Source : HDB.gov.sg.

HDB reminded of Singapore’s ticking time bomb, the destruction of household equity caused by non-recourse 99-year HDB lease

by Chris Kuan

The Housing Development Board (HDB) is reminded of the ticking time bomb that it is since that letter in the Straits Times about seniors having troubles selling their older HDB flats.

But it is also something of a political "big bazooka" to borrow the famous term used by European Central Bank (ECB) president Mario Draghi about a wall of money. In our case, it will not be because of Mr. Draghi's quantitative easing but the wall of money to bail out HDB owners. How so you may wonder.

Well, the only way to avoid or minimise the destruction of household equity caused by the non-recourse 99-year HDB lease is to monetize the flat. Through the Lease Buyback Scheme (LBS), the Selective En bloc Redevelopment Scheme (SERS) or to downgrade. Of the three, only the last require someone to buy the flat from you and that someone will face household equity destruction possibly even worse than you face depending on price. The other two require the government to cough up monies to compensate you for the remainder of the lease. No free lunch of course since the price of the LBS and SERS are driven by "market prices", which also explains why the government has been warning about the overpaying for resale flat. The lower the price of resale flats, the lower the equity release from LBS and SERS and so the less the money the government needs to cough up. And of course, the less money you have to supplement your retirement.

But since the government has a complete monopoly on LBS and SERS, the market is really what it decide the market is. Therefore the million dollar question - as more and more HDB flats approach the "cliff" of sharply falling values due to shortening remaining lease, what is the possibility of the government raising the LBS and SERS price and implement more of the latter than the present miserly pace to better compensate an increasing number of HDB owners? To answer that, simply ask yourself how likely are you going to vote against the PAP? If the answer is not likely then the politicians being typical politicians will take it as an endorsement of their policies and will do nothing.

If the answer is yes very likely, that means the people are very very pissed and the government will have to get its ass moving. Hence you can signal your upcoming problem with your HDB flat through your vote.

By the way, how is the government going to pay for the bail out?

Tapping the reserves of course and it won't be breaking the constitutional rule that prohibits spending the reserves. Why?

According to the Sage of Singapore, past drawdowns of reserves to pay for land acquisition and development has not broken the constitutional rule because it is a change in the type of reserves, i.e. from financial reserves to land reserves. Now then think, is the hoarding of the reserves "each generation handing something over to the next generation" or is it a reserve fund to pay for that political big bazooka in case political dominance is under threat. Grab 'em by the wallet, not the balls and their hearts and minds will follow.