GMS, you are still mixing up all the issues. The problem is created by HDB with the poor demand/supply control, it has NOTHING to do with the grant!
He's not mixing up the issues, just that there are many issues. The poor demand/supply control is just one aspect of the problem.
Extending the loan period is also part of the problem - again, the grant is not involved because they can just extend to 30 years no matter whether there is a grant, and it would still appear affordable.
Think about it this way. There are two main criteria banks look at when they approve loans : deposit and servicability. As you mentioned govt can screw with serviceability by just extending loan to 30+ years.
The grant is how they screw with the requirement for a deposit.
If there is no grant today, would some people even be able to get a loan in the first place? In other countries, these guys would drop out of the market and become renters.
It's hard to accept this concept because it has been drilled into us that everyone must own a flat, and there are no renters.
With the old cost-based pricing, grants were GOOD because in those scenarios, grant = discount. What you see is what you get. With the new market-based pricing where prices are affected by supply and demand, the combination of grants + credit availability can distort demand and this can be BAD as it may result in a higher total price.
Grants are a method of creating demand by allowing people who normally would not be able to get a loan, to buy the flat. They also help keep prices high by artificially sustaining demand.
For example, let's say HDB prices increase to 1 million but salaries remain the same. No problem, increase the grant to 100K or 10%, then drag out the loan tenure so the monthly payment is bearable, and ta-da, HDBs are now affordable to all.
Actually, talk so much, all this rubbish came about because of the move to market-based pricing. There can be no lasting solution as long as that's not addressed.
