Aerial view of crowded Singapore high rise apartment skyscraper buildings.

Is home ownership for everyone?

The Singapore government is planning to reach out to 1,000 HDB rental-flat families to help them buy their own flats.

The scheme aims to mitigate income inequality and uplift lower-income families because “home ownership is key to providing stability and progress for families in the long run”.

A Home Ownership Support Team will be set up to provide stronger, personalised hand-holding. Low-income families living in subsidised two-room flats will be given a grant of up to $35,000 to buy a new or resale three-room flats in non-mature estates.

In the last six years, about 5,000 out of 56,000 rental-flat families have bought their flats under a similar scheme. The number has gone up to 1,300 last year.

Why our government promotes home ownership

With 91 percent owning their homes, Singapore has the world’s second highest home ownership rate after Romania. On average, couples pay only 4.5 times of their annual income to purchase their HDB flat.

There are many benefits of home ownership:

1. There is no place like home.

It offers a strong sense of belonging to the neighborhood. It strengthens the ties and attachment to the country and avoid losing local talents in bulk through emigration.

2. You need a job to service a mortgage.

It produces dedicated and hardworking employees who have strong motivation and compulsion to go to work, so that they can pay their bank first thing after getting their monthly paycheck.

3. It’s the best alternative to a welfare state.

When everyone owns their home, there is no worry that they can’t pay rent after retirement. When the elderly can stay in their home, there is no need to build many old folk homes even with an aging population.

Once low-income families own their flats, the government can stop subsidizing them on their rental, and above all, avoid subsidizing them all the way into old age.

Do low-income families really need to own their flat?

According to the Key Household Income Trends, 2018 published by the Singapore Department of Statistics, a total of 12.4 percent or 164,337 resident households have monthly income under $3,000. Another 12.1 percent or 160, 361 resident households are with no working person or no monthly income.

Currently, with extensive housing subsidies by the government, a family earning $1,500 pays $26 to under $100 per month from their CPF account to rent a one-room or two-room HDB flat in a non- mature estate.

The government is saying that they are giving low-income households the opportunity to benefit from the growth of Singapore so that no one is left behind.

But HDB flat is subsidized public housing, not an asset. When low-income families are introduced to the concept to invest in their own home, have we checked their current and future affordability? Do they fully understand the implications behind home ownership? Are they aware that all investments involve risk?

Put yourself in the shoes of a rental-flat family and consider the following situations:

1. When you are already struggling to make ends meet, would you rather pay $26 every month to rent a flat, or pay a monthly mortgage to own it?

2. If you are not earning much, do you prefer to pay a minimum rent every month, or pay a lump sum on downpayment, stamp duties and legal fee, and settle the monthly housing loan, renovation loan, property tax, service and conservancy charge, repair cost, etc.?

3. One day when you have financial difficulties and can’t pay your bills, which one is easier: Talk to HDB to lower or postpone rental payment, or talk to HDB or the bank to avoid your flat being repossessed due to default of loan payment?

4. Do you have the knowledge and means to deal with interest rate hike, HDB upgrade, expiring lease and value depreciation of old flats in the future?

In his fourth book Weathering A Property Downturn: Defensive Plays for Real Estate Investors, author Ku Swee Yong explains the costs and risks of home ownership of low-income families:

“I would caution that families on the verge of mending their balance sheets are still vulnerable to fall back into financial distress.

What these low income families need is a secure roof over their heads, not necessarily another possession in the form of a flat. And certainly not being saddled with a long term liability in the form of a loan. They should not be tie down with home loans, and definitely not further shackled with extended Minimum Occupation Periods!”

Is home ownership the solution to wealth inequality?

I’ve shared my childhood story in the first article in Chapter One of my book No B.S. Guide to Property Investment. I grew up in government-subsidized rental housing in Hong Kong. My family of six lived in a small flat with no bedroom, similar to a one-room HDB flat in Singapore.

The rent was cheap. If we managed to keep the meter readings low, we didn’t even have to pay for utility. We stayed there for over 20 years until my parents saved enough money to buy a private home.

If we had to pay a monthly mortgage, there was no way my father, being the sole breadwinner of the family, could feed four young kids, support his old parents, and put all of us through school.

The home ownership scheme targeted at rental-flat families starts with good intentions, thinking that it is all for their own good. But it can potentially create extra financial burden on families that are only scraping by. We are looking out for low-income families. But it may unknowingly have the disadvantaged wear themselves out.

Before implementing the new scheme, let’s ask ourselves the following questions:

1. Can low-income families possibly accumulate wealth while paying monthly mortgages for their HDB flats, or are we simply adding another expense on their pile of bills?

2. Are we uplifting lower-income families, or pushing them to higher debts? Are we providing stability and progress, or giving them more financial stress?

3. When they need money under difficult financial situations or during their retirement, how can they sell their flats while still have a roof over their head? Do we expect them to fall back to HDB rental flats?

4. When personal net worth is calculated by total assets minus total liabilities, are we giving them an asset or a liability? When they decide to sell their flat, how do we guarantee its value can appreciate or at least not depreciate over time? How much can they monetize from it after paying back CPF with interest?

Helping low-income families is not to give them one-time cash payout, or subsidize them to buy an HDB flat. We have to think long-term to show them how to better manage their finances, and upgrade their skills so that they can secure higher pay jobs.

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

Lessons learned from high home ownership in Romania

Do you know why Romania, a country crippled by a government debt as high as 35 percent of its annual GDP, can top the world with 96 percent home ownership rate?

Reason #1: The government sold it cheap.

Under the communist rule, the state owned 70 percent of homes in Romania. With the fall of communism in 1990, the government sold the baby boomers the homes they were living in. With a devalued currency, home prices were dirt cheap.

“Paying 100,000 lei for an apartment in 1991 was a fair price at the time. In 1994, that was the price of a color TV,” recalled a home buyer at that time.

Privatization of state-owned homes is also the reason why there is extraordinarily high home ownership rate (over 80 percent) in Europe’s former-Communist countries, including Slovakia, Croatia, Lithuania, Hungary, Russia, Poland, Bulgaria, Estonia and Latvia.
home ownership

Reason #2: Rental is not an option.

Romanian property developers provide many home choices. There are cheap loans from banks. Buyers pay only 5 percent advance payment.

With high home ownership rate, the Romanian government have built fewer public housing units after 1996.

On the contrary, it is difficult to rent in the country. Besides the lack of choices, there is no law to regulate the rental market. Rental homes are often in poor condition with low-quality furniture.

Reason #3: There is no choice but to own your home.

What are the consequences?

The new generations of Romanians are forced to buy even if they can’t afford to buy a home. As a result, people have to live with high debt.

Many inherit their home from their parents. But they also inherit the problem of aging properties at the same time.

According to a World Bank report on Romania Regional Development Program, the country has a “virtually absent rental market”. When families expand in size, multiple generations or extended families have to live together. Overcrowding in living is common in Romania.

The report also highlights the fact that more than a third of Romania’s housing is lack of repairs (with structural issues, heating problems, and little protection against earthquakes) because many owners can’t afford to.

Like a homeowner said, “I am not sure if being a homeowner is a blessing or a curse.”

Is high home ownership policy relevant for the future?

For many Singapore homeowners, we can’t deny the benefits of home ownership. But the relevance of high home ownership rate in the future will depend on three factors.

Factor #1. A growing economy

Property prices appreciate with the growth of economy and salaries in a country. When many Singaporeans have invested their wealth heavily in their homes, we have to ensure that our economic growth can be sustained over the next few decades.

It is an outdated thinking that if we buy a flat now, it will appreciate over time so that we can upgrade our home along the way. Singapore has long passed the stage of rapid economic growth during transition from an emerging to a developed country. The days when market value of HDB flats can jump tenfold are over.

Factor #2. An increased demand in housing

Our government is raising the bar on even higher home ownership in Singapore. Where is the demand coming from? Low-income families? Millennials forming new households? More import or foreigners and approval of permanent residency and citizenship?

Above all, is our aging population supporting or hindering home ownership?

Factor #3. Financials of government and homeowners

In his 2016 book, Ku Swee Yong points out that home ownership locks up capital in illiquid, unproductive assets, especially in the case of a prolonged downturn.

To avoid falling into the high home ownership trap of Romania, our government must be fiscally sound. Likewise, homeowners must be financially healthy to cope with depreciation, repair and upgrade of aging properties.

It is a grand motive to uplift the disadvantaged and narrow the wealth gap in the society. However, instead of trying to have something for everyone, or give the same thing to everyone, it is important to look at the real situation and meet the housing needs of different income groups in the country.

I will be talking about “Singapore Property Market #10YearChallenge” at the SMART Expo this Saturday (Mar 30) 5 p.m. at the Suntec Singapore Convention & Exhibition Centre. Get your free pass and see you there!

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