Saturday, January 16, 2010

HDB Mortgage Slaves



I have been writing a lot on HDB policies and the ills of it recently basically because I am keeping up the pressure on the Minister of National Development to do something about it.

Mr. Mah Bow Tan has been very hardworking recently. I should say that he has made his utmost efforts recently to appear in Main Stream Media (MSM) to explain his HDB pricing policy is still "affordable".

Mr. Leong Sze Hian of TOC (The Online Citizen) has written quite a number of comments and queries on HDB policy. He has made many valid points and HDB has so far unable to provide satisfactory answers to all the questions raised so far.

According to Mr. Mah Bow Tan and his statutory board HDB, HDB flats are still "affordable", citing the "fact" that most Singaporeans are using less than 30% of their income for their HDB mortgage payment.

However, I should point out here that the Minister and his people have missed the point totally. They have based their "affordability" argument on a mortgage of 30 years. When I bought my HDB flat, I have tried to choose to go a mortgage of 15 years instead of 25 years. We settled for a 20 year mortgage instead.

My reason for a shorter mortgage is that the longer mortgage you have, the more interests you pay. And the increase of interests is not linear but rather compounded. Furthermore, imagine if you buy your flat at the average age of 27, if you go for 30 years of mortgage, it would mean that you could only pay off your mortgage at the age of 57! And if you use all your money in CPF to pay the mortgage, you will have no money for your retirement!

So what happen if you don't have enough savings for your retirement? In fact, the problem of insufficient retirement financing is surfacing slowly. The extend of the problem will explode in the next two decades when 3 generations of Singaporeans have spent all their money in financing their mortgage (for 3 decades) and have nothing left for retirement at all.

Now PAP government will tell you that oh, you can actually do a reverse mortgage of your flat! How nice of that, right? But it would mean that after slogging for 30 years, you will have nothing left to leave for your children!

In fact, the kind of "precision mathematics" that the PAP government has laid out for most Singaporeans is that most of us will be enslaved by the whole system! You will be slave to your HDB mortgage for all your working life and please make sure that you don't lose your job during this 30 years period else you will be living like those campers at Sembawang Park, Changi Beach, East Coast Park... without a roof over your head. But the best thing is this, even if you managed to pay off your mortgage for the 30 years of your productive life, you will be left with nothing for retirement!

Thus, the PAP government will OFFER you to reverse mortgage your HDB flat! Meaning that you have paid hefty interests (believe me, the total amount of interests you are paying may even be 50% of the loan if you loan from banks!) in paying for your HDB flats, you will end up selling it away cheap cheap to the government or banks! And if you die early, the government of bank will have the last laugh in taking your whole flat without paying anything further!

It means that, we will practically become SLAVES of our HDB mortgage! I would advise my young readers that if you are looking for a flat, make sure that you could pay off your mortgage in 15 years at your comfort zone... preferably 25% of your total household income. At the very worst, take only 20 years of mortgage and nothing more than that. If you can't, you better consider other alternatives. Don't be enslaved by this system, this myth of "affordability".

I will continue to fight the PAP, urging people of Tampines to vote Mah Bow Tan out, to send a strong signal to PAP that we do not want to be enslaved by the very system that they have built. We don't want our children to pay crazy prices for just a PUBLIC HOUSING which will in the end enslave them for the rest of their lives. We want to tell the PAP government that they could no longer fool us with such flawed argument and mathematical calculations. Most importantly, we want change to the way on how our lives are being governed.

Goh Meng Seng

12 comments:

Anonymous said...

Shanmugam's opinions on ST(18 Jan 2010) about the effects on FT on Housing and jobs should be used as ammunition during campaigning.

Blatant baseless comments when figures obviously speak otherwise.

Anonymous said...

Wah so fiery talk from GMS. Election is REALLY coming.

Anonymous said...

I am going to vote for you.

Make sure when you come into POWER, MY HDB flat will be dirt cheap or FREE.

At most, one year mortgage to realize I am the master of my destiny and not a SLAVE to the government.

Moe GanThai said...

which constituency you intend to contest? I will support you.

Anonymous said...

Please read this article carefully, you'll realise that the writer is being political without necessarily providing cogent or complete logic for his arguments. He also makes sweeping assumptions and generalisations. Regardless of if one is a fan of the PAP or not, we must be on guard not to take on wholesale the anti-PAP government arguments of others no matter how attractive they may appear on the surface.

When the writer bought his flat, it must at least have been more than 20 years ago, where the actual quantum of the flat was much lower. Even if you factor in an average inflation rate of 3% per annum, the average flat price should have increased at least by 60% and in most cases they have. In such a situation, purely on the basis of inflation, it becomes impossible for people to take out smaller loans unless they are prepared to heft out large sums of money as downpayment towards housing.

His other argument with regards to the the longer your mortgage, the more interest you pay is also invalid because mortgages are calculated on the basis of a reducing principal, as opposed to a car loan, where the interest is paid off first, before the capital is reduced. So it's not the length of the loan which matters, such a view is overly simplistic. The structure of the loan is more important. Long loans at low interest rates are always superior to short loans at high interest rates. As with all things, timing is only one factor in a multitude of factors affecting the favourability of a loan.

His third assumption is that you make no accelerated payments on your mortgage (e.g. through increase in salary, bonus etc.), not only is such an argument fallacious, it is also highly pessimistic. When interest rates are low, intelligent people take a loan for as long as is humanly possible, this allows such people to store cash so that if and when interest rates do rise, they can make large lump sum payments which will have the effect of dramatically decreasing their debt burden.

Fourth, he assumes that at the completion of the mortgage, your house is essentially worthless and has negative equity. In most cases, people with foresight would have purchased as expensive a home as they could reasonably afford and as large a one as is possible, so that when the kids grow up and move out, the house can then be sold, with capital appreciation and the excess funds put towards one's retirement. Debt, in and of itself is not "bad". There is "good" debt and "bad", but to simply classify all debt as "bad" is tantamount to saying that all chilis are spicy. Once again, it depends.

We must always be wary of people who "preach" or poitick using bare faced assertions and numbers which are unsupported by actual statistics. What basis does he have to say that 20years is the ideal time to take out a mortgage? It is similar to saying that since killer litter can kill people who walk below HDB block walkways, all people who walk along HDB walkways will die. This is know as reductio in absurdum, an argument made absurd when reduced to it's core logic. A 20 year mortgage at a fixed interest rate of 3.25% is much more expensive then a floating mortgage of 30 years with an effective interest rate of 2%. Historically, interest rates are adjusted in 10 year cycles. So if you catch a low cycle, you can lock in at least 10 years of low interest, whilst building up cash reserves. Something which even a so-called "simple" heartlander knows as can be seen by the run-up in the property market.

After reading this article, I'm thoroughly disappointed with our opposition, if this is the best we have to offer, I think we may have to resign ourselves to many "more good years" of PAP hegemony. I am no fan of PAP or politics, but as bystanders, we cannot allow ourselves to be swayed without understanding what is and is not fact.

Goh Meng Seng said...

I am amused that Anon 11.51 took all the trouble to write his comment which is actually flawed.

If you take a loan from HDB, regardless it is 20 yr or 30 yr loan, you will get the same interests...2.6% Thus, most of your argument is really invalid.

Inflation rate of 3% per year? Are you sure you live in Singapore? And no, I didn't buy my flat 20 years ago.

It has nothing to do with when you buy your flats. It has everything to do with how much is your flat relative to your pay. If X years ago, you could pay 25% of your pay for a 20 yr mortgage to pay for your flat at the same interest rate of 2.6%, then your son is worse off if you could only use 30% of his salary to pay a 30 yr mortgage for his flat.

It is a simple straight forward comparison. Never mind about inflation, because your son's salary would have increase along with inflation as well. But if his salary is not increasing at the same rate as the inflation in housing prices, then it is obvious that there is something very fundamentally wrong with the system.

You talk as if every Singaporeans could well afford two flats or private properties, so that they could sell off their flats when they old and live in another private apartment. Most probably, if Singaporeans follow your advice, they will be sleeping on the streets instead.

Goh Meng Seng

Anonymous said...

Dear Mr Goh,

I will not argue with you on the basis of the HDB loan system or logic as clearly you do not understand either concepts.

Initially I was undecided as to who took the principled view when it came to housing policies, the PAP or opposition supporters such as yourself. Clearly the PAP have done their homework, whereas you have not. However I am a generous person and will indulge your ignorance by attempting to explain to you that public housing in Singapore is a hybrid system. It is both government manipulated as well as market-based. The government prices new flats in accordance with the current market price of flats in the same vicinity, with a discount factored into the price. The current price of resale flats in any area is entirely out of the realm of government control, it is controlled by market demand and supply. The price of any resale flat is based on a large number of factors, location, proximity to public transportation and other amenities. As estates develop, it is only natural that the prices of the flats in those areas will also rise. How much did you pay for a sack of rice 20 years ago? How much do you pay for it now? Inflation is annualised at 3% on a compound basis (on average) there will of course be years when inflation is higher, but as a general rule inflation is about 3%. This means that necessarily, the prices of flats will increase, at a rate greater or equal to 3%. Anyone can understand that and you should try too! If you wanted to make a plausible argument with regards to housing costs, what you should argue is that wages have not kept up with housing costs. Now THAT, would be a valid argument. In fact, there is sufficient data available to support such a claim. You are correct in that today, a person spends a greater proportion of their salary on housing then say 20 years ago. It's not that flats are more expensive, it's that wages just simply haven't kept up.

To accuse the government of being responsible for the current high prices of flats is similar to accusing the government of the 35 degree heat wave sweeping our nation. There is a logical disconnect between your assertion and reality, something which I think you fail to recognise.

Sensationalising the argument and crying foul at the government and claiming that we'll all end on the beaches may win you some supporters, but the intelligentia, the people whom you should really convince, will not so easily be swayed. These are the people who crowd the new property launches, and these will be the same people who will consistently return to power the incumbents time and time again.

My advice to you? Understand your subject matter, dissect your OWN argument and analyse the depth of your understanding of the subject matter before you take a position. That way you won't embarass yourself. Do not be insulted by my comments, instead let them spur you to better construct your arguments and re-establish your position so that you can build an opposition that even the intelligentia can consider.

Annonymous

Goh Meng Seng said...

From your post, it seems that you have not bought any HDB flats before.

The kind of reasoning you put up only applies to private property transactions. ;)

The question we should ask, why should the government price the new flats with the discounts when it has been giving REAL SUBSIDIES in the past... 1980s 1970s...etc?

As I have told you, it does not matter. You are not looking at things in good perspective. Whatever the inflation rate, your salary should grow as well. If your salary grows LESS than inflation, then your purchasing power is totally affected.

In the case of HDB flats, please tell me whether your salary has increased 30% or 20% for the past 3 years? No? But the HDB flats have increased that much! And you still say there is nothing wrong with the system? I rest my case here.

You are just arguing for the sake of argument. The cup is either half full or half empty. You claim the HDB price is not expensive but just that salary increase does not keep pace? Well, as a matter of fact, a proper kind of calculation is this, what is the percentage of average Singaporeans pay has been used to pay for a flat as compared to food and others? Then you can see clearly whether HDB flats price is the one which has out pace other essential things like food, clothing and stuffs like that.

The truth is, don't need to bother to compare because the answer is very clear. Our youngsters need 30% of their pay for 30 years to pay for their flats as compared to their parents, who only needs to pay 25% for 20 years. While most spending on other essentials either drop or maintain at the same percentage.

This is a HARD TRUTH that most PAP members cannot stomach but it seems that a self claimed neutral like you don't really understand at all.

Goh Meng Seng

Anonymous said...

Dear Mr Goh,

Forgive my ignorance, but is not pricing flats with a discount a form of a subsidy? In what way is this subsidy any less "real" than the cash grant that is already handed out to all new HDB flat buyers? If by "real subsidy" you mean large amounts of cash to subsidise your HDB flat purchase then I expect your are proposing some form of socialist or welfare support? Who is going to pay for this? You? Such "real subsidies" as you suggest have to be paid for by someone, the money can't be created out of thin air. Furthermore, you would be subsidising a market-derived price and we've all seen what happens when you try to subsidise an otherwise functioning market, you distort it and it becomes dysfunctional.

If as you claim, youngsters now need to spend 30% of their pay for 30 years to buy their HDB flat as opposed to 25% for 20 years, but the price of other necessities has gone down? Hasn't the overall percentage of salary used for basic necessities remained the same? I'll use a simple example so you'll understand. If in the past I spent 25% of my salary on housing and a further 15% of my salary on food and clothing,I spend 40% on basic necessities every month. If now I spend 30% of my salary on housing and 10% of my salary on food and clothing, I will also spend 40% on basic necessities every month. In other words, my life may not necessarily have gotten better but it surely cannot said to be worse?

I understand if you "rest your case". It's tiring to argue with someone who is your intellectual superior especially when you don't understand the argument. If I were you I'd give up too! Don't lose heart, keep pushing for change for change's sake! Someone might support you!

Your Annonymous Friend

Anonymous said...

[We must always be wary of people who "preach" or poitick using bare faced assertions and numbers which are unsupported by actual statistics. What basis does he have to say that 20years is the ideal time to take out a mortgage? It is similar to saying that since killer litter can kill people who walk below HDB block walkways, all people who walk along HDB walkways will die. This is know as reductio in absurdum, an argument made absurd when reduced to it's core logic.]

[Clearly the PAP have done their homework, whereas you have not. However I am a generous person and will indulge your ignorance by attempting to explain to you]

[Sensationalising the argument and crying foul at the government and claiming that we'll all end on the beaches may win you some supporters, but the intelligentia, the people whom you should really convince, will not so easily be swayed. These are the people who crowd the new property launches, and these will be the same people who will consistently return to power the incumbents time and time again.

My advice to you? Understand your subject matter, dissect your OWN argument and analyse the depth of your understanding of the subject matter before you take a position. That way you won't embarass yourself. Do not be insulted by my comments, instead let them spur you to better construct your arguments and re-establish your position so that you can build an opposition that even the intelligentia can consider.

Annonymous]

[I understand if you "rest your case". It's tiring to argue with someone who is your intellectual superior especially when you don't understand the argument. If I were you I'd give up too! Don't lose heart, keep pushing for change for change's sake! Someone might support you!

Your Annonymous Friend]

As bystander watching the argument, statements such as above is very telling if a person is really keen to have a good discussion or just plainly shooting down alternative views.

GMS has put forth a compelling argument and he is not alone.

I think a discussion would be more meaningful and helpful to other readers if politics did not get in the way but I guess it could be a wistful thinking on my part.

And I hope we don't ended up like the Tokyo residents in future where is takes more than a generation to repay their housing mortgage.

Anonymous said...

Thanks to the sky high increase in HDB resale flat, what I thought I could afford in few years ago, on a 3-room flat is now not affordable, based on a sole breadwinner. Where am I gonna stay? HDB rental capped household $1500. Everywhere is restrictions. HDB flats are affordable? That is what they want us to think. Pls PAP get to the ground level of your people who is suffering!

Anonymous said...

Swear upon personal real life experience which made me hate HDB: I paid 13k deposit for my BTO house in Punggol Central highest floor which costs $206000. Just a few months away to key collection, my ex husband made another woman pregnant. We filed for a divorce. HDB refused to let me to retain the flat because the family neuclus relationship was broken. I cried and said I have a stable government job and will have no problem paying every month. I have no house to stay with my 3 year old daughter. I even wrote in to MP Shanmugam. No use at all, they said I can rent a room outside. Guess what? A few months later, they put my flat under Sales of Balance Flat, selling to others at $300k. They forfeited my $13k and made a profit out of my house to others. No empathy at all. Don't give me the house, fine. Still can jack up the price to sell to others. Still claim care for Singaporean. What a joke!