Monday, January 28, 2019

The Cheated Generations

The "Cheated" Generations

From 1970s till early 1980s, one can buy a 4 room HDB flats for a mere $20K-$30K. They introduced the inclusion of land price some time in mid 1980s and the prices of HDB flats started to climb.

By early 1990s-1995, GCT came up with the Asset Enhancement Scheme which entice Singaporeans to spend more of their CPF to buy HDB flats. They relaxed the rules on the secondary market for HDB flats. By 1990s, some of the HDB flats were about 20 years old and they started the HDB upgrading.

Unknown to many Singaporeans, they had also started to peg the price of new HDB flats to the "market prices". It was not until a couple of years later, they made known to public that they were giving "market subsidy" for new HDB flats. There is a VAST difference between "Market Subsidy" vs "Real Subsidy". Basically it means the Government can now earn profits from the sale of HDB flats (as a whole) but at lesser amount from market rates.

The impact of such Asset Enhancement Scheme has multiple dimensions.

1) From cashflow perspective, it reduces or even eradicate the burden of the government in providing the return for CPF.

2) If Singaporeans used up half of their CPF to buy their HDB flats taking a loan from HDB, it means they will have to pay 2.6% interests to HDB. To the government, this can be transferred to pay for the interests accrued to the other half of the CPF money which was deposited in CPF.

3) When Singaporeans sell their HDB flats, they have to pay back the amount of CPF money they have spent in paying their mortgages PLUS the accrued CPF compounded rate of 2.5% as return for these CPF money they had used. In effect, Singaporeans are paying 2.6% Plus 2.5% in total interests if they sell their HDB flat. If they only use half of their CPF money to pay their mortgage. it means that Singaporeans are actually paying for ALL the returns of their CPF money and Government didn't need to pay a single cent for their retirement financing. Mortgage rate from HDB is always pegged 0.1% above CPF rate.

4) It means that in reality, Singapore Government basically do not need to pay any Interest to most of our CPF money and in fact, had earned quite a substantial amount of money via land sales and price above the cost of building the flats. These are thrown into Temasek Holdings and GIC. These are basically "Interest Free" money right from our CPF! The buying of government bonds from government by CPF is just a formality.

It was only later that Singaporeans were allowed to take mortgage from private banks for their HDB purchases. On the other hand, CPF was allowed for the purchase of private properties. These policies were made to help boost the banking and private property market.

5) For my generation, we were sold the dream of 5 C and HDB as a "valuable asset" which we could depend for retirement financing. The whole plan is basically flawed.

6) MAS has already fix the rule for the limited loan that financial institutions could make to anybody who is buying a flat which is more than 40 years old.

7) All lawyers know what the 99 year lease means. The value of the property which reached 99 years will become ZERO. How could our HDB flats be growing in value forever?

8) HDB is the only asset most Singaporeans will have. The only way for us to "monetize" HDB for retirement is to either rent it out or downgrade. However, selling an asset which is reaching 40 years old will be challenging unless rules are changed.

9) PAP government has not changed the rules but misled my whole generation and the future generations of Singaporeans after us that HDB could really be a good "investment" asset.

10) In the end, we were made to pay almost 10 times of the price which older generations in 1960s and 1970s had paid, without any promising "investment value" for retirement financing.

11) Singaporeans who bought their flats in 1960s and 1970s, or even 1980s won't understand my generation's anger. We have been misled and felt cheated, suffered high HDB prices and in the end, many of us left very little for our retirement.

12) Asset inflation doesn't really create value but in fact, only create Rent Seeking Economy which only kick the problems down the road. It is basically transferring the problems of retirement financing to the future generations in terms of extraordinary high property or HDB prices.

13) HDB prices for a 4 room flat rises from $20K to $200K in 1990s and continue to rise. Who suffers? Only those who bought early in 1970s and 1980s "enjoy" such wealth effect (most of them cannot just sell their HDB flats off) while their children, grandchildren and future generations suffer.

14) The inflation of HDB prices have outstripped salary increase over the last few decades. This could only mean that we are paying more, maybe not in cash but eating into our CPF savings.

15) If you take any average guy from my generation, those who are late 40s to 50s who are staying in HDB flats, ask them whether they could make money out from their HDB to finance their retirement in 15 years time, the answer is definitely a NO. on average, if they bought their flats when they were 27 years old, by 62 years old official retirement age, their flats would reach 35 years old. They couldn't possibly sell their flats for a profit or with any cash left after repaying the 2.5% CPF compounded interests over 35 years.

16) It would be even worse if they bought their flats from the secondary market.

17) Thus, has the so call Asset Enhancement Scheme helped them?

18) It doesn't need a super Mathematician to calculated in advance how much one would need to sell their aging HDB flats in order to have any cash available for them to retire after 35 years. Was it a deliberate plan to mislead or just a deliberate negligence?

19) As far as I know, we have been misled and cheated by PAP government because the results are obvious. What has been promised, claimed and sold to us, will collapse in time to come.

Goh Meng Seng