What Singaporeans must know about the 'cliff effect' of rental scheme

And how it can be avoided.

According to National Development Minister Khaw Boon Wan, HDB’s rental flats are highly subsidised to help low-income families who do not have other housing options. In Singapore, rentals are based on household income: those who earn less are subsidised more and hence pay less than those who earn more.

However, he also stressed in his official blog that the government is aware of the "cliff effect" which comes with this rental subsidy program. 

"Inevitably, there is a “cliff effect”, for those who cross the income tier. For example, rental rate may be at $30 per month for those who earn below $800 per month. The next income tier of “$801 to $1,500” will attract a rental rate of $110 per month. If a person’s income rises from, say $750 to $810, his rental rate may go up from $30 to $110 per month," he said.

To fix this "cliff effect," the government offers the following arrangements:

"First, for tenants whose income improves from “$800 or less” to “$801 to $1,500” at tenancy renewal, we will waive their rent increase. They can continue to pay the lower rent for the renewed two-year term tenancy.

Second, at the end of the renewed term, if the tenant’s income increase is still low relative to the rent increase, we will continue to waive the rent increase for another two-year term tenancy.

This arrangement helps low-income tenants who earn “$800 or less”, with more time, of up to four years, to use their additional income to provide for their families and build up their savings.

To date, about half (1,004 out of 1,869) of all tenants who renewed their tenancies and whose income increased from “$800 or less” to “$801 to $1,500” have benefited from this arrangement."

Read full blog here.