Commentary: Windfalls and bailouts should not be an expected part of the public housing equation

Commentary: Windfalls and bailouts should not be an expected part of the public housing equation

Let’s not depend on our flats receiving VERS in making prudent housing decisions, says Channel NewsAsia’s Bharati Jagdish.

hdb 99 year lease file photo
HDB flats occupying the Singapore skyline (Photo: Jeremy Long) 

SINGAPORE: Apprehensions over ageing HDB leases might have eased to some extent after Prime Minister Lee Hsien Loong’s National Day Rally speech.

Mr Lee did well to explain why HDB leases are limited to 99 years and cannot be indefinitely renewed, for the sake of future generations and for social and practical reasons.

While understanding the reasons, Singaporeans can look forward to other options that could see older flats retain their value for a longer period.

The Home Improvement Programme (HIP) will be expanded to cover more flats, and the new HIP II scheme will give all HDB flats a second round of upgrading when they reach the 60 to 70-year mark.

Residents can also look to the possibility of the Voluntary Early Redevelopment Scheme (VERS).

CONSIDER THE UNKNOWNS

However, while considering these and other options in the public housing ecosystem, Singaporeans would do well to manage their expectations and exercise prudence in their choices.

National Development Minister Lawrence Wong has already warned against playing up expectations that VERS will help prop up the resale market.

Clearly, there is a chance your precinct may not be selected for VERS and even if it is, the majority of residents could still very well vote against it.

READ: Strong political commitment to housing is precisely what younger Singaporeans need, a commentary

Lawrence Wong at Reach forum Aug 21 2018
National Development Minister Lawrence Wong speaks to the media at a REACH forum on Tuesday (Aug 21). 

Last year, Mr Wong’s reminder that HDB flats would be returned to the state at the end of their 99-year lease was accompanied by advice that buyers should not fork out large sums for old resale flats on the chance that they may profit from the Selective En-bloc Redevelopment Scheme (SERS).

Only 4 per cent of Singapore’s public housing stock had been selected for SERS since the scheme began in 1995, but many HDB dwellers seemed to believe that the majority of them would benefit from the scheme at some point.

While the recent moderation of HDB resale prices may have disappointed sellers, some analysts argue that the moderating effect on resale prices has been positive. After all, runaway prices created anxiety among current and future flat buyers and are unsustainable in the long run.

The possibility of VERS might have a stabilising effect on the resale market on the whole, but again let’s not forget the various unknowns. 

For instance, the terms for VERS have yet to be worked out, but we have already been warned that they will be less generous than those of SERS.

Whatever the case, buyers need to see this scheme as a bonus rather than a given when making their purchasing decisions. Taking this stance has its advantages.

For instance, it could continue moderating the market, ensuring reasonable affordability for generations of Singaporeans.

Home buyers would also more likely make our housing decisions more prudently, and take fewer risky decisions that could ultimately impact our savings, including those under CPF that should provide for our retirement.

BEING COGNISANT OF THE TERMS

Many young flat owners think they would probably sell their flats and move to something bigger and better long before their 99-year lease runs out. Over the years, such aspirations and a focus on profits might have also prevented many from fully coming to terms with the finiteness of HDB leases.

READ: 99-year HDB leases a chance to review home ownership and retirement policies, a commentary

HDB Old Flat Blue Sky
File photo of HDB flats in Singapore.

While the Prime Minister has assured Singaporeans that once the lease runs out, the Government “will help you to get another flat to live in”, he also said “whichever option you choose, you will have to pay for the lease”.

Mr Lee explained it is only fair “because you bought the original flat knowing when the lease would run out, and knowing that the flat would then have to be returned to HDB”.

However, in spite of this, there was clearly a belief in some quarters that the state would feel a duty to provide some form of compensation before or at the end of 99 years, whether through SERS or some other scheme.

Recent statements and discussions on this issue have hopefully driven home the message that we shouldn’t expect the Government to entirely bail us out of the housing decisions we made for ourselves.

READ: An over-emphasis on home ownership can come at a cost to society, a commentary

We must understand the terms from the outset, manage our expectations and in the process, be cognisant of what our choices ultimately mean for us and our families.

If we choose to buy a resale flat with only a few decades left on the lease, do we have plans to move somewhere else after and are we able to set aside money to finance this?

Or do we want our flat to be an inheritance that can be passed down to our children, despite the fact that its lease will run down eventually?

How would this then determine how much we are willing to pay for it at the outset?

THE OBJECTIVES OF PUBLIC HOUSING FOR US AND FUTURE GENERATIONS

While most of our HDB flats have gone up in price compared to when we first bought them, public housing is clearly not an asset that will invariably grow in value no matter the conditions.

Old HDB flats in Singapore
A block of flats in Singapore. (Photo: Marcus Mark Ramos)

The public housing system as a whole is designed to provide housing security for not just the current generation, but future generations of Singaporeans.

But an HDB flat is designed to house one generation at a time; hence the need for finite 99-year leases so that the land can be redeveloped after for the next generation who have to pay their share for their house.

National Development Minister Lawrence Wong has stressed the need to ensure that fiscal arrangements for VERS are sustainable. This will undoubtedly determine the terms offered to residents.

We might be about 20 years away from Singapore’s first VERS project but clearly any indication of how it will be ultimately rolled out will be of great interest to home owners and future buyers.

In determining the merits of current and future schemes, individuals need to step back and look at their flat as not just an asset, but a home.

In this equation, windfalls and bailouts should not and cannot be seen as a given.

Bharati Jagdish is the host of Channel NewsAsia Digital News' hard-hitting On The Record, a weekly interview with thought leaders across Singapore, and The Pulse, Channel NewsAsia’s weekly podcast that discusses the hottest issues of the week.

Source: CNA/nr(sl)

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