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Chua Mui Hoong says that HDB buyers have a ‘special relationship based on trust’ with the PAP — Is she missing the point?

On Sunday (9 Sep), Straits Times Opinion Editor Chua Mui Hoong wrote an opinion piece entitled 'Why HDB flat dwellers have the best of both worlds'. She was giving her views to the recent debate on whether owners of HDB flats really "own" their property, or are just leasing it for the long term with a prepaid rent given the lease agreement.

The Opinion Editor believes that the no-so-simply answer is "both".

Flat owners have "purchased their properties on a leasehold term" while HDB remains a "super landlord". In her view, this is not a bad thing as this "carries a lot of benefits to HDB flat buyers as the former spends billions to "upkeep, upgrade and maintain the value of HDB flats".

She also went on to talk about the "special relationship" of "promise and trust"  that HDB owners had with the PAP government. While she acknowledged that the asset enhancement policy in the 90s went "overboard" and people believed that the government would bail them out leases would eventually run out, HDB ultimately fulfilled the promises of home ownership for the masses.

Even recently, she feels, the PAP government "takes that bond of trust very seriously". This is why they have introduced the HIP II and VERS to "sooth concerns and to assure flat buyers their home values will be protected" long before they are actually required.

Furthermore, she believes that the existing Home Improvement Program is a blessing for home owners. She gave an example of how HDB had repaired spiraling and structural cracks, changed the waste and soil discharge stack, and new drying rack at zero cost to the HDB owner under this scheme.

Ultimately, she "would not be too concerned about whether she owned or leased the flat, so long as the HDB lessor is prepared to continue taking care these upgrading as [her] flat ages, and offer them at highly subsidized pries."

Perhaps Miss Chua is missing the whole point.

An "asset enhancement promise" - how badly has it failed?

In 1992, the then-PM Goh Chok Tong stressed the importance of supporting government upgrading of HDB flats. "It is in your interest to ensure that the value of your flats continue to rise. Every 10% increase in the value of your flat means a huge increase of several thousand dollars in your wealth."

Later in 1994, the late Lee Kuan Yew said "I would start off with a five-room or an HDB executive... Quickly, before my income ceiling takes me beyond that. You buy a flat in Bishan, it's going today for half a million. So I would get there first, stay five years, seven years, and then move out."

At the completion ceremony for upgrading at Kim Keat in 1995, Goh noted with pride that prices there had doubled in the last three years. The 1990s were therefore "a new phase where the Government increases your asset value through the Assets Enhancement Programme".

In the long term, this has created a culture where homeowners had used monies meant for their retirement (i.e. CPF Funds) to purchase their properties, believing that their flats would ultimately go up in value and provide for their retirement.

2014 working paper by the Institute of Policy Studies quoted sources which found that - on average - 44% of CPF savings had gone towards the purchase of residential and investment properties. In addition, Singaporean households typically had 47% of their total assets in the form of housing.

In a more revent Facebook post, former NTUC CEO Tan Kin Lian said that his created a situation where people "[relied] on the appreciation of their HDB flats to compensate for the low rate of interest paid by CPF for their retirement funds".

The revelation by MND Minister Lawrence Wong last March that the value of flats would revert to zero once they hit the tail-end of their leases has therefore ripped this entire belief apart. This is something that Miss Chua has failed to mention in her opinion piece.

HIP II and VERS: A lacking in details while not understanding how it work?

There are only two things that we know about VERS: it would not be as generous as SERS while it requires that the flat owners vote for it. Other than that, there would not be much information as the planning is still being done while details will be released in 20 years time.

Therefore, it would not be an overstatement to say that there are multiple problems with VERS.

First, the issue with older flats starting their rapid decline in prices once they hit 40 years of age is not resolved. By comparison, VERS would only begin when flats hit 70 years of age. How does one deal with a declining home price when their flats have, say, 35 years left on their lease?

Based on current estimates, the value of such flats would already have fallen by as much as 80% - one could consider that landed properties at Jalan Chempaka Kuning - which have 17 years left on their leases - are worth around $500,000 compared to $3.5 million for similar properties elsewhere with long leases remaining.

Given that quantum of flats - 280,000 of them which would reach 40 years old in the next decade - this would prove a ticking time bomb. A plan that begins only in 20 years' time would therefore be more fluff than real substance in helping these affected owners.

Finally, the existing lease-and-buyback scheme that is already in place is not generous. Given that VERS would not be as generous as SERS - and that average Singaporeans had placed a large sum of their net worth in an asset that looks to decline - how would this affect the masses?

A sobering conclusion?

Ultimately, Singaporeans were under the impression that their HDB flats would appreciate in value and they could rely on this for retirement. But this promise has been broken and HIP II and VERS remain a long time away with little concrete details at this point in time.

My view is that the PAP is merely buying time, knowing that the elections are a year or two away.