Monday, March 22, 2010

HDB for retirement financing? Think again...

I have written about Minister Mah's idea of turning HDB flat into retirement instrument as DANGEROUS in my last posting. Some people has ponder over it and realize that it is indeed a "look good but infeasible" idea. As I have mentioned, it is an idea that lacks basic economic sense.

You can read something interesting abt HDB-CPF-Retirement Financing at the following blog:

En Bloc Block - Block Collective Sales @ - Trilogy : Part C PM said, I am saying

The following is a comment left by a reader "Now Not Talent Anymore" in Temasek Review about how the idea of HDB flat as a means of retirement financing is a total flaw:

By 2030, there will be at least 900,000 65 year old and old retired Singaporeans.

Assuming an average of S$500 pm CPF Life payment, or S$6,000 per annum.

It means there is a drain of S$5.4-billion per annum from CPF Corporation. In 2030, has PAP Government got the fund to service this CPF Life annual payout?

Assume PAP Government agreed to apply Reverse Mortgage Scheme for 2-room, 3-room and 4-room flat as a means to help out retired Singaporeans.

Assume 500,000 HDB dwelling units are eligible in 2030.

Assume an average of S$10,000 per annum payout to each HDB dwelling unit.
It means an annual outlay of S$10,000 x 500,000 = S$5-billion per annum.

America is now using 17% of its GDP for medical and healthcare.

Presently, the budget for healthcare is about 3% of GDP.

Assuming that due to ageing baby-boomers, healthcare budget doubels up, meaning about S$4-billion per annum is needed just to take care of teh need of an ageing population in terms of subsidised medicine, hospitals, community hospitals, geriatrics polyclinics, nurisng homes and hospices.

And of course, by 2030, PAP Government can easily spend about S$1-billion per annum for LUP, MUP and SERC.

Add up the future burden in 2030 due to our ageing infrastructures and ageing HDB estates, plus 900,000 unproductive consumers of 65 year old retired SIngaporeans, and we have to find money of at least:

5.4 + 5 + 4 + 1 = S$15.4-billion.

7% GST = S$7-billion collection.

And dear Singaporeans, I envisage that GST will go up to 15% (on par with European countries today GST rate) by 2030 just to service all those soical welfarism which we enjoy today…cleverly packaged as Workfare, Progressive Payment, etc.

And the above S$15-billion is a piffy sum as compared to the looming financial disaster, starting in 2030..and yes, the very foundation of PAP Government Success Story – our very own HDB Estates.

I dimly remembered a reinforced cocnrete handbook that I read which indicated that reinforced cocnrete strength starts to deteriorate after 75 years; and worse if it is post-tensioned (PT).
And we use lots of PT slabs and PT beams due to our prefabricated methid of construction.

Imagine you are leaving in a 3-room HDB flat built in 1965. It will be 65 years old in 2030.
You bought it from resale market in 2010 at S$300,000; hoping that it will increase by at least 50% to S$450,000 by 2030.

And if you are lucky and there is another Property Bubble, you can sell it for S$600,000!!!

But the Seller forgot one little fact.

Can the prospective buyer gets a bank loan for a 60+ year odl flat with only 39 of lease remaining?

So, poor Seller is “asset rich, cash poor” as he or she simply cannot find any buyer and may very well have to lower the selling price to attract buyers!!!

Therefore, Mah Bow Tan’s assumption of a continual upward curve of appreciating values hold no water for those poor saps snapping up all those 30+ year old HDB flats – built in the 60s – to the tune of S$250,000 to S$350,000 in 2010.

Then, the chain reaction starts.

There is a large overhang of 60s and 70s HDB flats with no buyers, and will certainly depress the HDB resale market – meaning there is no asset appreciaiton for HDB flats by 2030.

Instead, there is price stagnation due to thsoe unsellable 60+ year old HDB flats in the market.

Then, how will those affected – say 300,000 to 500,000 HDB householders retire if they can’t cash in their “asset appreciated” HDB flats to downgrade to a smaller HDB unit?

Imagine 500,000 60+ year old HDB flats that no buyer will want.

And PAP Government has no choice but to Reverse Mortgage those 500,000 HDB units to enable retired SIngaporeans to have a decent pension funds.

Assume an average price of S$300,000 per HDB unit.
Then, 500,000 units = S$150-billion!!!!!

If the payout is S$5-billion per annum, then those 500,000 HDB house owners will receive their payment during a 30 year period.

Now, what if in 2030, your HDB block is declared struturally unsafe and must be demolished?

Then, force majuere comes into play and you may end up with zilch as your expected asset appreciation of S$450,000 instantly ebcomes worthless as your home is no more, demolished and the land revert back to HDB, i.e. PAP Government.

At one stroke, you are 65 year old, hapily looking froward to retirement.

Then, WHAM! BAM!

You “asset apprection” of a HDB flat is no more but a pile of rubbles and you become an instant pauper with 30-year of hard earned CPF money just turned into conrete dust.

Therfore, Mr. Mah Bow Tan, has you ever think of a 60-year old, and rapidly ageing year by year – HDB flat will ever appreciate on an upward curve when buyers will hesitate, not because they can’t get a bank loan, but becaue of the inherent nature of reinforced concrete strength starts to deteriorate after 75 years or more?

Apparently the only solution to ensure continual asset appreciation I can think of is sadly that for 60 year old HDB blocks (and even private dwelling units), is en bloc, demolishment and re-building.

Meaning that HDB ownbers will need to fork out money to pay for:
- to renew the land elase bakc to 99-year.
- to pay for a newly constructed HDB flats.

I trust you all can see the fallacy of Mr. Mah Bow Tan’s lovely advice of “your HDB flat will appreciate and you can then sell it, downgrade to a smaller unit and retire on the capital appreciation”.

And of course, it is always better to buy brand-new HDB flats.

The frist batch was in Queenstown in early 60s..maybe 1963.

Toa Payoh at Lorong 1, 2, 4 & 5 are in 1965.

Lorong 7 is 1965, and my fmaily moved in in 1969, Block 13 – and it is still standing there.

That is, the first batch of HDB blocks are now 45 to 47 year old.

And in 2030, they will be 65 to 67 year old where P65ers are 65 year old and start to retire.

Now, when a 3-room HDB flat is 60+ year old, and you want to sell in the resale market at say S$450,000 for yoru retirement needs, the question is will there be buyer for a HDB flat with 39 leasehold year remaining?

Adn will commercial banks willing tyo loan out a 30-year mortgage loan for this 60+ year old HDB flat?

And what happen tot hat 2nd buyer who paid S$450,000 for a 60-year old HDB flat; only to see it worthless in another 30 to 40 year time?

Asset appreciaiton of course will not work for the 2nd buyer.

Of coruse, if you are unfortunate and perhaps afetr moving in in 2030 and then 10 to 15 years later, the HDB block sid eclared strucuturally unsafe…..and where those affected fmailies move to?

As I said that if a 50 year old HDB flat is udner SERC and completely demolished, then those affected HDB residents will either move away or wait 4 years for rebuilding ebfore moving back to the ned HDB blocks.

But who will fund all these rebuilding works under SERC?

Imagine throughout a 30 year period, an average cost of building one dwelling unit is S$200,000.

Then, just to rebuild new 500,000 dwelling units starting in 2030 – and ending in 2060 – the funds required is 500,000 x S$200,000 = S$100-billion.

Or about S$3.3-billion per annum, starting in 2030.

That is, which ever way you look at it, if PAP Government plans to put all 60 year old HDB blocks under SERC to rejuvenate ageing HDB estates, funds are needed.

And under SERC, say you want to cash in by selling yoru 3-room, 4-room or 5-room back to (and downgrade to 1-room or 2-room) PAP Government, then PAP Government will need to fidn billions to pay out these “asset APPRECIATIONS” to 65-year old SIngpaorean retirees.


Anonymous said...

Good, at least you have stopped harping on prices and shifted to retirement funds.

Keep pushing this button and I will support you.

cy said...

Copied from HDB

For lease buyback scheme (reverse mortage),present policy is restricted to

a) Citizen household living in a 3-room or smaller HDB flat;
b) All lessees are at least at the CPF draw-down-age, currently at 62 years old;
c) The household must not have enjoyed more than one housing subsidy in the past;
d) The household must have lived in their flat for at least 5 years;
e) The monthly household income must not exceed $3,000;
f) The household must not have owned or currently own a private residential property; and

g) The household must not have any outstanding housing loan on their flat that exceeds $5,000 unless they have minimum proceeds of $60,000 for the purchase of an Immediate Annuity under CPF LIFE.

the number of elderly households that stand to benefit increases to 34,800 (or 82% of elderly households in 3-room and smaller flats)

* HDB will buy back the tail-end of the lease of their flats, leaving them with a shorter 30-year lease
* In addition to the value of the housing equity unlocked from the shorter lease, there is a generous subsidy of $10,000 from the Government
* Of the total value, $5,000, will be given upfront as a lump sum. The remainder will be used to purchase an Immediate Annuity from CPF Board to provide a monthly stream of income for life

My comment: 1) The no. of households involved only 34800 Unless this scheme is expanded, the dire situation mentioned by the TR reader is unrealistic.

2)As for CPF Life,the money is from a consolidated pool of money from CPF holders, nothing comes from the Govt's pocket, in fact govt will benefit from charging management fees.

Unless, Govt mismanage the CPF Life fund and has to cough up from budget to mend the hole, TR reader's pessismism is unwarranted

3)As far as i know,SERS flats are either the like-for-like swap or swap to upgraded flat with more money from SERs flat owner. In first case, govt don't pay much for SERS except so called subsidy, for 2nd case, govt lock in more money.

Deapite these objections to TR reader apocalyptic comment, it is still wrong for PAP govt to sell this dream of asset appreciation for retirement financing when it can't be realised for all.

Aurvandil said...


The Lease Buyback scheme is for those living in 3 room HDB flats. There are also a whole host of restrictions.

What about those living in 4 room or 5 room flats?

Or those who fail to meet the requirements for 1 reason or other?

Aurvandil said...

The following is from Mr Mah during the recent budget debate. If you are an elderly retiree and you cannot get along with your family, DON"T GO TO MR MAH FOR A RENTAL FLAT. He won't rent it to you. Instead he will refer you to the Family Service Centre and FORCE you to live with your family.

Rental flats are heavily subsidised. And that is one of the reasons why the queue is so long. Because we charge $30 or $40 for a flat, and the flat is very comfortable. If you look at the new flats that are being built, they are very, very comfortable, not like the old days. Thirty dollars, a flat of your own, who does not want? Everybody wants to join the queue. If you are an elderly retiree with no income, under the old criteria, you could have joined the queue. No questions asked and then when your turn came, you got the flat. If we had continued with that, no amount of new rental flats that we build will be sufficient. Our position is that if you have family support, if you can stay with your families. Please do not compete with the truly needy for these flats because they are really for those who have no other housing option. In that particular case where the old lady had a daughter who was willing to take her in, we would say "go and stay with your daughter." The fact that you want to be independent is not a good reason for you to come and ask HDB for a rental flat. For those families who do not or cannot get along, we will refer them to the Family Service Centre to see whether they can provide counselling to make sure that the family can at least try to accommodate one another. In some cases, wedo exercise compassion, for example where there is a history of family violence.

Anonymous said...

this article has a lot of mistakes (spelling ones). Hope it can be clearly written. Currently, it is like just one bunch of numbers throw at us.

Anonymous said...

I am definitely against the high pricing of current flats, and I am in agreement of your point that we should not use HDB flats as a form of retirement instrument, but please try to get your facts right before posting, and not use assumptions.

Based on$FILE/Key%20Statistics.pdf

It is only till the year 1985, then we have 547867 dwelling units available here in Singapore. It is not stated how many are 3/4/5 rooms, but we can safely assume that the number of 3 rooms is definitely not 500000 in your doomsday scenario.

Affordability is relative to each individual, and the reason why many people are still willing to buy expensive flats is because they feel that the flat is affordable to them NOW. Many do not take into consideration about what might happen 5-10 years down the road, especially when the government make it seem like the prices of flats will not come down.

Goh Meng Seng said...

Hi all,

As I have stated in the beginning of this post, this is a comment made by someone on Temasek Review.

Normally I will preserve the comment as it is, in respect of the originator.

The figures used in his example is not exactly correct but the point still stand, a lot of money will be used in reverse mortgage and such. The most fundamental question is, whether such move is wise in the context of an aging population.

Goh Meng Seng

Anonymous said...

against your plundering idea mr goh, of course is wiser. just that they have to make more policy changes.

Anonymous said...

Pls see Lease Buyback Scheme To Benefit More Elderly HDB Households

Anonymous said...

Govt has forgotten about the singles and divorcees. Govt expects these 2 categories of s'poreans to be rich to be able to 'afford' only HDB resale flat when it is already at its high. Yet married couples who can buy flat directly from HDB, are the majority and the main highlights of all complaints. HDB & CPF is a money black hole machine!

- Get married or no cheaper flats from HDB
- Too many restrictions in the policies
- Not rich, better think of better places to retire.
- PAP notion is Getting married = increase s'pre populcation. Which most cases married couples choose not to have babies

Anonymous said...

The issue is with the restriction in using CPF for properties with less than 60 years lease. You have failed to consider the cost of usage. Without the 3-room HDB flat, you will need to pay rental. Assuming the rental is $300 per month and the lease has 39 year left, it means the face value will be 39*12*300 which is $140,400. So tell me how can it be worthless? In fact, the rule should be tweaked. Just to digress, I think HDB should build flat with 60 year lease so that it is more affordable. A 99 year lease just give too much room for speculation.

Anonymous said...

The issue is with the restriction in using CPF for properties with less than 60 years lease. You have failed to consider the cost of usage. Without the 3-room HDB flat, you will need to pay rental. Assuming the rental is $300 per month and the lease has 39 year left, it means the face value will be 39*12*300 which is $140,400. So tell me how can it be worthless? In fact, the rule should be tweaked. Just to digress, I think HDB should build flat with 60 year lease so that it is more affordable. A 99 year lease just give too much room for speculation.


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