Gan Thiam Poh, who is a Member of Parliament for Ang Mo Kio GRC, proposed the removal of the $14,000 household income ceiling for first-time BTO buyers during his speech in Parliament on 31 August. He elaborated that young couples had complained that they could not qualify for BTOs due to their high incomes.
The combined income ceiling was $8,000 in 2011 before it was raised to $10,000 by PM Lee Hsien Loong the same year during a National Day Rally. After that, it was raised another two times to $12,000 and the current $14,000. Previously the $8,000 income ceiling was unchanged for 17 years, which led to even more frustrations and now the government has already raised it twice in the last 9 years.
Is the Combined Income Ceiling set too low?
In a ChannelNewsAsia article dated 28 Feb 2020, it was reported that the median gross monthly salary among fresh graduates in full-time permanent employment was S$3,600 in 2019, slightly higher than S$3,500 in 2018. According to Singstat website, median household income grew to $9,425 in 2019 and this is still below the income ceiling to apply for a HDB BTO. How does removing the income ceiling help those who are earning lower incomes and require a subsidised flat? Given that HDB is currently pumping out BTOs at a rate of 14,000 to 17,000 flats every year from 2016 to 2020 and if the income ceiling is removed, every high income couple will definitely buy a BTO first. The higher demand and a finite supply of land will surely lead to higher prices for BTOs.
Assuming a couple’s monthly combined income is $15,000, this will be $180,000 annually and $900,000 over 5 years. Let’s say they balloted for a 4-room flat at $450,000 and if they are prudent, this flat can be easily paid off in 5 years and then rented out for passive income to pay for a new condominium.
Upgrading from HDB to Private Properties
From Morgan Stanley Research, we can see that an average of 46% of private property purchases came from those staying in HDBs. Generally as incomes grow, Singaporeans do aspire for a better lifestyle in condos and landed properties. Whether it is a BTO or a Resale flat, the Minimum Occupation Period (MOP) is 5 years. During this period of time, the owners should see a good increment in their income levels assuming it rose in tandem or higher than inflation and from progression in their careers.
For high income earners who make 40% more than the median household, wouldn’t they prefer to live in private properties? After all, they worked hard for it and strived towards making a better living. Further to slow down the increase of property prices, the government had imposed a slew of cooling measures since 2011, which is now a hefty 12% Additional Buyer’s Stamp Duty on the second property purchase for Singaporeans. Hence, there must be a form of control for BTO flats too.
HDB Resale Flats are an option too
In our opinion, the income ceiling for HDB BTO flats must stay in order to maintain a vibrant market for resale HDB flats. In fact with all the talk on decaying leases, the prices for older resale flats have declined considerably making it affordable for young couples. Resale flats that just reached their 5-year MOP are attractive buys as the units are typically renovated by the first owners hence buyers do not have to fork out cash for renovations and they are able to check out the physical attributes of the flat (ie: facing, floor level, amenities) before purchase. HDB has also introduced attractive housing grants of up to $160,000 for eligible buyers of resale flats. To conclude, the income ceiling should remain and it should track the median household income to stay relevant and effective.