Singapore public housing policy: Comparing amendment proposals from WP, SDP & FOSG

In March 2017, National Development Minister Lawrence Wong said that not all old HDB flats will be automatically eligible for the Selective En bloc Redevelopment Scheme (SERS).

In a blog post published, Mr Wong said that the Government will continue to maintain the strict selection criteria for blocks eligible for SERS, noting that only about 4% of HDB flats have been identified for SERS since 1995.

He was then concerned about reports of HDB flats with short leases left being transacted at high prices in the resale market.

“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. This is especially important for young couples, who have to plan for a much longer future.”

In other words, when the lease of a HDB flat expires at the 99-year mark, its value will be zero – based on Mr Wong’s statement.

HDB flat prices on the decline since 2012

The Housing Development Board (HDB) announced July this year that the price of resale flats has declined by 0.2% in the last quarter, which follows a steady drop in resale flat prices in the last three quarters.

The third quarter of 2018 saw a decline of 0.1% while the fourth quarter saw a 0.2% dip. In the first quarter of 2019, resale flat prices fell again by 0.3%. In total, resale flat prices have plummeted by 0.8% since from the third quarter of 2018 to the second quarter of 2019. In 2018 alone, resale prices dropped by 0.9%.

The decline in 2018 marked the six straight year of resale flat price drop since 2012, and prices are expected to continue declining in the coming years as a high supply of flats completed in 2014 enter the resale market this year.

Given that more than 80% of Singapore’s residents live in public housing, this is a system that is often talked about and many are worried about how the declining resale prices affect their future.

As such, public housing policy is a hot button issue among policymakers and politicians. In recent months, opposition parties and other experts have weighed in on the discussion with their own policy papers for Singapore’s public housing system.

People’s Action Party – SERS, VERS, and Schemes

Under the current system, new HDB flats are bought under the Built-To-Order (BTO) programme and the Sale of Balance Flats (SBF), the latter being the sale of remaining flats from the previous BTO exercise. Those interested to purchase a BTO flat will have to submit an application, and generally have to wait several years as the flats are constructed before moving in.

A percentage of BTOs and SBFs are set aside for first-timer families with at least one child or couples who are expecting, as well as divorcees and widowed parents.

While waiting for the new flats to be completed, first-timer married couples with children below 16 get temporary housing under the Parenthood Provisional Housing Scheme introduced in 2013.

A certain percentage of BTO flats and resale flats are also set aside for second-time buyers, with assistance provided for divorced or widowed parents. Further assistance is also provided in the form of CPF Housing Grants. While prices for the public housing is lower when compared to private housing such as condominiums, the price ratio compared to median income has been growing particularly for the low-income earners.

The HDB has an estate renewal strategy which it employs to upgrade and renew older estates. Via the Selective En bloc Redevelopment Scheme (SERS), the government selects an estate for renewal after a certain number of years. Resident there are given compensation package which includes rehousing benefits to help them purchase a new home with a fresh 99-year lease. Owners are usually compensated at market value.

Another newer option is the Voluntary Early Redevelopment Scheme (VERS) which allows owners of HDB flats that are 70 years old and older to collectively vote to sell their property to the government as the lease starts to run out, if their precinct is selected for VERS. Here, owners also receive a compensation package, though it is generally lower than SERS.

Other improvements made on older states via various programs include modernising town centres, upgrading and in some cases adding community facilities, improving road and transportation network, and enhancing mobility and accessibility at estates.

HDB also has schemes tailored for singles, the elderly and multigenerational families looking to purchase HDB flats from the Single Singapore Citizen (SSC) Scheme and Joint Singles Scheme (JSS) to the Multi-Generation Priority Scheme (MGPS), Senior Priority Scheme and several others. For low-income families and individuals, rental flats are also provided via stringent means-testing but with no guaranteed tenancy.

For the elder, HDB also has a Lease Buyback Scheme (LBD) where seniors can sell part of their flat’s lease to HDB and retain the length of the lease based on the age of the youngest owner. The proceeds from that will go into the seniors CPD Retirement Account.

There’s also the Silver Housing Bonus (SHB) where seniors can sell their existing flat and down-size (or right-size, as HDB calls it) to a small unit with a shorter 30-year lease. A cash bonus of S$20,000 is given under this sun as well as CPF refunds and additional CPF Life monthly payout of S$500 to supplement their retirement income. HDB estimates that after paying for the new flat and other related costs from the transaction, a senior can get up to S$100,000 back in cash under the SHB.

However, given the CPF Retirement Sum requirement where a minimum sum has to be filled in a person’s CPF retirement account before any cash proceed is given back to the flat seller, it would be difficult for the elderly to gauge exactly how much cash they will have left after the deduction.

Worker’s Party – Counting Down to Zero: Are There Alternatives to VERS?

Starting off with WP, the party announced on 29 Nov, its new housing policy paper proposes the introduction of SERS Plus and a Universal Sale and Lease Back Scheme (USB) as alternatives to the Voluntary Early Redevelopment Scheme (VERS) introduced by the PAP Government this year.

The Party listed the four following guiding principles in formulating its housing policies:-

  • HDB flats are primarily an affordable housing option in comparison to private property;
  • Consequently, the resale value of HDB flats should act as a form of wealth protection for retirement and legacies;
  • Wealth appreciation — if any — should be in tandem with economic growth and be inter-generationally fair to both citizens and the State, as the custodian of the interests of future generations; and
  • More housing options beyond owning HDB flat 99-year leases should be made available to Singaporeans to allow them to make informed housing choices that suit different needs at different stages of their life.

The extension of the USB scheme, according to the WP paper, will apply to all HDB property types and all HDB lessees after the Minimum Occupancy Period (MOP), and at least 80% of loan repayment has been completed.

Additionally, the HDB lessee should not be an owner of any private property at home or overseas. HDB Flats lessees can opt for the USB at any time after their unit reaches 30 years of lease tenure left.

Compensation for the USB is to be determined via a published formula that is pegged to the 10-year moving average for rentals at the time of USB application, pro-rated by lease tenure and taking into account the time value of money.

Lessees exercising the USB option can choose to receive compensation either via monthly payments or via a lump-sum dispensed in full but with repayment of loans from the CPF still being required, as with any resale transaction.

Flats purchased under USB will be used by the government to provide HDB flats for rental, for resale under Sale of Balance Flats (SBF) exercises or for sale of shorter lease lengths.

Other proposals put forth by WP in its housing policy paper include pegging BTO flat prices to median incomes and reassessing the way land being sold to the HDB is priced, and introducing a commercial Public Rental Market (PRM) scheme as an alternative housing option for many Singaporeans.

Given that the government has “significant power” to control pricing as “the largest customer for the construction sector and the largest owner of land”, WP suggested that the way BTO prices are set should “reflect the goal of keeping housing prices within a reasonable range of median income”.

The Party also pointed out in its working paper that HDB flat owners are “not owners in the traditional sense”, and are “in fact lessees with no strata title to their homes, unlike private condominium dwellers”, and thus do not have the power to “initiate collective sale” to the flats’ developers.

Singapore Democratic Party – Housing a Nation: Holistic Policies for Affordable Homes

As for the SDP, the party’s proposal to address public housing in Singapore includes the introduction of a new housing scheme called the Non-Open Market (NOM) Scheme.

Under this scheme, HDB’s CPF Housing Grant scheme will be adapted and improved to provide grants for buying 2-room and 3-room flats for first-timer low-income households (with average gross monthly incomes of less than $4,000).

The key features of the NOM system are as follows:

  • NOM flats may not be sold on the open market, but can be sold back to HDB at the purchase price less the consumed lease.
  • Owners of Open Market (OM) flats will have the option of converting to the NOM scheme, where the Government will return an amount based on the original purchase price from the HDB and the price of NOM flat of the same type 3. The build-up of a buffer stock of HDB flats to enable Singaporeans to obtain their flats with minimal waiting times.
  • Implement the Young Families Priority Scheme (YFPS), a targeted priority scheme that grants balloting priority for first-timer families with children or couples who are expectant for Balance Flats or new Built-To-Order Flats in non-mature estates.

Other recommendations in SDP’s policy include:

  • Increase the inclusiveness of public housing by enabling single parent families with children to own flats, and providing rental housing for low-income Singaporeans.
  • Enhance the Lease Buy-Back Scheme to more effectively assist needy senior citizens to have a secure retirement.
  • The NOM system will increase the affordability and access to public housing for all Singaporeans, says SDP, while suggestions for young families and Singaporeans with special needs will ensure that the system is inclusive.

Future of Singapore – Addressing Singapore’s Key Housing Problems: Asset Protection, Affordability and Access

Another proposal for public housing policies in Singapore was presented by the ground-up initiative called Future Of Singapore (FOSG).

In the policy paper by FOSG, Chief Executive Officer of International Property Advisor Pte Ltd Ku Swee Yong, veteran architect and adjunct professor at the National University of Singapore Tay Kheng Soon, and ex-GIC chief economist and former adjunct professor at the Lee Kuan Yew School of Public Policy Yeoh Lam Keong proposed:

  • 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 paper did also suggest 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”.

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