Friday, January 4, 2008

$520psf average for Boon Keng

I refer to the news article about the pricing of the DBSS@Boon Keng flats. This is purely from the debt management point of view. More information about Boon Keng in this previous post.

3 room: $349,000 to 394,000
4 room: $523,000 to 597,000
5 room: $536,000 to $727,000

Note that HDB has a household income cap of $8,000 / month. Using this amount, with a 35% limit on the repayment amount based on the gross salary, you can loan up to a maximum of $617,000+ for 90% loan over a period of 25 years with a 2.6% interest rate (CPF Housing Loan), according to the CPF website calculator.

That would put you at the range of getting a mid-range 5 room flat. However, there are some assumptions:
  1. For the next 25 years, you have no problems with maintaining or even increasing your $8,000 household income
  2. You need to top up your mortgage payment with cash
  3. As you reach a certain age band, your CPF contribution will drop so you will need to be prepared to pay more cash.

This is based on the assumption of getting a CPF loan. If it is any other loan, the loan amount will be lesser, and one might not get a 90% loan.

Of course people might ask why limit yourself to 35% repayment. The reason is very simple. Based on your gross salary, a total of 34.5% of your gross salary is being paid into your CPF. 20% from your gross salary, and 14.5% by your employer. Out of that, only 23% is into your CPF Ordinary Account, which is the main account used for payment of properties. Therefore using a 35% limit, one is already paying 12% of the mortgage payment by cash every month. To raise the limit further will result in you forking out more cash per month to fund your housing purchase. This cash payment would have to last for 25 years based on the example given above.

That's also a cap of $4,500 for the calculation of the CPF contribution. That means that even if you earn $5,000 per month, they will only calculate your CPF contribution using $4,500. Therefore, the maximum amount of CPF contribution for everyone into the CPF ordinary account will only be $1,035.

Let's also not forget that as one grows older, the CPF contribution rate will drop! That means you have to fork out more cash payment as you grow older.

I understand if someone will pay this kind of money for a condo with good facilities, big area, freehold, etc... But for a HDB flat with a 99 year old lease??? I quote one of HDB's mission: "We provide affordable homes of quality and value.". I can say that I know it was possible to get a 2,000 sqft + freehold condo for $800+k last year (central location). Now they are pricing $700+k for a 99 year leasehold HDB? I don't see this as being affordable.

Let's say I do not want to pay cash to top up my mortgage payment. I limit the repayment amount to 23%. Using the same example above, I am only able to loan about $405,000 according to the CPF website calculator. That would put someone with a $8,000 monthly household income only in the range of the most expensive 3 room HDB flat! Even then, this is with the assumption you can maintain your salary for 25 years consecutive, every month without fail if you do not wish to top up your payment using cash.

I could only say that HDB should be changing its mission statement because it is no longer following its core mission. I would understand if this is for some freehold property, condo or landed property. For a HDB flat however, I personally will never pay that much for it. It doesn't even have any facilities. What on earth are we paying for? The furnishings? We're paying almost a million dollars in total, including interest for a HDB flat?


chantc said...

Today's news state that GreatLink, which is building the DBSS site in Ang Mo Kio (AMK) will not price their flats above $700,000. I translate this to a 4 room flat ranging from $400,000 to $500,000. With a monthly household income of $8,000 , this is definitely a better deal in terms of debt management.

Furthermore, I very much prefer AMK than Boon Keng.

Rhinestic said...

Aye, tt's the same thing i told my mum.. although not as chim as urs..

Anonymous said...

You did not factor in the Additional Wage portion in your CPF calculation. The current cap is 22,500 additional wage subject to CPF. That is a potential 430 additional contribution monthly into the CPF OA. For 2 persons, that is maximum ~2,800 contribution to CPF OA monthly.

Based on my calculations, a couple earning 4,500 each, with approximately 1-2 months bonus will be able to finance the house through CPF only.

chantc said...

I have purposely left out the bonus because bonus is never a sure thing. The reason why its called bonus is because it can be withdrawn anytime. There was once that I only had a half month bonus for my 13th month.

Therefore I'm using a very conservative estimate, which should be the case when you're estimating debt.

If you walk around the shops, you have noticed that some shops have already closed down. More will come. Retrenchment is very real nowadays and its better to be cautious.

Rachel said...

Anon, if a couple is earning $4,500 each, then they would not be eligible to buy DBSS flat. There's an income cap of $8,000.

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