The Buzz over Housing: My first home by...?

By Christalle Tay

How long does it take for a new entrant in the job market to save up enough to own his or her own home? That depends on whether you are gunning for private property — which could be anytime if your parents are willing to pony up the dough — or whether you are heading for the much cheaper public housing option. But even if your parents are willing to subsidise you, the state requires that you tie the knot with someone. If or when you do, a slew of grants and subsidies will come into play with certain conditions. Even so, there’s the perennial issue of whether you got your choice home and how long it takes you to get the keys.

Singapore’s housing situation is unique compared to other countries for several reasons. Firstly, there is a high rate of homeownership, hovering somewhere around 90 per cent. Secondly, most of the housing in Singapore is managed directly by the state through the Housing Development Board (HDB), which builds and maintains the HDB flats around the country. Private property in Singapore is restricted to a small and relatively wealthy proportion of the population. Thirdly, and accordingly, prospective homeowners see their flats as assets, while also wanting it to be affordable. Because of this, the Government is faced with the delicate balancing act of managing the housing market in Singapore.

This was a problem around 2011 when the HDB failed to build enough houses in anticipation of the demand for flats when the economy recovered in the late 2000s, resulting in a spike in housing prices around 2011.

This had to do with policy responses to prevailing economic conditions. From 1998 to 2006, the number of flats constructed fell sharply, as the chart below shows, in large part to the shocks to the economy from the Asian Financial Crisis in the late 90s and the Sars epidemic in the early 2000s. As the economy recovered, however, prices started to rise as waiting times for new flats under the Build-To-Order (BTO) scheme hovered at six to seven years. Demand for flats peaked in 2011, and many home-buyers had to wait three to four years for the construction of their homes to be completed.

CHART: CHRISTALLE TAY/ SOURCE: data.gov.sg (flats constructed, bookings for new flats)

When demand for flats spiked in 2011, HDB shortened the waiting time to about three to four years for a standard BTO by starting construction soon after the launch of the BTO project. The wait shortened to about 2.5 years in 2018 for some homebuyers when the first batch of 1,000 selected BTO flats commenced construction a year ahead of their launches. The second batch of 2,000 new flats with shorter waiting time was launched last year. Today, as demand for housing stabilises, the scarcity of BTOs are less of an issue in buying a future home.

According to the HDB 2017/18 annual report, about 81 per cent of Singaporeans live in HDB flats — and the clamour can be seen in the numerous policies introduced to widen the door for people who once weren’t able eligible to own flats. For example, executive condominiums were introduced for the sandwiched middle class who were too rich for HDB flats but could not afford private property; and the Single Singaporean Citizen Scheme was introduced in 1991 to allow singles to buy HDB flats which were previously reserved for families. The income ceiling has been raised once every four years since 2011 to reflect rising income levels and to extend subsidised housing to more Singaporeans. Read here to see how affordability has changed over the years.

Now that you have a flat, you’re thinking you should sell it and making a killing. After all, if your income ceiling is still below the mandated level $14,000 (for a four-room flat or bigger; $21,000 for a multi-generational household), you can still apply for another new flat. That’s provided you’ve hit the five-year occupation mark and how the property market is bearing up then.

Before you pamper yourself with your new earnings, know that sales proceeds will first be used to pay off any outstanding loan on the flat and refund your CPF account for money withdrawn to pay for the flat. On top of the principal amount refunded to CPF, you must pack back accrued interest which you would have earned if the money had remained in the account. Therein also lies the catch of the government grants. The money from the government grants must be returned to your CPF with accrued interest.

Bear in mind, if you dispose of your first subsidized flat for another subsidized HDB flat or Executive Condominium, a resale levy will be imposed to offset the additional subsidy. Note

that a subsidized flat does not only refer to new flats but include HDB resale flats, if you took out a CPF Housing Grant to pay for it. For first subsidized homes sold after 3 March 2006, you must pay a levy to HDB. To avoid paying the resale levy, you could consider buying a resale flat or private property.

Resale flat prices, priced at market rate, are naturally at a higher price point than the subsidised BTO flats. The resale price index has also been on a steady and gentle decline since 2013 — a piece of news more pleasant for buyers than sellers.

CHART: CHRISTALLE TAY/ SOURCE: HDB (Feb, May, Sept 2019)

A resale flat with more years left on its lease typically costs more in the resale market.

Let’s say you’ve lived in your flat for a long, long time and has been through several upgrades, but you want to sell it and move out. There’s the question of how much of your 99-year lease is left. The oldest flats with 99-year leasehold have about 50 years left. In 2017, this was 9 per cent of flats.

BUZZ POINTS

Making a killing from SERS

Having your block selected for Sers or Selective En-Bloc Re-development Scheme is likened to striking the lottery. Residents are uprooted from their old flats and offered new flats at subsidized prices, with fresh 99-year leases and generous compensation. However, much like the actual game of chance, people started buying old HDB flats in hopes of getting called up for Sers. In fact, some old flats in outlying areas actually cost more than newer ones because Sers speculators were snapping them up and driving up demand.

This trend was so significant that it prompted Minister for National Development Lawrence Wong to caution residents in 2017 to not buy houses with the expectation of Sers as the scheme covered just four per cent of all HDB flats. Majority of HDB flats would be returned to HDB upon lease expiry, he said.

You might have better luck at the Pools.

Reality check: 99-year lease

Although Singaporeans have long been buying houses with the knowledge of their 99-year lifespan, many expected their dying homes to be saved by Sers or other miracle schemes. Flat-owners seem to have just recently been awakened to the reality that the value of their homes will continue depreciating into worthlessness before its returned to the government. This was especially so after Mr Wong’s reminder in 2017 that flat prices will drop as the lease nears its end.

“While resale flats are transacted on a willing buyer-seller basis, I was concerned by the suggestion that some buyers are forking out high prices for older flats, in anticipation of the benefits of the Selective En bloc Redevelopment Scheme, or SERS… In fact for the vast majority of HDB flats, the leases will eventually run out, and the flats will be returned to HDB, who will in turn have to surrender the land to the State. As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly.”

- Minister for National Development Lawrence Wong, blog post, 2017

This was the startling reality for the owners of 60-year leasehold terraced houses along Geylang Lorong 3, who were the first to hear of the lease expiry process. They were told in 2017 that they had to vacate their property by 31 December 2020 with no compensation.

To reassure citizens of the value of their old flats, the government introduced the idea of a Voluntary En Bloc Redevelopment Scheme (Vers) during the National Day Rally 2018. Contrary to Sers, Vers is a voluntary collective sale opened to flats aged 70 and up, for which residents can vote for. The scheme is set to be launched in 20 years and its details have yet to be fleshed out.

CPF rules on buying older HDB flats have also been relaxed, probably in response to complaints from home-owners that the shorter leases make them harder to sell. Before 10 May 2019, flats with a remaining lease of fewer than 30 years cannot be paid with CPF. This restriction has been reduced to 20 years.

The Lease Buyback Scheme, although introduced in 2009, has since been adjusted to include more beneficiaries. The scheme allows homeowners aged 65 and above to sell part of their remaining lease back to the HDB, with the sale proceeds entering their CPF retirement account.

Opposition parties — the Workers’ Party and Singapore Democratic Party — have published papers proposing alternatives to the 99-year-lease conundrum. You can read about them here.

Lottery effect

BTO flats in prime areas and mature estates are always sought after because they are expected to fetch a high resale price. See the chart below, where the median resale price for a four-room flat in Central is $756,000. In stark comparison, the median resale price for the same flat type in Woodlands is less than half, at $328,000.

CHART: CHRISTALLE TAY/ SOURCE: HDB (Median Resale Prices, 2nd Quarter 2019)

Consequently, BTO launches in more mature estates, like Kallang or Whampoa, carry more premium price tags. The minimum prices of four-room flats there are almost triple those in Jurong.

CHART: CHRISTALLE TAY/ SOURCE: HDB (Sales Launch 2019: Feb, May, September)

Pinnacle@Duxton, an upmarket BTO flat located in the central area, made headlines when its first flat was sold for almost thrice its original price and has continued to make headlines since with its sky-high resale prices. It recently broke the record in August 2019 with a 5-room flat that sold for $1.2 million.

Price difference of flats in Pinnacle@Duxton between 2004 and 2019

TABLE: CHRISTALLE TAY/ SOURCE: SRX

Is it unfair that it’s the luck of the draw? Prime Minister Lee Hsien Loong announced plans for the “Great Southern Waterfront” in the National Day Rally this year. With redevelopment plans for the area in the making, it’s likely that we will see some BTO launches springing up.

There are clear plans for mixed-use development, with the PM mentioning intentions for commercial and office space development. The area will be between two MRT stations and near the Labrador Nature Reserve. Will this be the next Pinnacle@Duxton?

Housing policy is social policy

The fuss over housing is not strictly financial. Before cash cows, houses are homes — something deeply personal to us, but are largely controlled by the state. Control over public housing has allowed the state to shape social outcomes.

For example, in order to maintain a multiracial society and prevent racial enclaves from forming, the government introduced the Ethnic Integration Policy (EIP), where ethnic quotas are imposed on every HDB block and neighbourhood.

While designed to build peaceful race relations, in practice such policies have had social ramifications for some social groups, particularly those of minorities. The objective of avoiding racial enclaves has in effect meant that the dominant Chinese majority of the national population has been reproduced in each HDB block.

One effect of this has been financial. Because of the quotas — which are updated the first of every month on HDB’s website – homes often change hands between people of the same ethnicity. This means a significantly smaller pool of potential buyers for homes belonging to ethnic minorities. This has in turn made it more difficult for ethnic minorities to sell their homes — an issue that has been brought up in Parliament multiple times — which has manifested in lower resale prices and longer time to sell homes.

Singapore’s housing policy has always been geared at shaping the nuclear family. While the government has been slowly peeling back on its restrictions, getting qualified for public housing is still largely contingent on finding a partner, in a heterosexual relationship. The alternative would be in the more expensive private housing market or waiting to hit 35-year-old — when you can either get a flat by yourself or with three other single 35-year-olds.

This means HDB BTOs and resale flats are less accessible to young singles and LGBT couples.

While these social aspects generally haven’t been significantly challenged, single-parent housing is one area where there have been calls for change. This has been pushed by gender equality advocacy group AWARE and MP Louis Ng, who filed an adjournment motion in September calling for the government to open up the purchase of 2-room flexi flats to single unwed parents under 35-year-old.

He argued that the current system was not inclusive enough and was discriminatory towards single unwed parents. The roadblocks they faced would not only cause unnecessary stress, but also sent a message that single unweds should get married for the wrong reasons.

There is currently no minimum age imposed on widows and divorcees with children applying for 2-room flexi flats, but singles who had their children out of wedlock must apply under the Singles Scheme — which is open only to those aged 35 and above.

WHY THE BUZZ?

What’s clear is that Singaporeans will have to start grappling with the idea that their costly homes may depreciate in value. Yet many still cling on to the hope that the price of their homes will appreciate if they are well-maintained and in prime locations with developed infrastructure, much like how owners of Pinnacle@Duxton were able to make a killing off theirs. Homes are often referred to as “nest eggs” where one can live in comfortably through retirement and to death and which can be handed down, or at least liquidated into cash, to their children. But the finite period of ownership and dwindling flat values have put a dampener on their dreams.

It remains to be seen whether the younger generation view flats as a home or more of an appreciating asset, like the generation before them.

Read Christalle’s take on this here.