Myths & Half-Truths from the “Opposition” (Part I)

1. You really don’t own your flat because it’s on a 99-yr lease from HDB

Actually you do. It’s the land below your flat that you don’t own. But not to be pedantic, what they mean is that one day the Govt will either evict you from your flat, or extract a high price from you for a fresh 99-year lease.

True or false?

Actually it’s really premature to speculate what will happen when the lease runs out, because no HDB flat has ever run out of its lease yet. Even the oldest SIT (pre-cursor to HDB) flats in Tiong Bahru were built in the 30’s and still have around 20+ years to go. So it will be quite some time before anyone has to deal with the problem.

So far HDB has avoided the issue through SERS, ie by moving flat owners from old flats to new ones with a fresh lease. But if it ever comes down to 10 years or less, the govt of the day, hopefully a non-PAP govt, will have to deal with it. It’ll be a political hot-potato, and I think the govt of the day will do the right thing to win votes.

I bet condo owners who reach the end of their 99-year lease will face a tougher time than HDB flat owners.

2. The Govt has made us slaves to HDB with 30-yr mortgages.

Notwithstanding that only a tiny minority of flat buyers take 30-yr mortgages, people actually have a choice who they want to be slaves to. They can choose DBS, UOB, Citibank, etc.

In other words, you don’t have to borrow from HDB. And in today’s low-interest rate env, I see no reason why anyone shld pay 2.6% to HDB when banks offer less than 1% for the first two years.

So if you are a slave to HDB, it’s your choice.

The other point of this utterance is that new flat prices are way too high. That is sad but true. The world has changed. Policemen no longer wear shorts. The days of paying off your HDB flat in 5 years will never come again. I doubt any Govt you could elect would be able to bring back those times.

Yet, first-timers still overwhelmingly go for new/resale HDB flats.

Why is that?

3. HDB is a ploy by the Govt to cheat us of our CPF money, leaving us nothing for retirement.

If you prefer, you can be cheated by DBS Land, or Keppel Land, or CDL, etc. Or you can buy resale, and get cheated by complete strangers.

The point is, property prices are high, and people want to find a way to pay without touching their cash. So they use CPF. No one forced them to.

“Opp” politicians conveniently forget that, back in the 80’s, CPF contribution rate was 40%, and there were many restrictions on what people could do with their CPF. People were begging the Govt to allow more of CPF to be used for housing, so that servicing mortgage payments would not impact their cash so much. So the Govt gave in, liberalised the use of CPF for property, allowed 100% of OA to be used.

And people still wanted more, so they allowed CPF OA to be used for investments– stocks and bonds, gold, unit trusts, etc. They even allowed parents to loan their CPF money for their children’s university education!

Now after fulfilling peoples’ demands for CPF liberalisation, the govt is accused of sucking dry peoples’ CPF leaving them nothing for retirement!

Does anyone want to go back to the 80’s?

4. As the largest landowner and mortagor in Singapore, the Govt is in a conflict of interest and thus it wants to keep prices of flats high.

Actually, it is in the interest of all housing developers and banks to keep property prices high, because they are in the business to make $$. So if HDB exited the housing market and left it all to private developers, do you really think it would make any difference in market players’ behaviour?

I think if a govt did that, 20 years later people will talk of the good old days when HDB sold them much cheaper flats!

Of course, the Govt can control property prices through its actions, such as “cooling” measures. But if you believe in free markets, the govt should minimise intervention, and let markets do their job. Remember, constantly falling property prices hurt the people as much as constantly rising property prices.

If a govt can create good economic growth with strong fundamentals, given Singapore’s limited land area, is it not obvious that housing prices will rise, with or without HDB as a player?

5. The Govt should exit the property market, and let private developers build low-cost flats.

They say Singapore is peculiar because HDB houses 85% of the population. In other countries, public housing is just rent-control housing for the very poor and private developers supply the rest of the market.

But do you really believe private developers could do better than HDB? Especially if they have to bid for land?

6. The Govt makes huge profits selling HDB flats. It should sell flats at cost-plus.

I think the Govt probably did that in the 60’s and 70’s, when it started HDB. That’s how our parents and grandparents were able to pay off their first flat in five years!

But it soon became clear that there was a disconnect between new and resale flat prices. Smart people were buying new flats on the cheap and selling them five years later on the resale market for huge profits before “upgrading” to condos. Or they would then buy a second new flat and repeat the cycle, while using the profits for investment into condos to rent out. It was so hot that couples in university were queuing up for new flats under the fiance/fiancee scheme. “Should we get a HDB queue number?” was how guys proposed marriage in those days.

The situation was ridiculous! It also let to overbuilding because there were so many couples in the queue.

The Govt saw through this and tried to stop it, but even measures such as “two bites of the cherry” and resale levies could not stem the problem. So they eventually decided, no more cost-plus, peg new flat prices to resale flat prices.

Yes, there’s still profits to be made, but not supernormal profits. And so we have today’s situation.

The more important question is, should Singapore go back to cost-plus? Apart from encouraging speculation, would there be other undesirable consequences such as a plunge in resale flat values?

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About politicalwritings

Someone who sees beyond PAP and "opposition" in Singapore politics. To understand more please see the Top 10 link below.
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26 Responses to Myths & Half-Truths from the “Opposition” (Part I)

  1. Pingback: Daily SG: 18 Mar 2011 « The Singapore Daily

  2. Gd piece.

    I think I shld forward this to Goh Meng Seng of the NSP. NSP is only Opposition party calling for return to cost +

  3. sg lee says:

    Good article.

    Just a minor negative
    you said that “the govt of the day will do the right thing to win votes”. If u do the right thing, u do not care whether it will win votes.

  4. Paul says:

    You really think that there is no speculation now?
    Why does Singapore have the world’s highest rate of defaults on public housing?
    Why do foreigners who have PR buy HDB flats and private property?
    I

    • 1. You really think that there is no speculation now?

      There may be. So?

      There will always be speculators. The question is, how many, and why.

      If speculation happens because you can buy from hdb at $X and sell it for $3X in 5 years, that’s one thing.

      If speculation happens because speculators believe the mkt is on an upward trend and thus they are willing to bet, even buying and selling resale, that’s another thing.

      2. Why does Singapore have the world’s highest rate of defaults on public housing?

      How is this relevant?

      3. Why do foreigners who have PR buy HDB flats and private property?

      Ask them yourself.

  5. sgcynic says:

    1. You really don’t own your flat because it’s on a 99-yr lease from HDB

    “Actually it’s really premature to speculate what will happen when the lease runs out, because no HDB flat has ever run out of its lease yet.”
    But that does not make it an invalid concern. We should similarly be concerned when the government pushed through a an insolvency clause to allow for the CPF Life Annuity to be closed should it become insolvent. The minister assures Parliament that such a clause will not be exercised. Then why the need to include it? Duh…

    2. The Govt has made us slaves to HDB with 30-yr mortgages.

    “Notwithstanding that only a tiny minority of flat buyers take 30-yr mortgages”
    Please support your claim with statistics. It is true for mortgages taken up in the past but not so for loans over the past five years when the prices of Mah Bow Tan’s “affordable” flats sky-rocketed.

    The fundamental questions for your points 3-5 should be the government’s role be in the provision of pubic housing, and how it should price its land used for public housing.

    6. The Govt makes huge profits selling HDB flats. It should sell flats at cost-plus.

    You should read the flaws with the current market-pricing model at which new flats are pegged to resale prices, leading to an ever reinforcing upward of spirial of HDB prices.

    • Thanks.

      1. I wrote this to offer a counterpoint to the “opp” view.

      2. I don’t see a need to provide statistics when you acknowledged that the overall no of buyers using 30-yr mortgages is not the majority. As we both pointed out, whether it’s 25, 30 or 35-year mortgage is just the headline no; the point being made is that flats are expensive.

      I have some thoughts about govt’s role in public housing. I think govt should have a minimal role, rather than housing 85% of the population. If that was the case, then one could argue that public housing should be dirt-cheap because it should be for the poorest 10% of society.

      But when one cuts the pie at 85%, “public” housing covers everyone from the lowest paid worker to the upper middle class. Surely one cannot expect them to all have dirt-cheap flats.

      As I pointed out, there was a huge disconnect between new and resale prices back in the 80’s and 90’s, to the point when people bought new flats from HDB every five years so they could make huge profits on the resale market.

      The govt’s response to this, after trying various measures that didn’t work, such as resale levies and two-bites of the cherry, was to peg new flat prices to resale prices, because those reflected genuine market prices.

      Are you saying govt should go back to the old practice?

      HDB flats are built on state land, is it fiscally responsible for a govt to sell new flats way below market price to buyers, knowing they’ll flip it in 5 years? Is it fiscally prudent for govt to sell something which belongs to the State– ie to the people at large– for much less than it is worth, in a way that benefits only speculators?

      What’s your answer to this?

      I understand the “flaws” of market pricing. I also understand how markets work. Markets cannot disobey the laws of gravity; they don’t go up all the time, as you suggest. Markets can also be affected by external forces, and they do reach equilibrium over time.

      • sgcynic says:

        “I understand the “flaws” of market pricing. I also understand how markets work. Markets cannot disobey the laws of gravity; they don’t go up all the time, as you suggest. Markets can also be affected by external forces, and they do reach equilibrium over time.”

        “AS MOST Singaporeans live in HDB flats, Minister Mentor Lee Kuan Yew strives to make home ownership the most valuable possession for Singaporeans. ‘85% of Singaporeans are living in HDB flats and we intend to keep the values of these homes up. It will never go down,’ said MM Lee.”
        http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_647217.html

  6. sgcynic says:

    “Are you saying govt should go back to the old practice?”

    Are you saying that the govt should maintain the status quo, where even the middle class cannot afford “public” housing?

    “HDB flats are built on state land, is it fiscally responsible for a govt to sell new flats way below market price to buyers, knowing they’ll flip it in 5 years? Is it fiscally prudent for govt to sell something which belongs to the State– ie to the people at large– for much less than it is worth, in a way that benefits only speculators?

    What’s your answer to this?”

    We can only answer your question if and when the government comes clean on the cost of building a HDB flat and whether the market price discounts or subsidy as you call it is genuinely so.

    Right till late 2010, Mah Bow Tan was still denying that there was a bubble, speculative or otherwise. If Mah had not been complacent and neglient in persistently underbuilding over the past five years and allowed demand to outstrip supply, we would not be in the current state of affairs.

    • Thanks for comments.

      I think I will do a post on hdb in time to come. For now, I note your emotive words, which are exactly what opp politicians have uttered repeatedly, eg flats are not “affordable”, govt makes undisclosed profits from flats, govt refuses to come clean on the true cost of building flats, no one knows whether subsidy is genuine, etc.

      In my view, those are just political rhetoric and soundbites which do not being about clarity and do not help the population solve the problem of high housing prices.

      It’s obvious that the cost of building a flat is far less than the total cost of a flat. Any property analyst can estimate building cost on a psf basis pretty well. Look at any condo bid and read their analysis, you’ll see how much of selling price is attributed to the land cost, how much to construction, etc.

      So what if the “true” cost of building a flat is $100k? Notwithstanding that the cost of a flat cannot just be the cost of bricks and mortar, suppose the govt disclosed the above, what are you going to do with it? The fact of the matter is that flats today command $400k on the resale market– higher if you have a good view, are near mrt, etc.

      If based on this disclosure you got the govt to sell flats at $110k, then what will happen? We go back to the 80’s, everyone flipping flats every 5 years? Or will it become worse, resale valuations and prices crash because the govt is flooding the market with $110k flats?

      I agree the problem is real. But I don’t support opp politicians who just want the soundbites. I’m looking for someone who can solve our problems. Not just try to score points.

      If the govt selling flats cheaper could solve the problem, then i would just go ahead and say hdb should sell flats at x times of annual salary, that’s it. I don’t need to know whether it costs x or y to build a flat. Even if the govt loses money on each flat, I would say do it, for the national good. We subsidize education, that’s why primary and secondary students only pay misc fees of $10 every month, and nothing else. So we can subsidise flats too, if it is in the national interest.

      If selling flats cheap could solve the problem, I’d advocate it even if it costs the govt money.

      But if the true value, as expressed in resale prices, is $400k or $500k, if many people are already locked in to mortgages and loans that value their flats at $400k or $500k, if the market believes that is a fair price to pay for flats, then we have a real problem if we believe that 20 or 30 year mortgages are unhealthy.

      Are you gonna be the one to bring resale prices to $200k from $400k? How will you do it, by flooding the market with $100k flats? What are the consequences?

      To me that is what opp politicians should address rather than trying to score political points hounding mah bow tan. I haven’t found an opp politician who really knows how to deal with this.

      Unlike those soundbite politicians who just want to score points, I am interested in a genuine solution of the 30-yr mortgage problem, if it exists out there. Obviously, I don’t want to pay more for my mortgage than I have to.

      • sgcynic says:

        The PAP is not interested in a genuine solution either, not Mah Bow Tan, who does not admit that there is a problem. Can you expect people to change when they do not take responsibility and ownership of issues?

        The whole PAP machinery is geared to perpetuate the status quo (aka high pay, free reign, no transparency and accountability). Obviously, you cannot look there for solutions.

  7. b&f says:

    no 1 is not a myth. its a fact that cannot be denied. it’s stated in the lease agreement. it clearly states that you only have access to the flat and the use of all its fittings, that ‘s all. nowhere in the agreement is the word “owner” mentioned.

    • Try looking somewhere else, eg S&P agreement. Although I bet the word may not appear either. But that’s not the pt of 1.

      • b&f says:

        s&p is an agreement between buyer and seller, essentially it is just a transfer of the lease for a sum of money. you ask whether its a myth : You really don’t own your flat because it’s on a 99-yr lease from HDB. then you said “Actually you do. ” now I’m saying you are wrong but you are saying its not the pt. its a simple matter, either you own or you don’t, why complicate issues?

  8. Cynic– then we’re in a stalemate. The incumbent won’t solve the problem, the ones outside the threshold can only criticise but don’t know how to solve the problem.

  9. suggestion says:

    “Notwithstanding that only a tiny minority of flat buyers take 30-yr mortgages”

    Where did you get the above data from to make the claim “a tiny minority”?

  10. suggestion says:

    “The point is, property prices are high, and people want to find a way to pay without touching their cash. So they use CPF. No one forced them to.”

    Your point about “no one forcing the use of CPF” contradicts what HDB says.

    Ignatius Lourdesamy from HDB said, “Most new flat buyers, eight in 10 of them, pay no cash for their mortgage and use only their monthly CPF contributions. We believe this is affordable by any standards. ”

    In other words, HDB said HDB flats are affordable in part because flat buys use their CPF to pay the mortage.

    Ergo, if one is forbidden to use CPF to pay for mortgage, HDB becomes unaffordable.

    • Nothing in my post talk about “affordability”. Indeed I mentioned several times that property prices are high. I deliberately avoided this term because it is loaded. MBT can use it to mean 30-year mortgage payments which are under 30% gross monthly income, opp can use it to mean something else. Without an agreed definition of “affordability” both sides can claim to be right. Hence I think your comment is not pertinent to this post.

  11. suggestion says:

    “The more important question is, should Singapore go back to cost-plus? Apart from encouraging speculation, would there be other undesirable consequences such as a plunge in resale flat values? ”

    1. Your argument that cost price HDB encourages speculation simply does not match up to past reality.

    Compared to now, in the 1970s/80s, there much less anti speculation or cooling property measures, which necessarily means they much less speculative activities when HDB was cost price.

    • Thanks. How would you solve the problem of high housing prices? Not just sell cheap flats, but how would you prevent the collapse of the overall property market, or prevent runaway speculation?

  12. Not convinced says:

    who is the one who created this mess? someone who gets paid more than $3m a year? so the guys who criticize must give a solution? Why do we criticize? Its because there are many things that have not been made known. I have read quite a number of articles that have given solutions, well I don’t know if they will work but do you think the gov will give a damn

    • Thanks for comments. Not sure what you’re referring to. My pt is specifically on those who criticised PAP for the Stop at Two policy being the cause of our population “shortage” and thus the import of foreigners. While I agree that is one cause of it, putting myself back in the 70’s I can’t fault them for what they did because I remember what Singapore was like back then.

  13. b&f: There is nothing to “complicate”. The word “owner” does not usually appear in agreements. Typically “Buyer” or “Purchaser” but not “Owner”.

    I have stated my views very clearly: you own the flat. There is nothing to “complicate”.

    You can disagree.

    However, even with the above, the implication is that something very bad will happen to you after 99 years. In a commercial lease, it would be very simple– just renegotiate a new lease.

    In this kind of situation, do you think the Govt would ask for another $400k to extend another 99 years? My view is that HDB dwellers will have more leverage over the govt on this issue compared to condo dwellers. It depends on how they pressurise the govt. Right now I believe we don’t pressurise the govt enough, so they can get away with things. Singaporeans complain all the time, but when it comes to the crunch, they refuse to kick out ministers, they still vote pap.

    How to expect things to change, if one is not willing to send a strong message to pap?

    What I don’t like is opp leaders playing up this issue to get soundbites. 99-year leases didn’t come about yesterday. Everyone knows, or ought to know, what happens when a lease expires. How will their harping on this change things? Do they propose to pass an act of parliament to transform 99-year hdb leases into freehold? If not, then raising this issue is just to stir up the electorate’s anger against the pap, for their own gain, with no credible solutions being proposed.

  14. Sgcynic, pap can say what they want. History shows that property prices fell after the sars crisis all the way thru 2006 before it rebounded.

  15. Observator Tan says:

    Your blog is the stupidest blog I have ever read. Trying to get a job with the PAP right by promoting yourself online right, can’t get a scholar ship, so you are doing this instead? What a sad sad person…

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