HDB's Flawed Policy Direction

Goh Meng Seng · Mar 18, 2010

Goh Meng Seng · Mar 18, 2010

You will be taking a loan of $175K and paying $675 per month for your flat. Total interest paid will be about $79K. So in order for you to break even, you will need to sell $254K. Deducting that $100K studio apartment, you will get $154K plus the CPF extra saving of $109K. A total of $263K!

Please bear in mind that this is selling at break even, at lower price than Case I. If the flat could be sold at the same price as Case I, $328K, you will have another extra amount of $74K!

Besides, nobody could possibly predict what price the resale market will be in 30 years time! For the Case II, you will definitely get $109K first regardless of whether you can sell your flat or not. If you take $1000 per month for monthly expense, this $109K savings could last you about 9 years.
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The above is a simple example. However, I have not come to the other problems of Mr. Mah's method. If HDB insists on high HDB flat pricing based on resale market prices which are subjected more to excess liquidity from foreign sources rather than real income growth locally, the pricing mechanism will price young couples out. It is already taking effect on the lower income people now.

If we were to take Mr. Mah's policy direction at face value, it would mean that the resale market has to grow by at least 2.6% per year in order for the plan to be successful. However, can the Minister guarantees that our income growth could also grow at this rate for ALL Singaporeans? Apparently, by historical data for the past 10 years, the wages for the middle-lower income group has been stagnant or even regressed!

If more and more Singaporeans are priced out of the HDB property market, forced to stay with their parents, such a scheme will collapse. You may have 80% of Singaporeans staying in HDB but not all adult Singaporeans owning their flats! How could Mr. Mah's "HIGHFALUTIN IDEA" of using HDB flat as retirement financing works then?

On the other hand, more and more Singles and Divorced Singaporeans will be priced out by the system because the system is basically based on two income earners assumption. In the end, they may be forced to buy studio apartments or 2 room flats. If that happens, they couldn't possible downgrade further, could they?

Besides, this system is in danger of turning into sub-prime. At this rate we are going, there is no guarantee that everyone will be able to stay employed for the whole 30 years of their lives without decreased wages. Even Government agencies and GLCs are totally biased against older applicants who have passed 40 years old.

This is basically the reason why more and more Singaporeans are unable to fulfill their mortgage payment, ended up having their HDB flats being repossessed, evicted out of their flats. This is no laughing matter. They would have lost everything in the whole process or even ended up still owning HDB money after losing all their CPFs and the flats. At the very least, if they have kept that $190 per month savings in CPF, they could still have some funds for retirement in future!

The other problem with this model is that there will be a great possibility of over building of studio apartments in view of an aging population. There will be a peak of this aging population and then it will decline, stabilizing at sometime later. During the peak of the aging population, the resale market may just collapse! This is basically because many people who follow Mr. Mah's direction would have to sell their flats to finance their retirement. Thus, Mr. Mah's hope of having high resale market price by the time of our retirement may be just fat hope.

On the other hand, the HDB may not react sufficiently to provide enough studio apartments to these people because they will be very concerned of over building. It will be a very delicate balance to maintain. By HDB's track record back in 2007 and 2008, it doesn't seem to be very nimble in estimating demand.

The situation would be great demand on studio apartment but there are competing resources now. HDB will have to build and cater to TWO big groups of people, the young couples and the retirees. If we do not have more PRs to buy up the resale flats from these retirees, we will be in trouble! There will be a huge oversupply of flats in the market.

The "downgrading" option is not economically sound at all. What about "reverse mortgage"? How much money do the government of the day needs to fork out to satisfy this system? Especially for an aging population when the PEAK of retirees begins to surface? Is that sound at all for the financial system to put in so much money to finance an "unproductive" investment?

How about the renting out option? First of all, there must be enough demand. If we do not have enough foreign workers working here to rent the flats during the peak of aging population, we are doomed. Furthermore, more PRs would prefer to buy their own flats and rent them out as well! Could anyone guarantee that there will be so many foreign workers around? If that is so, our own Singaporeans may just face depressed wages as well! The problem of affordability of HDB will come back to haunt us again especially so when we need the wage to grow as fast as the flat prices to grow at the rate of 2.6% per year.

Thus I think the suggestion of using HDB flat as "retirement financing" is really a very dangerous one. It has no basic sound economic foundation to start with. It is just based on some "ideal situation" scenario which is totally unrealistic. The premise of the "ULTIMATE PLAN" of PAP's retirement financing for Singaporeans is totally flawed. This system cannot work at all.

The better bet is the second case scenario whereby flats are sold at lower prices and Singaporeans could continue to save their money in CPF to be used for future retirement financing. To bang on Mr. Mah's policy direction on High HDB price for Future Retirement Financing is a very dangerous move. There are so many variables to take care of. His plan that aims to solve one problem, will eventually create more problems for Singaporeans and future government.

Goh Meng Seng

besotted · Mar 18, 2010

if price cheap cheap then everybody pays off in ten years and becomes lazy

price at 30% income over 30 years is good. so people have to work hard and not keng all the time

mah looks stupid but the policy is sound

longbow · Mar 18, 2010

Aiyoh - if I bought flat for $225K in 30 years time My flat should be worth a lot more than $328K. At the very least I think the flat would be worth $1M or more. Inflation at 3% for 30 years alone will more than double the $225K purchase price.

You must factor in time value in your calculation. Actually between the 20 to 30th years the $865 monthly payments will be peanuts.

Take for example, if you are getting a loan of $225K, you will be paying about $865 for a 30 years mortgage. Your interests paid at the end of the mortgage is a total of about $103K at the HDB's concessionary interest rate of 2.6%. It means that if you are to make any money out of your flat, you must be able to sell at least $328K by the time you finished paying the 30 years mortgage.

Goh Meng Seng said:
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I have watched the Talking Point of Mr. Mah's effort to defend his HDB policies. After watching it, I feel very worried about the future of Singapore.

It has confirmed my initial guess of what this PAP government is up to, although I have heard about it from a professor whom might have helped to mold such policy direction.

MBT started off with three main points:

1) HDB flats are for Home Ownership, for Singaporeans to "own" their flats. This "asset" you could "sell it and you can keep everything that you made"

2) Extensive Coverage. Over 80% Singaporeans are within this scheme.

3) HDB is also acting as a form of retirement income. Singaporeans can "monetize" their flats, downgrade, rent out... etc. just for retirement financing.
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Mr. Mah responded to my constant ranting on the ground that with a 30 years mortgage, our children will not be able to have sufficient money in their CPF for retirement financing. If our children married at 30 years old, they could only finish their mortgage payment by 60 years old. Almost all money in CPF apart from Medisave will be used for this mortgage payment. There will be very little money left for retirement financing.

Mr. Mah responded saying that we could "monetize" our HDB flat for this retirement financing. The assumption that one could actually "monetized" our HDB flats to finance retirement is totally flawed. There are many issues here. When you pay high prices for your first HDB flat, by the time you finish paying the 30 years mortgage, you would be buying almost 50% more than the price you initially bought in terms of interests.

Case I

Take for example, if you are getting a loan of $225K, you will be paying about $865 for a 30 years mortgage. Your interests paid at the end of the mortgage is a total of about $103K at the HDB's concessionary interest rate of 2.6%. It means that if you are to make any money out of your flat, you must be able to sell at least $328K by the time you finished paying the 30 years mortgage. Please bear in mind that your lease will be left with 69 years. This is the reason why PAP wants the resale price of HDB to stay high.

However, if you sell off your HDB flat, where are you going to stay? Assuming that the studio apartment by then will cost you $100K. (Very conservative estimate indeed.) So you will have $228K left for retirement financing.

Case II

Could we do better than this? If the price today is priced at cost price, maybe $50K less. The amount of interest you will save will be about $23K with the same 30 years mortgage. You will be paying $190 less per month for your mortgage payment. This $190 will be in your CPF account earning an interest of 2.5%. At the end of the 30 years, you will get about $109K from this monthly saving of $190.

eatshitndie · Mar 18, 2010

many times the best intention is fraud with oversimplification. read up on "public housing" in america, and with good intention of catering to the underprivileged and poor, a new segmentation emerged, or perhaps, it's more like 'ghettofication'. learn lessons from others before changing the dynamic in sg that has worked for the majority of the sinkie population. the important word is "majority".

Cestbon · Mar 18, 2010

The HDB need to change certain rule.
1. Build more HDB min 8000 unit/year and another 8000 unit/year optional due to demand.
2. PR (after been PR)need to wait min 3 year before can buy HDB.
3. Do more check on HDB flat that rent out without permit. Fine $3k for 1st timer , $5k nd timer and 3rd time repose the flat ($1k reward for whistle blower). Sure many will give tip off.
4. Lower the HDB price by another $30k.
5. Property tax for HDB 5~10 times higher for those own private property.
6. Single parent (who are citizen age 25 and above are allow to buy HDB)

aurvandil · Mar 18, 2010

Cestbon said:
The HDB need to change certain rule.
1. Build more HDB min 8000 unit/year and another 8000 unit/year optional due to demand.
2. PR (after been PR)need to wait min 3 year before can buy HDB.
3. Do more check on HDB flat that rent out without permit. Fine $3k for 1st timer , $5k nd timer and 3rd time repose the flat ($1k reward for whistle blower). Sure many will give tip off.
4. Lower the HDB price by another $30k.
5. Property tax for HDB 5~10 times higher for those own private property.
6. Single parent (who are citizen age 25 and above are allow to buy HDB)

Here is a simpler plan

1) Revert to the BTS system

2) Maintain a strategic stockpile of HDB flats which can be released into the market when the market surges unexpectedly.

3) Tie in the number of HDB flats built per year to immigration (Total Population Growth).

If we adopt this simple strategy, we will eliminate 70% to 80% of the volatility in the housing market.

Goh Meng Seng · Mar 18, 2010

You are making a lot of assumptions here, that property prices will ALWAYS go up which is contrary to history trend. Within a decade or so from 1997 to 2008, there are THREE financial economic crisis.

Resale market prices are determined by demand and supply of the flats, not merely inflation rate or any other things else.

Contrary to what you think, $865 dollars every month payment for 30 years IS ALOT. If you just put this stream of $865 monthly income into CPF for 30 years with just 2.5% interests, you will get back almost $500K at the 30 years time! That is the time value of this money.

So actually, to make a better comparison between retirement financing through MBT's HDB scheme vs CPF scheme, the result is pretty obvious. The HDB at the end of the 30 years have to fetch at least $500K to make any sense at all.

Goh Meng Seng

longbow said:
Aiyoh - if I bought flat for $225K in 30 years time My flat should be worth a lot more than $328K. At the very least I think the flat would be worth $1M or more. Inflation at 3% for 30 years alone will more than double the $225K purchase price.

You must factor in time value in your calculation. Actually between the 20 to 30th years the $865 monthly payments will be peanuts.

Take for example, if you are getting a loan of $225K, you will be paying about $865 for a 30 years mortgage. Your interests paid at the end of the mortgage is a total of about $103K at the HDB's concessionary interest rate of 2.6%. It means that if you are to make any money out of your flat, you must be able to sell at least $328K by the time you finished paying the 30 years mortgage.

bryanlim1972 · Mar 18, 2010

eatshitndie said:
many times the best intention is fraud with oversimplification. read up on "public housing" in america, and with good intention of catering to the underprivileged and poor, a new segmentation emerged, or perhaps, it's more like 'ghettofication'. learn lessons from others before changing the dynamic in sg that has worked for the majority of the sinkie population. the important word is "majority".

i believe GMS is arguing that this "majority" will become the minority when the aging population all monetized their flats at the same time as per mbt's plan.

Goh Meng Seng · Mar 18, 2010

bryanlim1972 said:
i believe GMS is arguing that this "majority" will become the minority when the aging population all monetized their flats at the same time as per mbt's plan.

Yes and not only that, there must be enough demand on HDB flats on the resale market 30 years later! If you have an expanding aging population while youngsters are declining in numbers, pray tell, where is the sufficient demand is to come from to make sure the resale market is going to be as high up as possible? That is the myth, unless, here again, we are going to open out flood gate for PRs to come in!

Goh Meng Seng

johnny333 · Mar 18, 2010

besotted said:
if price cheap cheap then everybody pays off in ten years and becomes lazy

price at 30% income over 30 years is good. so people have to work hard and not keng all the time

mah looks stupid but the policy is sound

When you hit 40 you have to start worrying about job security.
Now with plenty of cheap foreigners many Sporeans are unemployed.

Isn't the stated role of "cheap" public housing to ensure Sporeans have a roof? Not as you say to force them to work :rolleyes:

chewed · Mar 18, 2010

Goh Meng Seng said:
Yes and not only that, there must be enough demand on HDB flats on the resale market 30 years later! If you have an expanding aging population while youngsters are declining in numbers, pray tell, where is the sufficient demand is to come from to make sure the resale market is going to be as high up as possible? That is the myth, unless, here again, we are going to open out flood gate for PRs to come in!

Goh Meng Seng

you just answered your own question.

phouse3 · Mar 18, 2010

We have seen a rise in exogenous demand causing asset price inflation during an economic recession.

So the big question is: Will the no. of foreigners and PRs continue to rise?

According to an indirect reply, the Health Ministry thinks the population won't hit 6 million, even 5.5 million may be difficult. But I think the population may still rise when election is over. There has NEVER been a U-turn in FT policy, only blue collar workers are discouraged as a pre-election gimmick.

Moreover, the no. of PRs/Work Pass holders can rise whilst Work Permit holders decline without causing the population to cross over 5 million.

Perhaps we should ask the Development Ministry: -
- As an urban planner, can it confirm that there is no plan to grow the population above 5 million? That is to say, exogenous demand for public housing(and private too) will not continue to rise?
- If public housing is meant to "cover" Singaporeans comprehensively, why are PRs allowed to buy and foreigners allowed to rent public flats?
- Since foreigners have been allowed into public housing, why didn't HDB treat them as endogenous demand and increase the supply?
- If HDB thinks the foreigners may leave causing an over-built or over-supply, then shouldn't they be barred from public housing in the first place?
- Shouldn't they be barred gradually from public housing as a solution to current housing and social problems?
- Is PR quota a misnomer (to hoodwink Singaporeans) because PRs can still buy outside the quota area?

Incorporating public housing into the FT Policy has failed miserably. Using the relatively cheaper public housing to encourage foreigners to come here to work, take up PRs and hopefully one day become Singaporeans has failed miserably. These foreigners have slapped Singapore in the face by showing that they are just here to feed on the sugarhill.

Homeownership actually weakens the people because they become the stakeholders and enslaved. On the other hand, rental flats weaken the government because they will then be the stakeholders subject to property cycles. It's little wonder that Singapore's homeownership is the highest and the PAP government the strongest in the world. For fairplay, supply of rental flats should be drastically increased.

Asset price appreciation based on real income/GDP growth is asset enhancement. The first generation of Singaporeans will attest to that. The second generation has seen the half-way mark. Inordinate asset price inflation based on artificial growth (especially based on immigration surge) is a bubble in the making. The third generation must know the difference.

There are academics who have argued against treating homes as investment but it shouldn't stop homeownership as a good hedge against general price inflation. Further, if we do not look at homes as generators of retirement income, then the government must stop withholding the other portion of our CPF money not invested in properties and also raise the returns. Otherwise, there will be a big gap in social security.

wonerman · Mar 18, 2010

MBT will not live past 30yrs from now so why he bother to think of policies beyond that!

Queen Seok Duk · Mar 18, 2010

Watch carefully at the start of the program when the host was about to introduce MBT. He didn't smile and his face looked glum. I'm not joking, but I could read his facial expression, as if in his mind he was saying:

"CCB ! GOH MENG SENG !"

johnny333 · Mar 18, 2010

wonerman said:
MBT will not live past 30yrs from now so why he bother to think of policies beyond that!

How many PAP MPs actually plan to stay in Spore for the long term :confused:

Suspect MBT plans to quit Spore with his foreign wife Spore is a good place for an elite to work but not for lesser mortals :rolleyes:

Goh Meng Seng · Mar 18, 2010

Queen Seok Duk said:
Watch carefully at the start of the program when the host was about to introduce MBT. He didn't smile and his face looked glum. I'm not joking, but I could read his facial expression, as if in his mind he was saying:

"CCB ! GOH MENG SENG !"

I didn't notice. No wonder my eye kept twitching that day.. LOL!

Goh Meng Seng

Frankiestine · Mar 18, 2010

They need to keep the resale price high so that they could in turn sell their new flats high considering how now the so call subsidy is actually a perceive subsidy off the resale market price and not off the cost as claimed in the past. Hence, valuation of resale flats are set at unrealistic level.

:oIo::oIo::oIo::oIo::oIo:FUCK YOU SHORTIE MAH:oIo::oIo::oIo::oIo::oIo:

Zombie · Mar 19, 2010

Goh Meng Seng said:
Within a decade or so from 1997 to 2008, there are THREE financial economic crisis.

anyone who bought during the last decade, are "benefiting" from the current hdb system... in fact, anyone who are currently holding their flats (bought anytime from hdb) are "benefiting" from the current hdb system...

check the resale price index.. the largest drop in historical prices, in year 1997, was from 139 to 96 ie 29%... but had you bought from hdb, you would be given the grant at 20-25%.. this means hdb new flat prices provide the cushioning buffer and limiting the downside effect.. essentially this means nobody wants to sell lower than what they can buy from hdb...

...the BTO system introduced in 2001 helps to support prices too....

... else tell me why even with THREE financial economic crisis between 1997 to 2008, the resales prices always jammed the brakes at price index somewhere around 100 .....

... so, if you start introducing new flats at very low price ie at cost, the difference between the current market prices and new flat price (at cost) would be so large that you are effectively giving the market the opportunity to crash...

Goh Meng Seng · Mar 19, 2010

The ultimate question is, do you want to keep going on like this? For your children?

There is one investment guru who wrote, if you are thinking of buying the same stock later down the road, would you still want it to increase? People will always want to buy low, not higher.

The 1997 case is a mistake. If you want to save them and allow them to finance their retirement, do you know how much money your children will have pay for their flats?

Hoping to use your flat to finance your retirement is totally flawed.

Goh Meng Seng

Zombie said:
anyone who bought during the last decade, are "benefiting" from the current hdb system... in fact, anyone who are currently holding their flats (bought anytime from hdb) are "benefiting" from the current hdb system...

check the resale price index.. the largest drop in historical prices, in year 1997, was from 139 to 96 ie 29%... but had you bought from hdb, you would be given the grant at 20-25%.. this means hdb new flat prices provide the cushioning buffer and limiting the downside effect.. essentially this means nobody wants to sell lower than what they can buy from hdb...

...the BTO system introduced in 2001 helps to support prices too....

... else tell me why even with THREE financial economic crisis between 1997 to 2008, the resales prices always jammed the brakes at price index somewhere around 100 .....

... so, if you start introducing new flats at very low price ie at cost, the difference between the current market prices and new flat price (at cost) would be so large that you are effectively giving the market the opportunity to crash...

HDB's Flawed Policy Direction

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