LSH's Analysis of SDP's Housing Policy

[makapaaa]

[h=2]An analysis of the SDP Housing Plan[/h]

November 6th, 2012 |

Author: Contributions

I refer to the Singapore Democratic Party’s (SDP) launch of
their paper “Housing A Nation: Holistic Policies
For Affordable Homes”, on 4 November.

Non Open-Market HDB flats

The proposed “Non Open-Market” (NOM) category of HDB flats for Singaporeans
only, is a novel one, and a significant departure from our current public
housing policy.

Briefly, NOM flats are priced at construction and administrative costs plus
without land costs, and cannot be sold in the open resale market, but only back
to the HDB at cost less depreciation.

NOM implications, outcomes?

Whilst no one can say for sure what the impact, implications and outcomes may
be, if the SDP Housing Plan is adopted, in part or in totality, a great deal may
depend on the speed and graduality of implementation.

Notwithstanding the above, I think the NOM may be a welcome relief for the
following groups of Singaporeans:-

… those who cannot afford a new BTO (Build-to-order) flat

… those who cannot afford a resale flat

… those who cannot pay their existing HDB mortgage and want to downgrade, but
are currently unable to do so in the resale market due to financial constraints
like outstanding loan balance, high resale prices, Cash-over-valuation (COV),
loan availability , etc

… those who want to downgrade to retire or monetise their existing flat

… those who are homeless, but have sufficent CPF and/or cash-flow to afford
the much lower priced NOM flats

… those in the Interim Housing Scheme or renting in the open market, as the
SDP plan does away with the 30-month waiting period before anyone who has sold a
HDB flat can apply for a BTO flat or HDB rental flat

Conversion to NOM

With regard to the option for any open market (OM) flat to be converted to a
NOM flat to receive the pricing differential back in CPF/cash, I think it may
also be a welcome relief to the following:-

… those who cannot pay their existing HDB mortgage and want to continue
staying in their existing flat

… those who want to to retire or monetise their existing flat, and still
continue to stay in the same flat

… those who have not passed their 5-year Minimum Occupation Period (MOP), and
need to get funds (CPF/cash) out of their current HDB flat

… divorcees (Note: I believe under the SDP plan, divorcees will not be
penalised in regard to MOP or the need under the current policy to re-arrange a
new housing loan)

Impact on Resale market prices?

If the NOM is implemented gradually, such as the initial about 10 per cent of
BTO flats suggested by the SDP Housing Panel, I believe the impact on the HDB
resale market may not be substantial, and perhaps gradually cool current
escalating prices and COV.

Of course, it may also be more prudent to implement the plan in stages, such
as the NOM first, whilst holding back the Conversion to NOM to gather feedback
and reaction of the market.

I think those who can afford may still prefer OM flats due to the possibility
of capital appreciation in the future.

Conversion to NOM vs HDB Lease Buy-back?

As to the NOM conversion in retirement scheme, which allows those who retire
to covert to NOM in order to get the price differential to obtain a life
annuity, it may be more suitable for retirees than the current HDB Lease
Buy-back scheme because

… the sum available from the NOM conversion may be higher

… the monthly life annuity increases in the future with an adjustment for
inflation

… there may be more certainty as the flat owners can stay for as long as they
live, instead of for 30 years

A much needed truly National Conversation?

In summary, my opinion is that generally, the SDP Housing Plan may help to
reduce much of the financial stress that so many Singaporeans are faced with
today. I therefore suggest that the Government, stakeholders and Singaporeans,
engage with more ideas, feedback and suggestions, to explore the possibility of
refining and using some if not all of the features in the SDP Housing Plan.

.

Leong Sze Hian

Leong Sze Hian is the Past President of the Society of Financial Service
Professionals, an alumnus of Harvard University, Wharton Fellow, SEACeM Fellow
and an author of 4 books. He is frequently quoted in the media. He has also been
invited to speak more than 100 times in 25 countries on 5 continents. He has
served as Honorary Consul of Jamaica, Chairman of the Institute of
Administrative Management, and founding advisor to the Financial Planning
Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and
13 professional qualifications. He blogs at
http://www.leongszehian.com.

.

Editor:The full text of SDP’s
Housing Plan can be seen here.

.

 

[makapaaa]

[h=2]The importance of housing affordability and shorter loan
payment[/h]

November 5th, 2012 |

Author: Editorial

The Singapore Democratic Party (SDP) launched its version
of national housing policy plan, ‘Housing A Nation:
Holistic Policies For Affordable Homes‘, at the Quality Hotel yesterday (4
Nov).

In the paper, it calls for a new Non-Open Market, or NOM, scheme in public
housing to help reduce prices of HDB flats.

Under the scheme, a segment of new HDB flats will be priced at cost minus the
land “cost” that is currently factored into HDB prices. That is, flats will be
priced only to recover the cost of administration, material and construction.
The price of the land that the flats are built on will not be factored into the
price paid for by flat-buyers.

The restriction will be flats bought under the NOM scheme will not be allowed
to be re-sold in the open market. Owners wishing to dispose of their NOM flats
will have to sell them back to the HDB, much like the situation when Singapore
was in the in the olden days like in the 70s.

Under this scheme, it is estimated that flats could be priced as low as
$70,000 for 2-room flats to $240,000 for 5-room flats.

Currently, an average new 5-room BTO flat costs about $380,000 and the median
monthly income of households which bought the 5-room flats is $5,600. For a
30-year loan at an interest rate of 2%, the monthly installment works out to be
$1,405 or about 25% of the $5,600 household income.

Now, with the SDP Plan, the new NOM 5-room flat is estimated to cost only
about $240,000. At the same 25% of the $5,600 household income of $1,405 to pay
for the monthly installments, one only needs to pay for about 16 years to finish
paying off the housing loan – almost half of the 30 year tenure in the previous
case.

This is certainly more palatable to the mortgagers (i.e, home owners) since
job security is quite uncertain these days. These days, it is not known how long
a Singaporean can hang on to his job since he can be easily replaced by a cheap
foreign PMET. Without a job to pay for the monthly housing installment, the
family will be evicted.

Hence, it makes sense these days to take a shorter loan period so that the
housing loan can be quickly paid off. Even if one is forced to drive a taxi in
his later years earning on average $2K a month (not $7K!), at least he does not
have to worry about loan payments anymore since he will have already paid off
his flat.

.

Join our TRE facebook page here: http://www.facebook.com/TREmeritus

 

[yellowarse]

[TABLE="class: cms_table, width: 100%"]
<tbody>[TR]
[TD]GIC economist: SDP housing plan "excellent"[/TD]
[TD][/TD]
[/TR]
</tbody>[/TABLE]

Added on: Monday Today
Total comments: 0Singapore Democrats

Former GIC chief economist Mr Yeoh Lam Keong praised the SDP's alternative housing plan for Singapore as of "remarkably high quality and in-depth piece of research."

Mr Yeoh made the remarks at the launch of Housing A Nation: Holistic Policies For Affordable Homes at the Quality Hotel yesterday. (Download the entire paperhere.)

Mr Yeoh, who is also a senior research fellow at the Institute of Policy Studies and an adviser at the National University of Singapore and Singapore Management University, described the paper as "excellent".

"Not only is the theory and methodology sound and rigorous, the empirical work seems well researched and remarkably detailed as well," he said.

On the policy itself, Mr Yeoh said that the Non-Open Market (NOM) proposal is "coherently laid out and makes much sense in terms of the objective of potentially giving low-income and middle-class Singaporeans access to affordable, high-quality public housing."

He added the SDP's principle to de-link HDB prices from the private cost of land is a "fundamentally sound one."

He also highlighted the paper's discussion of the causes of asset price inflation and the dangers of an asset bubble in property, commenting that that these issues "are currently insufficiently tackled and highlighted by policy-makers."

Mr Yeoh, who was Director of Economics and Strategy and Chief Economist at the GIC from 2000 to 2011, said that the paper "goes a long way" towards achieving its goal of outlining a holistic policy for affordable public housing in Singapore.

"Considering the authors are approaching a complex, technically arcane area with not much available data, it discusses the main arguments and alternatives cogently, rigorously and very competently," the prominent economist pointed out.

But Mr Yeoh also had a few suggestions to improve on the policy. First, he said, the NOM scheme was unnecessarily restrictive. He suggested allowing resale of NOM flats on the open market after a period of 10 years.

The 10-year period should minimize any adverse impact on existing free-market prices of resale HDB flats.

Furthermore, he added, HDB should allow singles to buy flats irrespective of age (currently at 35).

He also wanted to see more emphasis on the need for a more extensive subsidised public rental market. Singapore needs to make such rental housing available to a large section of the population.

Another well-regarded analyst, Mr Leong Sze Hian (pictured, right), also viewed the SDP plan positively, saying that the policy "may help to reduce much of the financial that so many Singaporeans face today."

"I therefore suggest that the Government, stakeholders and Singaporeans engage with more ideas, feedback and suggestions, and to explore the possibility of refining and using some, if not all of the features in the SDP Housing Plan," Mr Leong urged.

Mr Yeoh concurred, remarking that the policy "is a much needed kick start to a crucial national debate on affordable housing."

 

[Cruxx]

It says a lot about the intelligence levels of Singaporeans when incompetent parties like PAP and WP are in parliament while the progressive SDP isn't.