Housing Development Board Dealing with the HDB Mess (2)
I offer the following suggestion to solve the HDB mess:

a)  Do not restrict the use of CPF on the purchase of HDB flats above 40 years. Let the same rules apply, regardless of the age of the flat. This ensure that market value of the old flats will fall gradually, rather than suffer a large drop after 40 years. This allows the owner to sell the old flats at a fair price, and downgrade to a smaller flat or rent a flat. 

b)  Make rental flats available at affordable rentals, which should be lower than the current market rentals. This option may be preferred by young families or retirees.

c)  Give a choice to workers to stop their own CPF contribution, if they prefer to use the money to rent a flat.

d) When an owner sells a HDB flat, do not ask the owner to pay back the CPF savings used to pay for the flat with interest. Make it optional. They already have separate savings in the special account for their retirement.

Will my proposal bring down the market value of the HDB flats? Yes, it is likely to do so, but to a modest extent. This will be good for the future. It will also be good for young people.

It may harm the existing owners who paid a high price for their HDB flat. But they probably enjoy a government grant when they bought the flat, so they may only face a small loss, if any. 

The govt does not need to build many new flats for rental. They can set up a separate company or REIT (real estate investment trust) to buy the old flats and use them for rental. This will provide some market support for the old flats and stop the price from falling too much. The REIT can be offered for investment to the public to earn a steady dividend that is linked to the rental income of the flat.

We need to free up the housing market and give better choice to the people. We should not keep the current rules that distort the market and inflate the prices of the flats. It is not good for the people to over-invest in an property that will have zero value at the end of the lease.

In Switzerland, 70% of the people rent their homes. In Germany, it is 50%. These countries have shown that it is possible to have a robust economy with high incomes, without asking promoting home ownership.
 
Tan Kin Lian 

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