TL;DR – Our housing policies aren’t perfect, but they are not bad.
“If we had not helped our citizens to own their homes, Singapore would be very different. Society would not be so stable. Our lives would have been worse off. They have valuable assets in their homes to protect against riots and civil commotion.”
Speech by Minister Mentor Lee Kuan Yew at the Launch of Tanjong Pagar Town Council’s Five-Year Masterplan and Opening of ABC Waters at Alexandra Canal, 19 March 2011
A few years ago, I was in Hong Kong with a friend.
I noticed that even till late at night, the streets of Hong Kong were still bustling with people. I told my friend that I was quite amazed that Hong Kong, even late at night, was still buzzing with energy.
My friend’s reply took me by surprise. He told me that the reason people in Hong Kong tend to stay out late is because they didn’t like going home. And that’s because their homes are really tiny. Hong Kong property prices, even back then, were expensive. So most people could only afford small apartments.
Fast-forward to today.
Prices of residential property in Hong Kong have risen to being the most unaffordable in the world.
One international survey by Demographia found that the median price of housing in Hong Kong is 20.9 times of its median income. What’s worse, the size of the apartments you can get at the median price in Hong Kong is much smaller than those in Singapore.
The median price of housing in Hong Kong is about HKD7.17 million, which works out to be about SGD1.26 million. Given that the average price per square foot of housing in Hong Kong is about HKD16,000, it means that at the median price of housing, you can get an apartment that is only about 440 square feet. In comparison, a private shoebox apartment in Singapore of similar square feet area costs SGD500,000.
In Singapore, spend less, get more
In Singapore, spending about SGD420,000 (which is one third the median price of housing in Hong Kong), you can already get a five-room BTO flat from HDB that is about 1,100 square feet. And that is before any government grants disbursed by HDB.
After HDB grants, a five-room BTO flat from HDB can cost less than one-third that of the median price of an apartment in Hong Kong. And the BTO flat would be more than twice the size!
OK. Sure. Singapore’s housing is more affordable than Hong Kong’s. But that in and of itself doesn’t prove that housing in Singapore is affordable, right?
The survey by Demographia did find that Singapore’s housing is considered “seriously unaffordable”. That’s because the median price of housing is about 4.6 times that of the median income. However, the Demographia survey doesn’t take into account the grants provided for HDB flats. The Demographia survey explicitly acknowledged that HDB grants have a positive influence on housing affordability:
“As in other nations, the Survey does not account for these grants in measuring Singapore’s housing affordability. This would be virtually impossible, because of the difficulty of obtaining comparable data and the complexity of evaluating uniquely designed home ownership incentives.
However, it is noted that the practice in Singapore may be substantially greater than in other nations, which would seem to have a positive influence on housing affordability.”
In other words, thanks to the HDB grants, the median price of HDB flats are about 3.0 times that of median income, putting them in the affordable range.
And HDB has recently enhanced the grant system, allowing even more Singaporeans to be eligible for the grants.
Also, the Demographia survey doesn’t include our employer’s contribution to our CPF into the calculation of median income. And since we can use our CPF to buy property, the actual median income that should be used to calculate affordability should be higher.
So if we take the effect of HDB’s grants and our employer’s contribution to CPF, our public housing is actually considered affordable.
That’s why Singapore’s home ownership rate is so high
And that’s why 90% of Singaporeans are able to own their homes. In contrast, only about 49% of Hong Kong people owned their homes.
Ah! But Singaporeans don’t really own their homes! HDB flats have a 99-year lease! So most Singaporeans are long term tenants, right?
Well… most properties in Hong Kong also come with a fixed lease period (or leasehold). It can be a 75-year, 99-year or 999-year lease. In other words, if you buy an apartment in Hong Kong, its value will also start to depreciate as the lease runs out. And when the lease eventually runs out, you will end up with nothing.
Isn’t that the case in Singapore? Not quite.
In Singapore, if you are lucky enough to own a HDB flat, thanks to the lease buyback scheme, you can monetize your flat for your retirement. Notwithstanding longer life expectancy, most people won’t outlive their lease in Singapore.
Why?
Simple.
Let’s say you and your spouse got your flat when you were 25. Life expectancy is about 85. That means you are expected to stay in that flat for about 60 years. You still have a good 39 years left on the lease. So, by the time you and your spouse reach the retirement age of 65, you can decide to sell a good portion of the lease back to HDB, and use the money for your retirement needs.
Here’s an illustration of the lease buyback scheme from HDB:
Based on the example above, Mr and Mrs Lim can get some value from their HDB flat, while likely being able to live in the flat until they get promoted to heaven.
So, while it is true that we don’t truly own our residential properties because it’s only a 99-year lease, we can still use our HDB flat to help finance our retirement needs.
We still need to keep being responsive to changing needs
Our HDB system isn’t perfect. Yes. Housing is relatively more expensive now.
In the past, my parents paid off the mortgage for their flat quite quickly (I think they managed to do it in about 10 years). Now, it’s quite difficult to pay off the mortgage in the same span of time. And my parents saw the value of their flat grow by about 5 times. There is no way we can see that sort of growth anymore.
Note that my parents’ generation and our generation faced very different economic conditions. That doesn’t mean that our system is already broken.
What it does mean is that HDB will have to keep on updating its policies to ensure that housing is affordable for the vast majority of Singaporeans, and that our HDB flats are really assets that can be unlocked to help finance our retirement needs.
Will HDB be able to do so?
We can’t say for sure. What we can say for sure is that, with policies like the lease buyback scheme and updates to the HDB grants, HDB has shown that it can be sensitive and responsive to the changing needs.
So, for now at least, our public housing system still works. And I am thankful for that.