The public should not conflate problems pertaining to poverty and retirement with issues surrounding the 99-year Housing and Development Board (HDB) leasehold policy, opines investment manager and former DBS Vickers Securities equity researcher Chow He Shen.
In a Facebook post on 9 Dec, Chow wrote that retirement is “about unlocking hard assets in exchange for liquid assets” and “balancing the two assets smartly”, regardless whether one is a HDB flat owner or a private home owner.
Rejecting the theory of certain critics who link retirement issues with the HDB leasehold policy on the basis that Central Provident Fund (CPF) monies are used for the purchase of an HDB flat, Chow said that CPF monies are also used for private home purchases.
“It is possible that owners of private freehold properties in Singapore who steadfastly hold on to their asset, without any retirement income for years, will run into cash flow problems,” he said.
Chow proposed that “[s]eparate government policies are needed to solve the problem of poverty and retirement adequacy”, while noting that issues such as poverty and retirement inadequacy are “global problems, in both rich and poor countries today”.
He argued that many older Singaporeans who had purchased their HDB flats 35 years ago, as an example, “would have seen their flat appreciate from $50,000 to $500,000 (on the average) when they retire”.
“To the majority of Singaporeans, their home is their largest asset and nest egg. 82 percent of these are HDB homes. HDB values will shrink to zero when they reach 99 years old. So what?
“The 99 year HDB lease is generous and adequate. If a young Singaporean couple buys an HDB at 30, the lease will expire when they are 129 years old,” Chow wrote.
Chow also questioned the popular view that an HDB flat’s value will “shrink to zero” due to the 99-year lease, given that many properties of high value have been built and are being built on leasehold land.
“It is profoundly confounding that many Singaporean intellectuals have come to a collective view that an HDB residential asset with a 99 year lease is a poison[ed] chalice because, at some stage in the future, its value will shrink to zero.
“Yet, professional developers of industrial warehouses, shopping malls and casinos in Singapore bid sky high prices for land leases ranging from 25 to 50 years and spend billions on building these facilities,” he argued.
While a 99-year lease “is a very long tenure for the first time HDB owner to feel financially insecure”, Chow posited that buyers “who purchase 35 year old HDB flat at market prices are a different breed”.
“They have different considerations and financial abilities. It is not the government’s duty to ensure that the flat outlives these secondary market buyers.
“The government’s sole duty, when it comes to housing, is in the primary market, ensuring affordable new HDB flats to a fresh generation of young Singaporeans,” he argued.
Chow also added that leasehold and freehold land “are two sides of the same coin”, and that a “lack of understanding of basic finance” has led to the view of freehold and leasehold properties being markedly different in value.
“If markets are reasonably efficient, buying a leasehold property should not be inferior to buying a freehold property. Most of the prime real estate in London sit on leasehold titles,” he added.
Commenters, however, argued that HDB flats should not be looked upon as a means to make a profit, especially when their initial purpose was to provide affordable housing for most Singaporeans:
Chief Executive Officer of International Property Advisor Pte Ltd Ku Swee Yong argued that unlike HDB homebuyers, particularly those from the lower-income bracket, professional developers have conducted “sufficient analysis” and have solicited their bankers’ or property valuers’ advice prior to submitting their bids for land leases:
Former GIC chief economist and former adjunct professor at the Lee Kuan Yew School of Public Policy Yeoh Lam Keong reiterated that HDB flats — as public housing — “are not and should not be purely financial investments”, but “quasi public goods like healthcare”:
Ku and Yeoh, alongside veteran architect and adjunct professor at the National University of Singapore Tay Kheng Soon, in a non-partisan ground-up initiative called Future Of Singapore (FOSG), recently proposed in their policy paper Addressing Singapore’s Key Housing Problems: Asset Protection, Affordability and Access certain policies to manage the current public housing crisis in Singapore, including but not limited to:
- Providing HDB flat owners with an affordable 99- year lease top up after 50 years;
- Funding the rebuilding of HDB flats after 100 years;
- Matching BTO and retirement flat prices closely to their construction costs; and
- Providing sufficient decent-sized and affordable rental flats for lower-income Singaporeans.
The experts also proposed that the Singapore Land Authority (SLA) should retain land ownership and reserve the right to redevelop the flats at any time via the HDB should it wishes to do so.
Affected owners must then, in such cases, be compensated with a flat of equivalent use-value and location — similar to the provision under the current SERS — in order to safeguard the quality of housing provided to HDB owners.
A base guideline fee for lease renewal of around 3% of the average market value of a new resale HDB flat was suggested: “for those who are able to afford it”.
The experts added that the Government should bear the costs of tearing down and rebuilding said flats “once they reach 100 years”.
Doing so, they opined, will ”enable HDB owners to have ownership rights beyond 99 years without incurring punitive rebuilding costs”.
“We accordingly propose that every HDB flat purchased by a citizen be guaranteed under a scheme, in which the cost of rebuilding is borne by the State, and a new flat with equivalent environmentally sustainable quality and comfort be returned to the owner every 100 years of the HDB flats’ life.
“A fresh lease of 99 years should also be given to the existing owner upon completion of this necessary rebuilding, thereby ensuring continuity of housing provision as a social good,” they added.
The experts suggested that Singaporeans should bear the cost of housing during the rebuilding period, as the Government will bear reconstruction costs.
Permanent Residents will not be eligible, and will be required to fund the full reconstruction costs of the new flats, unless they surrender the remaining lease of the flat to the HDB under existing lease buyback or under compulsory acquisition guidelines, they emphasised.
“With these proposed policies on affordable 99-year lease top-ups and effectively free rebuilding, all older HDB flats are likely to maintain value or see a rise in value depending on whether regular maintenance and upgrading managed to prevent excessive physical deterioration.
The experts also proposed that HDB should also ensure “a sufficient stock of transparently means-tested, affordable, good quality subsidized low rental flats” for the bottom 30 per cent of wage earners in Singapore, as the income group are unlikely to obtain “sufficiently secure long term employment to afford and service a mortgage even for 10 years”, especially in an “increasingly unstable gig economy of the future with a much higher likelihood of technology-disrupted unemployment”.