Was Mah Bow Tan right to say value of HDB flats would grow over time?

When Goh Chok Tong became Prime Minister in 1990, he introduced the “Asset Enhancement” policy, which was supposed to help enhance the prices of HDB flats for Singaporeans.

This policy was continued with his successor as Prime Minister Lee Hsien Loong. PM Lee said at an international conference in 2010, “But the environment has changed.  Singaporeans’ aspirations have risen sharply.  Finding a roof over our heads is no longer the pressing requirement.  The HDB flat is not just a shelter but also a key investment asset…over the long term, the value of HDB flats depends on the strength of the Singapore economy.  Provided Singapore continues to do well, our flats will maintain their value, and Singaporeans can enjoy an appreciating asset.”

In fact, just before 2011 General Election, then National Development Minister Mah Bow Tan even said, “We’re proud of the asset enhancement policy. (It) has given almost all Singaporeans a home of their own… that grows in value over time.”

However, the current Minister for National Development Lawrence Wong has changed tune on the policy.

Last year he made a public statement saying that only 4% of HDB flats were redeveloped through Sers since 1995. That is, these old flats, typically at very good locations, were bought back by HDB and the flat owners were compensated accordingly. HDB then knocked down the old flats and built new ones in the same land area for later sale to the public again.

But the vast majority of flats, Minister Wong noted, will be returned to HDB when their 99-year lease run out without any compensation.

“As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly,” he said. “So buyers need to do their due diligence and be realistic when buying flats with short leases.”

Hence, it seems that the value of HDB flats would no longer grow over time anymore as the HDB leases run down, according to Minister Wong.

ST reader complains that can’t sell old flats

And last week (3 Apr), ST reader Ronnie Lim wrote to ST Forum complaining that many seniors who wanted to downgrade to studio apartments were “in a fix as they are unable to sell their old flats”.

He added that most were hoping to downgrade and live on the profits from selling their flats, but have now become disillusioned.

He attributed the problem to the fact that HDB flats only have 99-year lease and it is made worse by the announcement by Minister Wong that not all old HDB flats will be eligible for Sers. Hence, once the HDB flats reach 99 years, they will have zero value and owners will have to vacate.

“The notion that owning a Housing Board flat is an investment for old age is no longer valid today,” said Mr Lim.

Mah says WP’s housing proposal amounts to an illegal raid on Singapore’s reserves

Back in 2011 just before the general election, then Minister Mah hit back at WP’s proposal to lower the price of new HDB flats.

Then Secretary-General of Worker’s Party  Low Thia Khiang had called for the pricing of land to be lowered for HDB flats, saying it is a matter of internal transfers within the government.

WP also called for the prices of new HDB flats to be pegged to the median incomes of households that qualify to buy them. Currently, new HDB flat prices are pegged to resale market prices and then discounted.

Mah said this was “not in the interest of Singaporeans and even dangerous”.

He said that the WP’s proposal to price new HDB flats lower than current levels will devalue existing flats as home buyers turn to new flats rather than resale flats.

The WP had also questioned the HDB upgrading programmes, which Minister Mah countered, “Why is the WP against upgrading programmes, which enhance the value of Singaporeans’ homes and enable the people to enjoy the fruits of Singapore’s progress? Why does the WP want to push down the value of all existing HDB flats?” he asked.

And his final point: The WP’s proposal to lower land costs amounts to an illegal raid on Singapore’s reserves. He said that state land forms part of the reserves. When the government takes state land for public housing, it has to pay the full value of the land back into the reserves. But of course, he forgot to mention that this full value of the land is being passed to Singaporeans buying the HDB flats.

He added that the WP’s motive in its call to abolish the elected presidency is “clearly to remove vital constitutional safeguards, so that it can raid the reserves to fund irresponsible spending”.

“Is this what the WP means when it offers itself as a ‘responsible’ alternative to the PAP?” Minister Mah asked.

In any case, as revealed by the current National Development Minister Wong, with or without upgrading, with or without the elected President, the value of vast majority of HDB flats would go to zero as their leases expire.

And even before their leases reach zero, the flats’ value would have started to nosedive with 35 years of lease left, as explained in this chart due to the financing constraints placed on older flats: