Should HDB Units be an Investment Option?

Government-subsidized housing, or HDB as we know it generally, refers to housing options whereby government provides sponsored economic assistance aimed toward alleviating housing costs and expenses for improvised people with low to middle income level.

From the above rationale, HDB units are supposed to be an affordable housing option for the local residents. 

Based on the resales statistics from 3rd quarter of 2018, the price for a 3-room flat is in the range of $260,000 for a unit in Yishun to $355,000 for a unit in Queenstown.

Is this affordable?

Let’s consider an example of a couple with a monthly combined income of $3,500.  Assuming they decide to purchase a 3-room flat for $300,000, they would have to come up with the initial deposit of $30,000 (10%) in cash or CPF, and for the remaining 90% to be financed by a Housing Loan from HDB for 25 years.  Consequently, their monthly instalment would be $1,225.  This may seem affordable, provided the couple has sufficient funds in their CPF account for the $30,000 initial deposit and, on condition that the couple remains employed during the 25-year loan tenure.  With their combined monthly income of $3,500, their monthly CPF would be sufficient to cover the monthly loan instalment.   However, if either of them loses their jobs, or the wife decides to be a full-time housewife to take care of the kids when they have children, the couple may not have sufficient CPF funds to service the loan.  Say if the husband earns $2,000 per month, his monthly CPF contribution into his ordinary account would be $460, and the couple would have to top-up $765 in cash. 

$765 may not be a huge sum at first sight, but considering that the husband is the sole breadwinner in the house with a take-home net salary of $1,600 (gross salary $2,000).  The couple would only be left with $835 after the housing loan instalment payment, and this is almost 50% of their monthly disposable income!  Assuming the couple have just 1 kid, 3 person will have to manage with $835 for an entire month for utilities, groceries, transport and miscellaneous.  

According to information obtained from HDB website, over 80% of Singapore residents stay in HDB, with 90% of these people owning their own home. In turn, there are over 50,000 units that are approved by HDB to be rent out as of March 2018 (statistics obtained from HDB Annual Report 2017/2018).

Whilst we understand that due to unforeseen circumstances or financial difficulties, owners should be granted the flexibility to rent out the empty bedroom(s) for extra income under genuine hardship cases, there are many cases which is instead profiting from the loophole.

Just take a look at the numerous units being advertised for rent in online property websites.  Many of these units are obviously being rented out by owners for pure profits, with units boosting new renovation, design-décor etc.  Under the existing property ruling, HDB owners are allowed to purchase private properties after meeting their 5 years minimum occupation period (MOP) and to rent out their HDB units. 

Why is the ruling allowing people who have the financial means to purchase a private property to continue holding on to a HDB unit when the original purpose of a HDB flat is to assist the lower to middle income local residential population?  There are even cases where individuals who are “CPF-rich” who stays in a private property owned by their parents/friends/sibling purchase a HDB unit with the sole intention of renting out the unit.  Whilst the individual may not be able to rent out the entire unit since he does not meet the minimum 5-year MOP, he is able to rent out the bedroom individually.  At an average rental rate of $650 for a common bedroom and $800 for a master bedroom, he gets to pocket a comfortable $2,100 each month by renting out the 3 bedrooms for a 4-room HDB flat which is comparable to renting out the entire house when he meets the minimum MOP.

HDB has become an investment vehicle due to demand from such individuals who are buying HDB units for profits and erode the true meaning of government-subsidized housing. 

Are such demands driving the resale prices up for people who genuinely need to purchase a unit for own stay?