Housing Development Board Dealing with the HDB Mess
I discussed with my friend about the HDB  "mess". Suddenly, people realize that the HDB flat will have no value at the end of the lease. They have paid a large sum for a HDB flat thinking that it is an appreciating asset. 

To make matters worse, the HDB flat now suffered a sharp decline when it passed the 40 year mark. An old flat, with less than 60 year lease, suffered a large drop in market value (more than 20%) as there are restrictions on the use of CPF by the buyer. This market is also quite illiquid. It is difficult to find a buyer.

My friend made the following argument:

a) The govt must allow a residual value for the HDB
b) The govt should allow the owner to buy a fresh 99 year lease. However, he did not consider what the price should be. He assumed that it will be for a modest sum.
c) He argue that ownership of a HDB flat should be a right of citizenship and a reward for servicing national service
d) He argued that the owner should have the right to pass a valuable asset to the children on his death.
e) Because of the expensive HDB flats, many owners have little CPF savings. A large number have only enough savings to draw out $350 a month.

I told him that my view is - the HDB home ownership is in a "complete mess". The government has not been able to find a solution. In fact, there is no solution. It is impossible to find a solution to satisfy the different group of owners who bought their flights at different periods of time, and between first time buyers and those who bought the HDB flat in the resale market.

The dilemma is that most people cannot accept the fact that their HDB flat, which they paid a very high price, will have no value at the end of the lease. It is an emotional issue. It is a culture shock. They are still trying to look for a solution to make it an "appreciating asset" that they thought it was.

I also pointed out the following flaws in his argument:

a) The original HDB owner will not pass the flat to his children. His children would have bought their own flat during his lifetime. 
b) At the end of the lease, the HDB flat will be in a bad physical condition. Buying (and paying for) a new lease does not make sense.
c) Some of the HDB flat owners do not serve national service, i.e. new citizens.

What is the solution?

The best possible solution that I can think of, and it is not a perfect solution, is to allow the value of the HDB flat to decrease gradually over the 99 year lease. it should not drop sharply after 40 years.

The retiree who needs to sell his flat should receive a fair price, rather than a distorted depressed price. He can use the sale proceed to supplement his CPF and draw a larger monthly income. 

Where does he stay? He can rent a small HDB flat. The govt should make rental flats available at affordable rent.

The people who have a choice to rent a flat or to own a HDB flat over a longer lease. There should not be "compelled" to be a home owner. They should realize that a HDB flat, or a leasehold private property is advanced payment for the flat. It is not an appreciating investment. 

I told him that in Switzerland, 70% of the people rent their flat. The percentage in Germany is 50%. These countries are high income countries. They do not generate the income from asset appreciation.

We should not blindly promote home ownership to the point of pushing up property prices to a very high level. 

It was quite difficult for me to convince him to see my points. But, he appeared to think that my points make sense and could be a good way forward to clean up the "housing mess".

Tan Kin Lian
 

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