Government policies severely suppress value of aging HDB flats even before 99 years are up

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The Housing Development Board’s Asset Enhancement Scheme remains a hot topic in Singapore, with HDB CEO Dr Cheong Koon Hean adding fuel to the fire last week when she indicated that the value of aging HDB flats will decline over time.

Dr Cheong’s remarks mirrored the views of National Development Minister Lawrence Wong, who confirmed last year that the vast majority of flats will be returned to HDB, without any compensation for homeowners, when the 99-year-lease runs out.

Writing for his Ministry’s blog in March last year, the Minister asked HDB flat owners to not assume that all old HDB flats will become eligible for SERS (Selective En bloc Redevelopment Scheme). He said that “only 4% of HDB flats have been identified for SERS since it was launched in 1995”, and that “it is only offered to HDB blocks located in sites with high redevelopment potential”.

The Minister advised home buyers: “As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly. So buyers need to do their due diligence and be realistic when buying flats with short leases.”

Dr Cheong parroted this when she advised the audience at a forum last week to pay a price for resale flats that is commensurate with the balance lease: “You should buy a flat, as you say it commensurate with the lease. The price you pay should commensurate with the lease. As you should buy a flat that would last you a lifetime.”

The planner’s comments are contrary to the government’s past promises that HDB flats are “nest-eggs” that grow in value over time. Just before the General Election in 2011, then-National Development Minister Mah Bow Tan told Singaporeans: “We’re proud of the asset enhancement policy. (It) has given almost all Singaporeans a home of their own…that grows in value over time.”

The nation’s late founding prime minister Lee Kuan Yew also promised that public housing is an “asset” that “will grow in price as the country develops” over time. The elder statesman’s remarks on the matter were made as recently as 2010: “We give our buyer an asset which is below market price the moment he buys it. So there is no profit, it’s a loss, but there’s a strategy behind that loss. That loss is to give the man an asset which he will value, which will grow in price as the country develops, as his surroundings become better. This is a social responsibility which we have undertaken and that’s the reason why we are re-elected.”

Besides this, Lee had famously proclaimed: “No country in the world has given its citizens an asset as valuable as what we’ve given every family here. And if you say that policy is at fault, you must be daft.”

The views of the current National Development Minister and the HDB CEO have been a jarring reality check to countless homeowners who had mistakenly believed that the value of their flats will keep rising over time – even property agents are not immune to being hoodwinked by the asset enhancement promise.

In actual fact, the value of aging flats are severely suppressed by government policies well before the 99-year lease is up. Policies that restrict the attractiveness of older flats for buyers include:

  1. The Central Provident Fund (CPF) usage and HDB loan restriction for the purchase of flats with less than 60 years left on lease. This policy went into effect four years ago, on 1 July 2013;
  2. The unwillingness of banks to extend loans to finance the purchase of flats that are 64 years old;
  3. The prohibition on CPF usage for paying the down-payment or servicing the monthly mortgage for flats which are 69 years old or flats with less than 30 years left on lease; and
  4. The policy demanding that properties that are 79 years old and above must be paid for in cash.

These policies limit the amount of options left for the people to monetise the “asset” of public housing. This realisation has prompted several disgruntled Singaporeans to liken the Asset Enhancement Scheme to a “ticking time bomb,” “political big bazooka,” and a “scam”.

One can only imagine whether Lee Kuan Yew would have called these Singaporeans “daft” if he were still around.