Unwinding HDB Asset Enhancement Time Bomb - Viable Options

Unwinding HDB Asset Enhancement Time Bomb - Viable Options

I am re-posting this Mind Map of HDB problems here to examine what are the options which are commonly put up but not viable at all.

Most people would jump into giving "solutions" to HDB problems without examining carefully the whole matrix of the problem in the first place. Housing problems are extremely complex, complicated and involved a whole web of direct and indirect linkages with multiple segments of market forces.

Properties are "durable" goods but at the same time, with a "long expiry date" aka leasehold. Along with financial rules, it makes the market pricing mechanism extremely complicated and in HDB case, we have at least THREE markets to deal with, apart from the private property markets.

Within the three main HDB markets. there are sub-market differentials like Rental, Studio Apartment, 3-room, 4-room, 5-room. Executive Flats, Executive Condos etc. The administrative and financial rules applicable to different market segments make the whole context even more complex.

As we can see in the diagram, the three RED shapes are the fundamental problems of HDB. The THREE KEY PROBLEMS are:

A) Over Consumption of Housing/HDBb

B) Inadequate Retirement Financing in CPF

C) Massive Expiry of HDB flats with 99 Years Lease.

Most people missed these three key points, focusing on something which only touches the surface of the problems.

For example, one may suggest lowering HDB BTO prices but that will still leads to Over Consumption of HDB because people may switch from a 3 room HDB to 4 room or even 5 room HDB flats when prices come down, using the same amount of money from CPF and mortgage. This can happen when a 5 room HDB flat price is reduced to a 3 room HDB flat at current price.

Problem A and B are linked. It is due to the excessive use of CPF money for Singaporeans to purchase their HDB flats which leads to both Over Consumption of Housing as well as resulting in shortage of CPF funds for their retirement 30-40 years later.

Unfortunately, ALMOST NONE of the political parties or so call "experts" has the courage to take the bull by the horn and suggest a drastic cut in allowing Singaporeans to utilize their CPF to buy properties like HDB!

Technically speaking, a 99 year lease hold of HDB or any other property will have little material impact on Singaporeans if they are only buying these properties for their own consumption as housing or as a HOME to stay. Nobody could presumably live beyond 120 years old, so to speak.

The only problem will arise when you over consume or over bought housing with hefty price, either in BTO or resale market. The problem will become more acute when PAP keeps selling you the idea that your 99 lease HDB flat is some marvelous ASSETS that can make money for you, even help you to finance your retirement as an "investment asset".

People will throw in all their money into buying HDB flats and hoping to make a pile of money out of it without much thinking. A 99 Lease Hold property, be it private or public housing HDB, will depreciate in value over time. This is even more so for HDB when you do not really own the land and cannot make decision on private enbloc of your flat.

That is why I am totally against the Asset Enhancement Scheme and consider that as a very bad policy scam which mess up the whole HDB concept.

Extending the lease of HDB will not solve this problem but in fact, aggravate the problem further by influencing the pricing of HDB both in BTO and Resale market going upwards.

We have a rather very unique problem in Singapore:

1) A massive 300K to 400K of flats were built within 15 years period from 1970 to 1985. This would mean that these flats will have their lease expired within 15 years in the future, starting from 2070 to 2085. Imagine 300K to 400K of HDB flats expiry within a short period of time that would create a massive housing shock.

2) Singapore is a tiny land scarce island. There is only that much of land we could reclaim from the sea without impeding on our strategic logistic hub status. It means that if we do not have a solid land redistribution plan or managed property market, the property prices will run out of control. This will turn our economy into a highly rent seeking economy

3) Our financial rules make it extremely difficult for HDB flats with less than 60 or 50 years lease to be sold in resale market. This will create an under-priced market for these old flats. It will create market inefficiency.

Whatever solutions or options anyone wants to put up, they will have to take all these into serious consideration.

The basics and fundamental problems need to address is:

1) In order to address the Over Consumption of Housing and Inadequate Retirement funds in CPF, the amount of CPF allowed to be used in buying HDB or other properties will need to be capped.

2) The impact of a massive expiry of 300K to 400K of HDB flats within a short period of time frame of 15 years will need to be addressed else we will experience a supply shock in the HDB markets.

3) The inefficiency of the Resale market for old HDB flats with less than 60 or 50 lease will need to be addressed. This is to correct the market bias against old flats, instead of creating an unnecessary price hike in this market, creating over consumption again. It will be a correction to fair value pricing for these old flats.

4) A reduction in BTO prices must be accompanied by a reduction in the use of CPF money in the purchase of HDB and private properties. This is to prevent Over Consumption of Housing.

5) Most of the HDB flats built in 1970s and 1980s cannot last more than 70 years or 80 years. This is due to the mass production process back then which compromised quality. The reinforcement concrete may not last 100 years at all.

All policy options should have minimum undesirable impact on the three main HDB markets, BTO, Resale and Rental markets. These impacts will indirectly hit the private property markets.

I am not saying my HDB policy will be the best but at least, it will address the fundamental problems to begin with. It will also take care of various variables which may create unnecessary impact on the HDB markets.

We must start with the right concept and public perception of HDB as a public housing policy. It is NOT an investment asset for anyone to make big money from because it will become a Zero Sum game. Either you will suffer insufficient CPF funds for retirement or your future generations will suffer exorbitantly high property prices.

The HDB Resale market is for Singaporeans to redistribute HDB flats through a fair pricing mechanism to cater to their needs, not a market for they to reap great profits.

Ultimately, if you want to make more money than your current job, invest in businesses or equity, bank shares or stock market or simply start a business etc.

Last but not least, asking people to sell off their HOME and live in other cheaper country, is really NOT a HONEST solution but a raw demonstration of National Policy Failure at the highest level!

A nation will cannot take care of its own people's basic needs of housing when they get old, is really not a nation worth fighting for.

Goh Meng Seng