One should consider the 30 Year HDB Concessionary Loan as a form of a death-trap

31st January 2013

[This letter has also been sent to TODAY]

I refer to HDB quality not compromised despite increase in supply

http://www.todayonline.com/Hotnews/EDC121227-0000040/HDB-quality-not-compromised-despite-increase-in-supply

In the report, you mentioned, “The review noted that public housing remains affordable for Singaporeans. The Debt Servicing Ratio for first-timers buying new flats in non-mature estates inched up to 24 per cent last year, from 22 per cent in 2010, but it is “well within the international benchmark of 30 per cent to 35 per cent for affordable expenditure on housing”.

The ratio measures the proportion of the monthly household income set aside for housing instalments and is calculated based on a 30-year HDB concessionary loan, factoring in the various grants.”

However, one should note that Debt Servicing Ratio should not be the only factor when it comes to affordable public housing. One should consider the 30 Year HDB Concessionary Loan as a form of a death-trap.

Many couples are marrying later at 33 years old due to the high cost of living in Singapore. Couples are also borrowing higher loans due to the high cost of a HDB flat.

Many fail to consider that with a 30 Year loan, they may actually be in debt when their CPF withdrawal limits affect their ability to pay back their mortgage loan.

Most of the time, HDB officers and property agents compute buyers’ credit assessment based on their monthly income only without factoring in their age. However, many of them do not factor in CPF withdrawal limits and fail to inform buyers of this loophole.

With a 30 year old loan, most flat owners still need to service their loans until 60 years old. However, with CPF Act, it said that “If your housing loan is still outstanding when your total CPF usage for the flat has reached the Valuation Limit (VL) and you are below the age of 55, you may continue to use the excess in your CPF Ordinary Account savings to repay the housing loan after setting aside half of the prevailing Minimum Sum.”

How many citizens can actually meet the Minimum Sum at age 55?

Moreover, there is a change in the contribution rates at age 55. A person at age 55 would start contributing less CPF due to the CPF Act.

Even if you are gainfully employed at that age, most of your CPF contributions are channeled to Medisave and Medisave cannot even be used for housing purposes.

Edmund Lim

article can be found at TRE website