By 8percentpa (guest contributor)

So HDB prices are not overly expensive but everybody blames our Govt for the pitiful state of things. Now new couples cannot afford HDB, not to mention low and middle income families, old folks, the disadvantaged. If they cannot afford HDB, where are they going to live? How are they going to survive?

We shall look at a few issues that might shed some light onto the disconnect:

1. Then and Now

2. Sour Raisins

3. Policy Blunders

4. Broken Dreams

1. Then and Now

Most people have a great memory with regard to two things: their salaries over the years and their home prices. This point illustrates how the Price to Income has changed for HDB over the years. A long long time ago (like the 1970s), as the older generation would tell us, HDB flats were going for $20,000. Back then the pay was like $600 per month, so price to income was a mouth-watering 2.8x! And nobody wanted them! Okay maybe that’s too ancient and not so relevant. Let’s look at 2007. According to the HDB website and Singstat, a 4-Rm HDB was going for $241,000 and our median household income was $59,000 or so. That’s still a cheap 4.1x compared to 6.4x today.

So while HDB is still cheap today when compared to other Asian cities, it is definitely much more expensive compared to its own past. Our incomes have not risen as fast as home prices. Everybody knows that. Well… except the government. Or maybe they just had a different agenda, such as building the country’s reserves.

2. Sour Raisins

To make things worse, our low income households bore the full brunt of higher prices. In 2000, the monthly salary of the lowest 10% was $1,276. In 2007, it went up to $1,221. Sorry, it actually went down by $55. Finally in 2010, it went up to $1,400. An increase of a whopping $12 per year from 2000 to 2010! How impressive! Meanwhile the top 10% grew from $14,959 to $23,684. Close to $10,000 increase. Answer to the recent poll: 17x difference.

Okay, that’s a bit dramatic. But the point here is that the lower to middle income group hadn’t had it easy. While the top 20% to 30% of the population enjoyed higher salaries, got to eat at fancy restaurants, drive new cars, upgrade to better 5-Room or Executive HDBs or even condos, these low income families are eating from hand-to-mouth. It’s not even sour grapes, it’s leftover sour raisins. And they have to share with their kids while servicing their 35 year mortgage.

Frankly speaking, it doesn’t really matter to them whether the price to income is 5x or 10x, to them it’s always 35x. They definitely don’t benefit if prices go up, because it’s their only home and they cannot sell. The government seriously needs to do something here, although they are already lending a helping hand, just that it’s not publicized much.

3. Policy Blunders

While HDB prices are inexpensive, I guess what really gets on peoples’ nerves are various policy blunders that led to lower quality and poorer service, like diminishing floor area, supply-demand issues and the stupid $8,000 rule.

On lower quality, it’s no secret that home sizes are shrinking. An old 4-Room HDB is now as big as a modern 5-Room. Maybe in another 10 years, a 5-Room would look like Mickey Mouse’s toilet. Because they counted the floor area of your balcony which is now bigger than your living room, the aircon unit, the common corridor and staircase as well! Why is this allowed to happen? Talk about major policy blunders!

The quality of finishing also had some hiccups. Remember the aluminium window frames that fell off? Or wall tiles that kept cracking? Well, admittedly, some of these issues have been resolved.

On poorer service, this is actually tied to the supply-demand mismatch. Basically new HDB owners have to wait on average 2 to 3 years before they get their flat thanks to HDB’s “policy” of building behind the curve and in a roller coaster fashion. Just as an example, they overbuilt in the earlier part of the decade, flooded the market with tens of thousands of flats in Boon Lay and Sengkang. Then they decided not to build anything, which led to the current situation of newlyweds having to wait 2 to 3 years between ROM and the customary ceremony. Meanwhile we want higher birth rates!

And now HDB decided to go all out and build 40,000 flats in the next 2 years, staging the market for the next cycle of boom and bust.

So despite paying up for a more expensive home, Singaporeans have to wait longer to live in a smaller unit with probably more defects and subject to illogical rulings like an $8,000 income limit for a $780,000 flat.

I guess that is the ultimate unforgivable deed.

4. Broken Dreams

So far, all the analyses are being done on HDB. Prices though not as expensive as other Asian cities, are rising too fast too furious and policies are crap. Hence there’s a lot of dissent on the ground. The far more important piece of the puzzle is actually the private condo market. Even without doing any detailed analysis, most rational people would come to the conclusion that the Singapore property market is frothy. Just a quick glance at two measures: Price to Income is more than 20x if you use median household income, or 13x if you use the 90th percentile. Rental yield is closing in on 2%, i.e. Froth-on-your-Tiger-Beer level. Any frothier, it’s either going down the throat or the chute.

But the biggest setback posed by the private home market is this: It destroyed the 5Cs dream. THE Singapore dream. An average condo now costs more than a million bucks. Actually the average price is probably like S$1,875,000 (using $1,500 psf times 1,250 sq ft). This means that 80% of the population with an annual income of less than S$100,000 cannot afford to upgrade to a condo, no matter how hard they try. Because it will take them close to 20 year just to earn that face value, assuming they spend nothing. With the new ruling of only 60% LTV, it means you need at least S$750,000 in cash or CPF to buy an average condo. Well, if you have S$750,000, I guess it’s better to buy yourself 20 years worth of food and staples in preparation for retirement. Because those are the next items to skyrocket in prices.

So that’s the long and short of it. Singaporeans are probably unhappier with the uneven distribution of the fruits of labour, policy blunders that let to poorer quality and service and the broken 5Cs dream. More so than just rising HDB prices itself.

Article contributed by guest contributor 8percentpa, who runs investment blog Eight percent per annum.