In Singapore, public housing generally refers to HDB flats. The term HDB stands for Housing Development Board, which is the statutory body that deals with public housing in Singapore. In other words, these are public housing developed by HDB for the public to own as a home.
Over the years, Singapore has been recognized as one of the few countries in the world that enjoys success in its public housing program. Currently, more than 80 percent of the population stays in these flats. Public housing often evokes the image of dilapidated apartments accompanied by a lack of services in the neighborhood. In Singapore, HDB apartments are located in well-planned housing estates with schools, supermarkets, clinics, hawker centers, and even sports and recreational facilities. Residents living on these floors typically enjoy a high level of self-sustainability.
As Singapore builds on its economic success, the expectation for public housing is growing. Executive Condominium (ECs) is a type of hybrid between public housing and private housing. Singaporeans who do not want an HDB apartment but may find private property too expensive can purchase EC instead. It is worth noting that a JV is partially privatized after five years from the date of completion. Therefore, EC owners can sell to Singapore citizens or permanent residents after 5 years. A JO is fully privatized after ten years from its termination date. A fully privatized CE can be sold to Singapore citizens, permanent residents or foreigners. In other words, the Executive Condominium becomes private property only ten years after completion. Still, this provides a means for aspiring Singapore citizens and permanent residents to own private property.
As the land shortage in Singapore becomes more developed, the price of land has been increasing. As such, the price of such flats and EC has been going up north in the last ten years. Buyers of this type of apartment and EC are usually young couples or young families who have just bought their first home. Their family income is comparatively lower as they have not been working for a long time.
In a move to curb excessive borrowing by HDB EC and apartment buyers, the government introduced the Mortgage Service Ratio (MSR) on January 12, 2013. HDB and financial institutions must comply with the MSR framework when evaluating the loan eligibility of these buyers.
In assessing a borrower’s MSR, financial institutions and HDBs must divide the borrower’s monthly mortgage obligations (including debts secured by property) by their total gross monthly income. For joint borrowers, your combined total monthly mortgage obligations are divided by your combined total gross monthly income. In short, MSR is calculated using the following mathematical formula:
MSR = (Monthly Mortgage Bonds / Gross Monthly Income) x 100 percent
Financial institutions and HDBs must ensure that borrowers do not exceed 30 percent MSR when granting mortgages to borrowers.
As MSR appears to continue to be a mainstay in assessing borrowers’ loan eligibility. Borrowers should plan their finances first before applying for a mortgage on their executive condos or condos. From the government’s point of view, MSR encourages financial prudence for buyers of said apartments and Executive Condominiums so that they can borrow within their means.
