Make meaningful comparisons

HDB’s method of measuring the affordability of homes has come under public scrutiny recently

COMPARING the prices of public flats today with those of years ago is ‘not meaningful’, National Development Minister Mah Bow Tan said on Thursday.

Speaking on the growing public criticism over home prices recently, Mr Mah emphasised that HDB flat prices are closely monitored to ensure affordability.

‘We’ll keep the prices such that they are pegged to the income, so this is how we manage affordability. We make sure that the prices do not exceed the 30 per cent benchmark,’ he said.

This benchmark refers to ensuring that a household pays less than 30 per cent of its monthly income to service a home loan. In fact, within each buyer’s income brackets, expenditure on housing is about 20 per cent or so, said Mr Mah.

As for comparing prices with those of 20 years ago, ‘those are not meaningful comparisons’.

‘If we did that, we’d be comparing many things that we did 20 years ago, do we want to go back 20 years?’ he said.

HDB’s method of measuring the affordability of homes has come under public scrutiny recently, with some arguing that this benchmark, calculated with a 30 year loan tenure, should use 20 years instead.

However, Mr Mah pointed out that the 30-year loan term is used in international standards and by commercial banks.

‘If you want to argue it’s too high, you can use all sorts of arguments,’ he said. The main point is this is part and parcel of a financial system that will allow people to own an asset, he added.

This asset, the home, enables owners to monetise it for income later in life, he said. This may involve selling the property or applying for the HDB’s lease buyback scheme, which gives homeowners a source of retirement income, he said.

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Source : Straits Times – 1 Oct 2009