HDB – S’poreans’ billions of ‘reserves’ raided?

Leong Sze Hian /

I refer to the reports “WP rebuts Minister’s criticisms of its housing proposals” and “WP ‘not looking to raid reserves'” (ST, Apr 22).

The former states that:

“The WP had said it would lower flat prices by paying less for state land. Mr Mah said this amounted to an “illegal raid on the reserves”, leaving less for future generations”.

So far, the debate may be described as one of rhetoric without much statistical or quantitative arguments or analysis.

How much ‘reserves’ raided?

In this regard, since the Minister was quoted as saying that the WP’s proposals were “calculated” to confuse Singaporeans, I would like to suggest a slightly different approach to the debate, by attempting to calculate the amount of ‘reserves’ being raided.

My starting point is not the raiding of Singapore’s reserves, but rather the apparent raiding of ordinary Singaporeans’ ‘reserves’.

Every Singaporean who pays more in his lifetime for a higher priced HDB flat under the HDB’s current Market Subsidy Pricing policy, may in effect end up with less ‘reserves’ for his or her retirement, available pre-retirement cash-flows or an emergency before retirement, compared to the WP’s median income pricing policy.

Since the prices of HDB flats rose by 69 per cent from 2005 to 2010, according to the HDB Resale Price Index, let us assume that during the five years, the average of say about 50,000 flats transacted (10,000 new and 40,000 resale) per year, had an average price of $300,000.

Of course, it may be more realistic and complete to do a much more thorough computation based on the per annum 11.1 per cent rise in HDB prices on a year-to-year basis for the five years. However, in the
interest of simplifying matters to facilitate readers’ understanding, I shall work on the simplified methodology of a $300,000 average flat price.

Let us next assume that under a median income pricing policy, the average price would have been say $200,000.

This may mean that every Singaporean family who bought a HDB flat over the five years, in a sense, had overpaid $100,000 ($300,000 minus $200,000).

The monthly repayment on a typical 30-year mortgage on a HDB Concessionary Loan at 2.6 per cent interest is about $400 for the $100,000 difference.

The cumulative sum ‘overpaid’ for 30 years, is $144,000 ($400 x 12 months x 30 years).

However, if we factor in the time value of money at say five per cent per annum, because the first $60,000 in CPF accounts now pay five per cent interest, and the excess of the Ordinary Account beyond $20,000 and Special Account beyond $50,000, can be invested under the CPF Investment Scheme (CPFIS), the cumulative sum after 30 years may be about $333,000.

Therefore, every Singaporean family who ‘overpaid’ for a HDB flat, arguably, had his ‘reserves’ amounting to $333,000 ‘raided’ under the current Market Subsidy Pricing policy.

The Manpower Minister said in Parliament:

“For the cohort turning 55 in 2010, over 40% of active CPF members attained their cohort MS (Minimum Sum) set at $123,000. Of these members, more than half have set aside the full cohort MS in cash. If we were to add back the amounts withdrawn for housing, the average savings of active members turning 55 in 2010 would be $226,000, with the MS attainment rising to about 60%.”

Couple this with the fact that there were also 1,646,700 inactive CPF members, out of the total CPF members of 3,291,300 in 2009, (Department of Statistics Labour and Productivity who may have very little in their CPF, where did their money go to when they retire? Were they raided by higher priced HDB flats?

Hence, is it any wonder that Singapore has been consistently rated as one of the least financially prepared in retirement, according to practically every international study that has been done?

Multiply $333,000 per family by the 50,000 flats a year gives the sum of $16.7 billion that is in a sense, raided in just one year.

Multiply this by five years, and the total sum raided may be about $84 billion.

If you are a good investor like the Government Investment Corporation (GIC), at six per cent the amount is $100.5 billion; and if you are a super investor like Temasek, at 18 per cent the amount is about $1,411 billion, instead of the $84 billion I calculated above using five per cent.

To put these sums in perspective, they are equivalent to about 29, 35 and 490 per cent, of Singapore’s Official Foreign Reserves of US$233 (S$288) billion, according to the Monetary Authority of Singapore
(MAS).l

I find the minister Mah Bow Tan’s remarks that “the land value is determined by a chief valuer according to market conditions and valuation principles”, somewhat self-contradictory, because since its valued by the chief valuer, why is it that the minister has consistently refused to disclose the land costs component charged to HDB flats?

Are we perhaps saying that the chief valuer’s valuation is secret?

So, who do you want to be your National Development Minister for the next five years?

One who raids your ‘reserves’, or the Official Foreign Reserves?

 

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