The Singapore government is planning to reach out to 1,000 HDB rental-flat families to help them buy their own flats.
The scheme aims to mitigate income inequality and uplift lower-income families because “home ownership is key to providing stability and progress for families in the long run”.
A Home Ownership Support Team will be set up to provide stronger, personalised hand-holding. Low-income families living in subsidised two-room flats will be given a grant of up to $35,000 to buy a new or resale three-room flats in non-mature estates.
In the last six years, about 5,000 out of 56,000 rental-flat families have bought their flats under a similar scheme. The number has gone up to 1,300 last year.
Why our government promotes home ownership
With 91 percent owning their homes, Singapore has the world’s second highest home ownership rate after Romania. On average, couples pay only 4.5 times of their annual income to purchase their HDB flat.
There are many benefits of home ownership:
1. There is no place like home.
It offers a strong sense of belonging to the neighborhood. It strengthens the ties and attachment to the country and avoid losing local talents in bulk through emigration.
2. You need a job to service a mortgage.
It produces dedicated and hardworking employees who have strong motivation and compulsion to go to work, so that they can pay their bank first thing after getting their monthly paycheck.
3. It’s the best alternative to a welfare state.
When everyone owns their home, there is no worry that they can’t pay rent after retirement. When the elderly can stay in their home, there is no need to build many old folk homes even with an aging population.
Once low-income families own their flats, the government can stop subsidizing them on their rental, and above all, avoid subsidizing them all the way into old age.
Do low-income families really need to own their flat?
According to the Key Household Income Trends, 2018 published by the Singapore Department of Statistics, a total of 12.4 percent or 164,337 resident households have monthly income under $3,000. Another 12.1 percent or 160, 361 resident households are with no working person or no monthly income.
Currently, with extensive housing subsidies by the government, a family earning $1,500 pays $26 to under $100 per month from their CPF account to rent a one-room or two-room HDB flat in a non- mature estate.
The government is saying that they are giving low-income households the opportunity to benefit from the growth of Singapore so that no one is left behind.
But HDB flat is subsidized public housing, not an asset. When low-income families are introduced to the concept to invest in their own home, have we checked their current and future affordability? Do they fully understand the implications behind home ownership? Are they aware that all investments involve risk?
Put yourself in the shoes of a rental-flat family and consider the following situations:
1. When you are already struggling to make ends meet, would you rather pay $26 every month to rent a flat, or pay a monthly mortgage to own it?
2. If you are not earning much, do you prefer to pay a minimum rent every month, or pay a lump sum on downpayment, stamp duties and legal fee, and settle the monthly housing loan, renovation loan, property tax, service and conservancy charge, repair cost, etc.?
3. One day when you have financial difficulties and can’t pay your bills, which one is easier: Talk to HDB to lower or postpone rental payment, or talk to HDB or the bank to avoid your flat being repossessed due to default of loan payment?
4. Do you have the knowledge and means to deal with interest rate hike, HDB upgrade, expiring lease and value depreciation of old flats in the future?
In his fourth book Weathering A Property Downturn: Defensive Plays for Real Estate Investors, author Ku Swee Yong explains the costs and risks of home ownership of low-income families:
“I would caution that families on the verge of mending their balance sheets are still vulnerable to fall back into financial distress.
What these low income families need is a secure roof over their heads, not necessarily another possession in the form of a flat. And certainly not being saddled with a long term liability in the form of a loan. They should not be tie down with home loans, and definitely not further shackled with extended Minimum Occupation Periods!”
Is home ownership the solution to wealth inequality?
I’ve shared my childhood story in the first article in Chapter One of my book No B.S. Guide to Property Investment. I grew up in government-subsidized rental housing in Hong Kong. My family of six lived in a small flat with no bedroom, similar to a one-room HDB flat in Singapore.
The rent was cheap. If we managed to keep the meter readings low, we didn’t even have to pay for utility. We stayed there for over 20 years until my parents saved enough money to buy a private home.
If we had to pay a monthly mortgage, there was no way my father, being the sole breadwinner of the family, could feed four young kids, support his old parents, and put all of us through school.
The home ownership scheme targeted at rental-flat families starts with good intentions, thinking that it is all for their own good. But it can potentially create extra financial burden on families that are only scraping by. We are looking out for low-income families. But it may unknowingly have the disadvantaged wear themselves out.
Before implementing the new scheme, let’s ask ourselves the following questions:
1. Can low-income families possibly accumulate wealth while paying monthly mortgages for their HDB flats, or are we simply adding another expense on their pile of bills?
2. Are we uplifting lower-income families, or pushing them to higher debts? Are we providing stability and progress, or giving them more financial stress?
3. When they need money under difficult financial situations or during their retirement, how can they sell their flats while still have a roof over their head? Do we expect them to fall back to HDB rental flats?
4. When personal net worth is calculated by total assets minus total liabilities, are we giving them an asset or a liability? When they decide to sell their flat, how do we guarantee its value can appreciate or at least not depreciate over time? How much can they monetize from it after paying back CPF with interest?
Helping low-income families is not to give them one-time cash payout, or subsidize them to buy an HDB flat. We have to think long-term to show them how to better manage their finances, and upgrade their skills so that they can secure higher pay jobs.
Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.
Lessons learned from high home ownership in Romania
Do you know why Romania, a country crippled by a government debt as high as 35 percent of its annual GDP, can top the world with 96 percent home ownership rate?
Reason #1: The government sold it cheap.
Under the communist rule, the state owned 70 percent of homes in Romania. With the fall of communism in 1990, the government sold the baby boomers the homes they were living in. With a devalued currency, home prices were dirt cheap.
“Paying 100,000 lei for an apartment in 1991 was a fair price at the time. In 1994, that was the price of a color TV,” recalled a home buyer at that time.
Privatization of state-owned homes is also the reason why there is extraordinarily high home ownership rate (over 80 percent) in Europe’s former-Communist countries, including Slovakia, Croatia, Lithuania, Hungary, Russia, Poland, Bulgaria, Estonia and Latvia.
Reason #2: Rental is not an option.
Romanian property developers provide many home choices. There are cheap loans from banks. Buyers pay only 5 percent advance payment.
With high home ownership rate, the Romanian government have built fewer public housing units after 1996.
On the contrary, it is difficult to rent in the country. Besides the lack of choices, there is no law to regulate the rental market. Rental homes are often in poor condition with low-quality furniture.
Reason #3: There is no choice but to own your home.
What are the consequences?
The new generations of Romanians are forced to buy even if they can’t afford to buy a home. As a result, people have to live with high debt.
Many inherit their home from their parents. But they also inherit the problem of aging properties at the same time.
According to a World Bank report on Romania Regional Development Program, the country has a “virtually absent rental market”. When families expand in size, multiple generations or extended families have to live together. Overcrowding in living is common in Romania.
The report also highlights the fact that more than a third of Romania’s housing is lack of repairs (with structural issues, heating problems, and little protection against earthquakes) because many owners can’t afford to.
Like a homeowner said, “I am not sure if being a homeowner is a blessing or a curse.”
Is high home ownership policy relevant for the future?
For many Singapore homeowners, we can’t deny the benefits of home ownership. But the relevance of high home ownership rate in the future will depend on three factors.
Factor #1. A growing economy
Property prices appreciate with the growth of economy and salaries in a country. When many Singaporeans have invested their wealth heavily in their homes, we have to ensure that our economic growth can be sustained over the next few decades.
It is an outdated thinking that if we buy a flat now, it will appreciate over time so that we can upgrade our home along the way. Singapore has long passed the stage of rapid economic growth during transition from an emerging to a developed country. The days when market value of HDB flats can jump tenfold are over.
Factor #2. An increased demand in housing
Our government is raising the bar on even higher home ownership in Singapore. Where is the demand coming from? Low-income families? Millennials forming new households? More import or foreigners and approval of permanent residency and citizenship?
Above all, is our aging population supporting or hindering home ownership?
Factor #3. Financials of government and homeowners
In his 2016 book, Ku Swee Yong points out that home ownership locks up capital in illiquid, unproductive assets, especially in the case of a prolonged downturn.
To avoid falling into the high home ownership trap of Romania, our government must be fiscally sound. Likewise, homeowners must be financially healthy to cope with depreciation, repair and upgrade of aging properties.
It is a grand motive to uplift the disadvantaged and narrow the wealth gap in the society. However, instead of trying to have something for everyone, or give the same thing to everyone, it is important to look at the real situation and meet the housing needs of different income groups in the country.
I will be talking about “Singapore Property Market #10YearChallenge” at the SMART Expo this Saturday (Mar 30) 5 p.m. at the Suntec Singapore Convention & Exhibition Centre. Get your free pass and see you there!
Don’t waste time and money attending other property seminars run by organizers with vested interests. Sign up for the Property Investment Finance and Profit-Risk Analysis Workshop to learn unbiased insights and analyses by Mr Ku Swee Yong. Sign up today before we run out of seats!
For the rental to purchase schemes for citizens, you will be surprised with the amount of subsidy provided to enable them to buy a unit. The authorities are not so insane to give themselves more trouble than they have under rental flat. Most often, the financial stress on them reduces. If you would volunteer your time, you will be able to understand how it works better.
In a nanny state with resources, it is easy for the government to decide who need what and say “we are doing these for their own good”, but often only from their point of view. It is similar to a rich parent who sees a child need help and won’t hesitate to do so, without thinking clearly whether help is necessary or appropriate, or whether it’s better to show the child how to help himself.
The well-intentioned but unsolicited help may have the negative consequences of complaints and ungratefulness of the recipients who are also incapable of standing on their own two feet. I have touched on this topic in my blog post “Thoughts from the release of PSLE results” -> https://www.propertysoul.com/2017/11/28/release-of-psle-results/
We of course hope that everyone is capable of being independent, and the government is determined to have capable people earn their keeps instead of asking for free handouts. We need more people like you to speak out against the entitlement mindset. However, there are families whom are stuck in situation beyond their control. Worse are children whom are born and have to live in those circumstances. Hence, it is great when there is help of somekind of help to kickstart their life for them. We are all fortunate. Sometimes, I would ask myself, if I was born in their circumstances, where will I be now.
Hi Vina,
I don’t think it is fair to base on your 20 years of Hong Kong rental experience and use it as a yardstick for your judgement. To be sure, the housing context in Hong Kong is vastly different from Singapore. So there is no basis for comparison.
I am not sure how many Singaporeans had actually upgraded from living in rental HDB flat for 20 years to a private property. There could be examples but I believe they are the exception than the norm.
To be honest, I am supportive of the government’s push for home ownership among the low income. It is more of teaching the poor and needy on how to monetize their homes rather than reducing their monthly expenses for rental or home ownership.
Do you think the low income families can really monetize their HDB flats? After they sell their flats, where can they live?
As homeowners, they can rent out their flats right?
Read the HDB rental rules again. Or you mean the whole family can squeeze into one room and rent out the other room illegally?
Anyway, I don’t think the Minister who proposed this scheme came from a low income family. So do others who support it.
Give me a reason why a 3-room HDB owner cannot rent out a room with consent from HDB. And what makes you think that those who support this scheme do not come from low income family?
Again I would suggest that you spend time volunteering and reaching out, and you will be surprised how engaging the government of the day is to the plight of the poor and needy. To question their decision is one thing, to question their best intention is another.
Looks like some commentators have axes to grind…could be agents unhappy about blogger’s bearish outlook of property?
I don’t blame them. It needs bravery to hear the truth and maturity to face the reality. Don’t worry. If they are upset after reading my blog, they can easily be cheered up again by tons of printed or online property articles that are upbeat and optimistic for nothing.
Homeownership is an outmoded concept for the future fluid nature of things. We’re at the cusp of revolutionary changes in the global economy. What many people don’t know is that as the world barrel into Artificial Intelligence “AI” & all things Internet, physical assets like property & Brick ‘N Mortar structures would lose their value as the value creation equation moves into cyberspace & into the internet. And the Internet is fluid & can be anywhere (usually low cost places). The resulting effects can be highly disruptive & discontinuous (it can suddenly terminate without warning).
In time, the higher value workforce would be itinerant knowledge workers moving across continents & to various global cities looking for high paid but increasingly short term work. For most, owning property at their country of work isn’t conducive to their lifestyle & “gig” work. They would rather rent apartments or share house.
Another thing is to look at the Global Economy today. It is having deep structural problems ie. ageing demographics, income inequality & huge debt imbalances. The world isn’t growing anymore, it is already matured & dare I say, already in steep decline.
In the next decade, property might not be a good investment, neither will be REITs & stocks in general. Look at the Hyflux situation (implosion) is enough to send shudders down your spine when everyone thought they were in a fail-safe business of water purification. The 34,000 stockholders/bondholders literally lost their life savings believing in their Investments. Going across to JB (as well as watching Amazon, AliBaba) is enough to question the Mall REITs equation. China’s BRI is enough to question the office, logistics & warehousing REITs if one carefully sees China’s plans. People cannot continue to view the world through the rear view mirror. The past doesn’t bridge into the discontinuous future going forward.
Countries are finding it hard to keep capital, their productive citizenry & their economic base because in a declining environment, everyone is fighting for table scraps. Govts are being seen in a harsher light than ever before. Too much redevelopment & constant overbuilding would warrant a closer look into finances & whether there is a positive ROI at the end.