The drastic increase in the cost of public housing over the past 30 years has caused a financial squeeze for many Singaporeans, particularly young couples who desire to own their own homes, and families forced to downgrade because of financial difficulties.
A three-room resale flat in the prime area of Tiong Bahru used to cost just $6,000 back in 1975. Now three room flats in that area are selling for as much as $322,000! This 5,266% price increase is simply mind-boggling! It has far outpaced inflation and increases in salaries over the past 30 years.
The cash over valuation (COV) that buyers are now having to pay is also shooting through the roof, and threatens to get even higher when the casino resorts open next year.
National development minister Mah Bow Tan claimed that one third of resale flats are “transacted at or below” COV. This claim is almost laughable if you ask any home buyer or real estate agent.
The sky high property prices threaten severe long-term effects on Singapore’s future. Many young people delay getting married because of insufficient savings to place a down payment for their first flat, which has a knock on effect on our birth rate and our ability as a nation to replace ourselves in the next generation. Others simply pack up and leave for other countries where they can buy an entire house with a garden for the price of a tiny HDB flat.
Those who do sink their roots here spend their entire working lives paying off their housing loan. After the 30 year loan is paid off, they have exhausted their retirement savings and whatever they do have is locked up in their only “asset” – their home. Unfortunately their home is not really an asset when they can’t sell it because they will lose the roof over their heads, and they have to pay and arm and a leg for another equivalent property to stay in.
This problem started in after 1991 when the PAP government started its Asset Enhancement Scheme, during which the HDB flat transformed from being an affordable roof over one’s head, to an investment vehicle that could reap tens of thousands of dollars in capital gains.
The Asset Enhancement Scheme has been proven to be a flawed, populist policy of the PAP, which is going to cost future generations of Singaporeans dearly.
The solution to this mess is not easy. Whatever measures are put in place to reduce the price of flats for buyers would inevitably disadvantage existing home owners who have bought high and may end up selling low.
This government needs to bite the bullet and clean up its own mess – even if it means losing some votes – for the sake of future generations of Singaporeans.
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I have a few suggestions on how we can lower the cost of public housing for Singaporeans, without causing asset destruction or panic selling.
Sell new flats at cost-plus pricing
The first thing HDB should do is to reduce the price of its new flats.
HDB maintains that flats remain “affordable” and that it still provides a “market subsidy” for buyers. The market subsidy simply means that new HDB flats are priced lower than existing resale properties in the same area. It is not based on the cost of construction and land.
Mr Leong Sze Hian from The Online Citizen has calculated that HDB could be making a profit of over $170,000 per flatin the new Punggol development. Mr See Leong Kit, in a letter published in TODAY, also arrived at a similar estimate of $140,000 profit per unit for the Pinnacle@Duxton development.
For a start, in the spirit transparency, HDB should disclose the profits it makes from each project ─ by showing how much exactly it cost them to build the flats alongside the prices that they are being sold for.
HDB is a government agency. It should not behave like a profit-maximising corporation. There is no reason why new HDB flats cannot be priced at cost plus ─ no more than 5% above the cost price of building the flat and acquiring the land.
Reducing the price of new flats will immediately make it more affordable for many more lower- and middle-income couples who do not have the savings to pay over $300,000 for a new flat. It would also have a knock on effect of slowly lowering the price of resale flats, which would also benefit home buyers.
Perhaps HDB is concerned that these homeowners will sell their flat 5 years later for an obscene profit in the open market. To prevent this from happening, HDB could require that the flats cannot be sold for more than 10% above the cost price (adjusted for inflation) for the first 10 years. This will prevent home owners from profiting excessively after receiving the government subsidy.
Another way of reducing costs is to build flats without all the frills. In recent years, HDB seems to have taken on the mindset of a private developer, coming up with ways on how to meet the apparent demand from yuppie Singaporeans for condo-style living.
This is treading down the wrong path. HDB flats should remain no-frills public housing. There is no need to provide posh condo lookalikes and price them like private apartments. Those who want a more high-class living environment should consider buying private properties.
Build more new flats
During a parliamentary debate in September, opposition leader Low Thia Khiang questioned whether HDB is under-building flats to meet the demand of flat buyers. Mr Mah Bow Tan dismissed it, saying simply that there was “no basis to say HDB is under-building”.
He fanned out statistics that showed that the HDB built 2,400 flats in 2007, 8,000 in 2008 and another 8,000 this year.
As always, government statistics don’t tell the full story.
Just last week, the Sale of Balanced Flats launched by HDB received over 20,691 applications for only 2,132 available flats ─ almost 10 times oversubscribed. The recent Punggol Residences Built-to-Order five-room flats released in August were also 10 times oversubscribed, with 1,587 balloters for just 154 units.
The PAP government has dismissed these clear indications that there is a shortage of flats by suggesting that most of those people who applied were just trying their luck and not really interested in buying a place to stay. This is an insult to the thousands of home buyers who have tried numerous times but failed to find a flat that fits their basic requirements.
It is likely that the main reason why the HDB does not want to build more new flats is because it will lower the overall price of even the resale market, which may be politically troublesome for them.
The HDB needs to examine whether it’s mandate is to provide affordable housing for Singaporeans, or feed voters with unsustainable promises of constantly increasing home asset prices.
PRs increasing flat demand
Part of the reason for the high prices of resale flats is the large influx of foreigners who take up permanent residency, thus making them eligible to buy HDB flats in the open market. A recent ERA report revealed that 40% of resale flat buyers are permanent residents (PR). This is a phenomenal proportion, considering that HDB flats were built to house Singaporeans, not foreigners.
It’s questionable whether all of these PRs intend to sink their roots in Singapore or whether they see Singapore as a stepping stone to better opportunities in the US, or Australia, or back in China when conditions there improve.
I welcome foreigners to come to Singapore, to contribute to our economy and add to our social diversity. Many of my friends and colleagues are foreigners, and I have seen the benefits many of them have brought to Singapore.
However, I am strongly opposed to the government’s policy of allowing in so many foreigners in such a short amount of time, as this has put a severe strain on the housing market, the public transport system and the job situation.
The immigration policy is so liberal that within weeks of arriving in Singapore, a foreigner with the right qualifications can apply for PR and get it approved within three months. Without having contributed even a year to Singapore, these PRs are eligible to buy public housing and benefit from a system which Singaporeans have spent a lifetime building up.
Impose waiting period for PRs to buy flats
To rectify this, I propose that all PRs must have lived and worked continuously in Singapore for at least three years before they are allowed to buy HDB flats. This would filter out all those PRs who have shown little commitment to our country and are just taking up residence in order to be able to buy a subsidised flat, save on rental and sell it a few years later for a huge profit.
Lest this proposal causes alarm to skilled workers who are considering applying for PR, I would point out that under this proposed policy, HDB should look at the entire duration that the PR has been in Singapore, not just the period since he got his blue NRIC. Skilled foreigners who have demonstrated a commitment to making Singapore their home should have no worries about this new policy disadvantaging them.
I have laid out in this article just a few suggestions on reining in unaffordable public housing costs for home buyers. It is a work-in-progress and by no means comprehensive. I hope that policy makers will consider some of these suggestions for the sake of the thousands of Singaporean home buyers ─ including future home buyers ─ who are just seeking for a decent roof over their head.
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This article was first published on Hammersphere.