Leong Mun Wai’s Great ‘reset’ proposal sounds more like a Great repression

By February 8, 2023Current
Leong Mun Wai’s Great ‘reset’ proposal sounds more like a Great repression

TL;DR – Non-Constituency MP Leong Mun Wai suggests Singaporeans who stay in the same flat their entire lives should be exempted from paying land cost to keep homes affordable.

On Monday (6 February), Mr Leong Mun Wai, of Progress Singapore Party proposed two schemes, the “Affordable Home Scheme” and the “Millennial Apartments Scheme”.

Affordable home scheme

In a nutshell, this scheme is based on a deferred land cost idea where the buyer of a HDB BTO Flat is only required to pay for it at a user price which includes the construction cost plus a notational location premium. And if that buyer chooses to stay in the same flat for the rest of his life, he will only bear the user price. The land cost although not being charged at the point of purchase, its value will be recorded with HDB.

Should the buyer decide to sell his flat after the Minimum Occupation Period (MOP), he will have to pay for the land cost with accrued interest based on historical mortgage rates before reaping the profits.

Mr Leong gave an example of how a Singaporean buyer only needs to pay $140,000 for a Tengah BTO flat priced at $350,000, at the time of purchase under PSP’s proposed scheme.

The effects of the Great ‘reset’

1. It will distort the public housing market

Under PSP’s proposal, the way a BTO flat is priced could create “severe marketing distortions,” said Mr Vikram Nair, a Sembawang GRC MP.

If HDB follows PSP’s proposal, the launch price of flats in prime areas would be very low and this would cause an overwhelming demand for flats in that area.

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Furthermore, existing homeowners will also join the queue with first-time buyers, and this will cripple the chances of first-time buyers getting a flat even more.

This will in turn intensify the “lottery effect” (where buyers make significant gains from the sale of their flats), such that buyers who get the prime area flat will feel happy and people who don’t will feel resentful.

2. Reselling flats will be costly for homeowners

When homeowners need to sell their flats, they will face a huge bill to pay in terms of land cost. They could end up paying a lot more than the initially stated land price since the land price at the point of sale would include accrued interest over the years.

This would cripple families with the option of selling their flat to stump out cash for their family needs or retirement plans.

Families who choose to stay in the same flat until the lease expires will not receive any monetary incentive as they did not invest in the land price at the point of purchase.

3. Existing flats will drop in value

With newer and cheaper HDB flats, the demand for resale properties will depreciate.

People who are considering buying a resale flat would have to fork out the land cost. Currently, existing homewoners would use their profits from selling their flat to purchase another home. But how would buyers be able to pay for this if they’re not able to capitalise from their existing flat?

Second Minister for National Development, Indranee Rajah pointed out that PSP’s proposed scheme could decrease the property value of existing flats, while “destabilising” the resale and property market.

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4. Unbalanced gain, unfair distribution
If the value of land is not factored into the pricing of public housing, it would create an “open loop” for the land value to be given away for free. This will result in an unbalanced gain for some parts of the society that would enjoy a significant windfall from free land, while others will have to pay for the windfall.

5. Housing will become unattainable for our next generation
This proposal penalises individuals who may not be able to sell their flat.

Senior Minister of State for National Development, Sim Ann said, “In fact, the next generation of flat buyers will suffer disproportionately… buying the resale flats and footing the bill for the initial land cost that should have been incurred by the first batch of flat buyers.”

While the great reset may seem attractive, with buyers only footing for the construction cost and notational location premium, buyers will no longer enjoy any subsidies and grants like existing buyers.

Considering most first-time buyers are already in their 20s or 30s, realistically speaking, they won’t live up until the 99-year lease is up. Their lifestyle and needs will change as they progress in life, but their options will be very limited if PSP’s Affordable home scheme is implemented. Their options of upgrading to a bigger space for a growing family or cashing out for their retirement would be repressed.

Is this really the best for all Singaporeans?

HDB BTO flats are not priced for profits

 

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Nicole Lim

Author Nicole Lim

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