Since the news of the cooling measures in August, we've written about how it has impacted the middle-class group in Singapore. However, the news comes with a silver lining for the lower-income group - the maximum Enhanced Housing Grant (EHG) subsidy was previously $80,000, but the ceiling has now been raised to $120,000.

In this piece, we take a closer look at how Singapore's lower-income households are likely to be affected by the recent changes.

First up, here's how the increased EHG helps:

Enhanced Housing Grant EHG HDB

Next, let's see how it impacts affordability. It has to be said, answering this question puts us in a predicament as we have to make some assumptions. Unlike the middle income where using a simple formula lets us find out what they can afford based on the MSR, lower income groups have to put up a lot more cash/CPF to meet the minimum requirement for even a 3-room HDB flat.

And this is difficult even with the higher Enhanced Housing Grant.

The middle income can simply choose an older flat or a cheaper estate. The lower income has fewer options.

To illustrate, here's a look at the volume of 3-room flats transacted by price bands, starting with $250K:

3 Room Flat Proportion

Only around 11% of all 3-room flat transactions (excluding Terrace homes for obvious reasons) transacted for $350K and below. If you're stuck within this price range, you don't have a lot of choices at all. These would be the oldest 3-room flats you can buy in Singapore.

Since calculating a purchase price using an MSR formula alone isn't sufficient, we'll need to consider a scenario. For example, a lower-income family looking to start their journey towards homeownership might aim to purchase a 3-room flat, typically priced around $350K. We will base our analysis on this assumption.

With that in mind, let's now look at how the regulation plays out for them.

Before 20th August 2024Household Income
Type$1,500$2,500$3,500$4,500
Enhanced CPF Housing Grant$80,000$70,000$60,000$50,000
CPF Housing Grant (Families)$80,000$80,000$80,000$80,000
Max Loan (Based on 30% MSR)$94,894$158,157$221,420$284,683
Max Loan + Grants$254,894$308,157$361,420$414,683
HDB Flat Price (Loan + 20%)$350,000$350,000$361,420$414,683
LTV Ratio27%45%61%69%
Top-Up Required$95,106$41,843$0$0

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The MSR of 30% severely restricts the affordability of a household earning $1,500 (they can loan $94,894). Plus the grants, this comes up to $254,894. At this price, the household will have few options that topping up is necessary. If we assume they have saved up to purchase a $350,000 flat, then the cash/CPF top-up they have to top up $100,306 (including the BSD):

Low income group breakdown of payments

Here's what their affordability looks like after the recent changes:

From 20th August 2024Household Income
Type$1,500$2,500$3,500$4,500
HDB Flat Price (From Previous Example)$350,000$350,000$361,420$414,683
Enhanced CPF Housing Grant$120,000$105,000$90,000$70,000
CPF Housing Grant (Families)$80,000$80,000$80,000$80,000
Max Allowable Loan Based On 75% Of Purchase Price$262,500$262,500$271,065$311,012
Max Loan Based On MSR$94,894$158,157$221,420$284,683
Max Loan + Grants$294,894$343,157$391,420$434,683
Buyer Stamp Duty$5,200$5,200$5,443$7,040
Top-Up Required$55,106$6,843$0$0
Difference in top-up$40,000$35,000$0$0

You can clearly see the difference in the change in the Enhanced Housing Grants. Now the low-income group who wants to afford the $350K is closer to being able to afford a $350k flat.

You'll also see that now, households earning $3,500 and $4,500 saw their affordability go up by $30,000 and $20,000 which is equivalent to the EHG increase. In this case, their affordability is now $391,420 and $434,683 respectively.

Now that we have all the figures, we can put every income group looked at together (based on our previous article here) and see the before-after effects assuming the top-up amount remains the same:

Difference in affordability after changes singapore hdb

What's interesting here is how the income groups between $4,500 and $6,708 converge. While the increased grant amount of $20,000 doesn't look like much, the drop in affordability for middle-income earners who aren't able to meet the top up puts them in almost the same category as those earning $4,500.

Another way to look at it is - now, lower-income groups, who were hardest hit by inflation and the increased interest rates, have received the greatest benefit. So for those in the lower income, while affordability remains a challenge, the playing field has evened out slightly.