit from the sale of their properties, they still have to pay for another new flat at a higher price with the unwanted effect of plunging Singaporeans further and further into debt.
According to an AXA study done last year, it is estimated that for the average Singaporean, CPF savings will provide only a quarter of the funds he or she will need in old age which defeats its original purpose of being a retirement fund for Singaporeansn when it was first formulated in 1967.(source: Asiaone)
With no social safety net to speak of, Singaporeans face a grim and uncertain future, especially those from the middle and lower income group. The middle class will be more severely squeezed as they do not qualify for any government subsidies. The “sandwiched” generation – those with children and aged parents to take of, may find life a continuous struggle to earn enough money to keep afloat.
It is not easy to bring up a child. Not only must one ensure he/she is well fed and clothed, time and resources have to be expended to educate them so that they will become well-behaved, productive and useful citizens to the nation. With so many tasks to juggle at the same time, it is no wonder that Singaporeans are opting to have a smaller family, if any at all.
The government should look at and deal with the root cause of the problem rather than giving cash handouts which does little to ameliorate the difficulties faced by Singaporeans trying to start a family. It has been 15 years since the HDB since the HDB housing grant was first introduced. Given the different set of circumstances we are in now, perhaps it is time to re-evaluate the scheme.
For a start, the cost price of new HDB flats should be pegged not at two-thirds of reslae flats in the vicinity, but at the median pay of the Singapore worker, e.g. 5 times for 4-room flats and 6 times for 5-room flats which work to about a price of $170,000 and $204,000 respectively.
With the decrease in the prices of new flats, the resale market will gradually be cooled and fall to more sustainable levels.
The $8,000 ceiling for the grant’s qualification should be increased to $12,000 or more and the housing grant raised to between $50,000 and $70,000.
Though the government may made a “loss” in doing so, it owes the citizens who voted for it a duty of care. Besides, even at much “knocked-down” prices, HDB may still able to make a hefty “profit”.
How much money did the government gain from the sale of HDB flats, the levies earned from resale flats and the CPF contributions of Singaporeans after all these years? Are they used to finance the investments made by Temasek and GIC? Till today, these figures remain enshrouded in a cloak of secrecy.
Boosting the birth rates of Singaporeans will reduce our dependence on foreigners who now made up almost a third of the population. Reducing the pressure on Singaporeans will lead to a happier citizenry and increase our domestic consumption, thereby decreasing on reliance on foreign exports.
A fundamental shift in the government’s mindset and policy is needed to reverse our flagging birth rates. As history has already shown, giving cash handouts in the form of Baby bonus and recruiting foreigners en masse will not solve the root of the problem.
Note: This article was first published in the old Temasek Review in September 2009