I was intrigued by all the claims and numbers flying around surrounding the HDB issue so i decided to do some quick calculations on my own last night. The results i found were rather interesting. It all started from something that one mp said about this situation: " $1k/mth CAN buy 2RHDB flt@$100k?YES! 1st timer get $60kHDB grants. $40k balance fully covered in 25/30yr by ur CPF ".
Let's dissect the situation.
Imagine we have a scenario of a 35year old man, drawing a fixed $1k/mth salary. Using the CPF contribution calculator (http://www.cpf.gov.sg/cpf_info/Online/Contri.asp), his monthly contribution to the ordinary CPF account would be $180.29 (35-45yo), $163.10 (when he is 45-50 yo), $110.52 (50-55yo), $95.670 ($55-60yo), which drops as you go. This amount in his CPF account can be used to pay for his flat.
Scenario: payment in 30 years
Basic amount to be paid per month to complete payment in 30 years: $111.11
Prevailiing interest rates: 2.60% p.a. Compound interest is calculated for each year using the outstanding balance for that year. (http://www.hdb.gov.sg/fi10/fi10328p.nsf/w/UpgradeHDBInterestRates?OpenDocument)
Calculating for the first year, this person would need to pay $111.11+ $86.67 (Interest)= $197.78/month for the first year. This amount drops every year until the 30th year where he pays $113.98. I compared this decreasing value of his "amt payable per month", against the CPF contributions stated above for every year during the 30year payment period. The conclusion that I got was that this man would need to top up his CPF every year as his amount payable would always exceed his contribution, despite the decreasing amount payable.
What are the implications?
1) The section on CPF in the quote is quite misleading. If I was this 40yo man, believing that I only need to work and all the HDF rental will be deducted from CPF so i need not worry about my monthly rental, i might think this is a very plausible plan. But the truth is not so.
2) For this person, he would have approximately $800 left for all other expenses in the first year. My rough estimate is approx $130 for transport (own experience), $150 for utilities, $30 on phone bills, leaving about $500 to feed himself and his parents, not forgetting furniture for the new house. Not impossible, but definitely not easy. (I think I easily spend close $300-400 per month feeding only myself.)
Note that this amount would increase over the years by a little bit, though. (On the 30th year, he'd have approx $880 left over/month), significance of this increase is subjective to individual.
3) The above calculations made a few important assumptions:
i) Person has a fixed income of $1k/month for 30 years.
ii) HDB rental rates do not increase.
b) CPF rates are the same each year.
Realistically speaking, assumption (a) is hard to fulfil. This means that the person has to stay at his job for 30 years, which i'm not sure how many people can. This man would need to work/pay for his flat until he is 65years old. It also means no no-pay leave can be taken. However, the reality may be a little better than i postulate because I did not take into account the bonuses and pay rise which can help alleviate the burden. In addition, I also made the assumption that this man is a sole breadwinner with either no spouse or a non-working spouse, which might either mean his load will be lessened or increased, respectively.
Conclusion
It is not wrong to say that $1k/mth can indeed get you a 2RHDB flat, but it might be a very difficult situation to undertake.
---------------------------------------------------------------------------------------------------
Disclaimer: This was purely an intellectual exercise that i undertook to tickle my brain, with no meaning to insult or challenge any person or organisation. I would appreciate highlights to any errors in my calculations, but please do not flame me as this is for my personal interest, hence I didn't thoroughly check through it. (Nobody reads my blog anyway!) I did this because the validity of numbers quoted by people as Truth/Facts always intrigue me. As my profs like to say, "words can deceive, but numbers cannot lie". I'd say I think I learnt a little more about "evidence" through this exercise.
As a final note. you know how intuitive it is that "Yea, with interest added on over the years, of course the total sum paid would be much higher"? To put a figure to that concept: by the end of 30years, this man would have paid $56,119 for his flat, a whopping $16000 more than the original stated, thanks to compound interest. (Simple interest would have amounted to a modest $1040, payable over 30 years, which is approx $3/month). This is almost a sure-pay, since all the poor people would need instalments anyway. Think about it.
That's all for today. Back to fyp!
sk
Let's dissect the situation.
Imagine we have a scenario of a 35year old man, drawing a fixed $1k/mth salary. Using the CPF contribution calculator (http://www.cpf.gov.sg/cpf_info/Online/Contri.asp), his monthly contribution to the ordinary CPF account would be $180.29 (35-45yo), $163.10 (when he is 45-50 yo), $110.52 (50-55yo), $95.670 ($55-60yo), which drops as you go. This amount in his CPF account can be used to pay for his flat.
Scenario: payment in 30 years
Basic amount to be paid per month to complete payment in 30 years: $111.11
Prevailiing interest rates: 2.60% p.a. Compound interest is calculated for each year using the outstanding balance for that year. (http://www.hdb.gov.sg/fi10/fi10328p.nsf/w/UpgradeHDBInterestRates?OpenDocument)
Calculating for the first year, this person would need to pay $111.11+ $86.67 (Interest)= $197.78/month for the first year. This amount drops every year until the 30th year where he pays $113.98. I compared this decreasing value of his "amt payable per month", against the CPF contributions stated above for every year during the 30year payment period. The conclusion that I got was that this man would need to top up his CPF every year as his amount payable would always exceed his contribution, despite the decreasing amount payable.
What are the implications?
1) The section on CPF in the quote is quite misleading. If I was this 40yo man, believing that I only need to work and all the HDF rental will be deducted from CPF so i need not worry about my monthly rental, i might think this is a very plausible plan. But the truth is not so.
2) For this person, he would have approximately $800 left for all other expenses in the first year. My rough estimate is approx $130 for transport (own experience), $150 for utilities, $30 on phone bills, leaving about $500 to feed himself and his parents, not forgetting furniture for the new house. Not impossible, but definitely not easy. (I think I easily spend close $300-400 per month feeding only myself.)
Note that this amount would increase over the years by a little bit, though. (On the 30th year, he'd have approx $880 left over/month), significance of this increase is subjective to individual.
3) The above calculations made a few important assumptions:
i) Person has a fixed income of $1k/month for 30 years.
ii) HDB rental rates do not increase.
b) CPF rates are the same each year.
Realistically speaking, assumption (a) is hard to fulfil. This means that the person has to stay at his job for 30 years, which i'm not sure how many people can. This man would need to work/pay for his flat until he is 65years old. It also means no no-pay leave can be taken. However, the reality may be a little better than i postulate because I did not take into account the bonuses and pay rise which can help alleviate the burden. In addition, I also made the assumption that this man is a sole breadwinner with either no spouse or a non-working spouse, which might either mean his load will be lessened or increased, respectively.
Conclusion
It is not wrong to say that $1k/mth can indeed get you a 2RHDB flat, but it might be a very difficult situation to undertake.
---------------------------------------------------------------------------------------------------
Disclaimer: This was purely an intellectual exercise that i undertook to tickle my brain, with no meaning to insult or challenge any person or organisation. I would appreciate highlights to any errors in my calculations, but please do not flame me as this is for my personal interest, hence I didn't thoroughly check through it. (Nobody reads my blog anyway!) I did this because the validity of numbers quoted by people as Truth/Facts always intrigue me. As my profs like to say, "words can deceive, but numbers cannot lie". I'd say I think I learnt a little more about "evidence" through this exercise.
As a final note. you know how intuitive it is that "Yea, with interest added on over the years, of course the total sum paid would be much higher"? To put a figure to that concept: by the end of 30years, this man would have paid $56,119 for his flat, a whopping $16000 more than the original stated, thanks to compound interest. (Simple interest would have amounted to a modest $1040, payable over 30 years, which is approx $3/month). This is almost a sure-pay, since all the poor people would need instalments anyway. Think about it.
That's all for today. Back to fyp!
sk
Comments
HAHA ok plesae resist the urge to slap me. Thanks for keeping tab on my blog josh! =) (hahaha, and it's really just me being wu liao XD)