During the second iteration of Youth Voices, held on 11th November 2018, we discussed The Future of Housing. Moderating the discussion was WP Secretary-General Pritam Singh who noted that housing is an issue about which many people have views, reflecting their aspirations for themselves and their families. He welcomed our guest speakers:
- real estate academic Ku Swee Yong;
- equity research analyst Louis Chua; and
- home-buyer Amy Loh.
Pritam emphasised that Swee Yong and Louis were present in their personal capacities, and that while Amy would share her own views, she is also a member of the WP.
Crunching the data on future housing supply and demand
In their opening remarks, the speakers discussed a number of data points, their view on the immutable truths characterizing Singapore’s housing situation, as well as potential problems and solutions.
One speaker shared that the number of flats built and completed was 241 000 in the 1970s and 309 000 in the 1980s, amounting to a total of 550 000 flats. Assuming 1975 as the middle year, 1970s’ flats are 43 years of age today, while 1980s’ flats are 33.
In the year 2030, one speaker opined that we will have 8,000 resale flats in the market each year due to the death of the surviving party. Resident deaths have been slowly creeping up but will soon move much faster due to the baby boomers gradually passing on. Assuming resident births are maintained at 35,000 births per year, by the 2030s, we will have more deaths than births. After the second owner of the HDB flat passes away, the flat would have to be resold.
Will there be many young people who will buy these flats? Over the past 4 years, there was a net
reduction of 9 primary schools, 18 secondary schools and 4 junior colleges, which underlines the fact that there will be progressively fewer young people coming into flat-buying age in 10 years’ time.
Another speaker argued that when it comes to the HDB, in which about 79% of us reside, Singaporeans cannot own more than one flat. As younger people in Singapore will not be able to own both their own flats and the flats their parents will bequeath to them, there may be an issue down the line where there are more sellers than buyers in the resale market.
Several participants pointed out that the depreciation of HDB resale prices as the lease approaches year 0 is an immutable truth. This is a cause for concern since there are about 500,000 flats that have around 60 years left on the lease. This is because there is likely to be a decay in HDB flat value once it is past the 40-year mark. It was observed by one participant that HDB flat prices may drop much faster beyond the 40-year mark because there are fewer and fewer young people who are eligible to buy the old flats.
In the case of the flats offered for resale during the death of the baby boomers when the second parent passes away, their children will either sell their own flats or sell the parents’ flat. With their parents’ flat being older and lower in value, and depreciating faster in value, the children are likely to sell their parents’ flat first. This may lead to increasingly large numbers of older flats going for sale each year.
One participant asked: if a person’s flat price is depreciating rapidly from the price he or she paid, would it not be financially more efficient to pay rental instead?
Who needs to think about the future of housing?
One participant explained that the first group of people who will benefit from thinking about the future of housing are young people who, in the course of family and wealth planning, may not be extrapolating all of the relevant figures for themselves. They may be relying on old ideas about the need to buy property, thereby falling into a trap. To take one example of the repercussions this could have – they may be unlikely to take the step to join start-ups or open their own business as they might opt for a stable income from employment in an established organization, so as to pay for their monthly insurance and mortgage.
The second group that could benefit from understanding these trends are retirees some of whom, because of life expectancy in Singapore, will have another 15 to 20 years to reach 84 or 85 years old. In the next 20 years, regardless of HIP2 or VERS, the depreciation of the flat will continue while they age. As one participant put it, their hard-earned CPF is locked into those bricks, and is similarly decaying in value. They will have to start planning now, at 65, as to whether they should want to continue living in these flats, or to sell and rent.
Home ownership at all costs?
One participant pointed out that a central theme in the debate on housing today is the idea of home ownership, which is still being drilled into us today. It has been argued by the Government that if you buy a HDB flat, it will appreciate in value because of a discount on the BTO versus the likely resale price after the Minimum Occupancy Period. On one view, this has served Singapore well for the last 50 years or so.
However even though public and private property prices and volumes seem to have moved together over the last 50 years, there has been some divergence between the performance of the HDB and private property segments in recent years, with the HDB under-performing (setting aside the most recent quarter). Hence the outlook for HDB resale prices may not be as rosy going forward as it has been in the past. One participant opined that the issue of the HDB leases which came to the fore in March 2017 might have prompted some people to rethink the long-term outlook for HDB prices.
The future of housing and retirement adequacy
A concern raised by one participant was with the idea of allowing people to borrow more for an asset which is declining faster in value over the next 20 to 30 years. He questioned what would happen to the value of a person’s CPF savings which are basically channelled into the HDB flat by the time a person is 55 years of age, after having gotten married at 30, and with a 25-year HDB loan, for whom almost half of his or her net wealth is derived from the flat. Housing is therefore linked to retirement adequacy.
The discussion about HIP2 and VERS tended towards the view that these were not silver bullets that could solve the problem of HDB lease decay. This is because VERS will only kick in when the flats are about 70 years old and will probably not be applicable to all HDB flats. So, even though people may be thinking “never mind, I cannot pass it on to my children, the Government will be here to give me a residual value, to give me some value for my HDB flat,” the vast majority of flats will revert to the Government at the end of 99 years with a value of 0 assuming one holds it to the end.
Speaking up for singles
One participant shared that she had bought a 2-room BTO flat under the singles’ scheme. She discussed her view of the pros and cons of getting a BTO flat versus a resale flat. While she considered getting a resale flat which may have been bigger in size, the older age of a resale flat would have meant that renovation charges would have been higher due to wiring and the replacement of water pipes.
While BTOs are easier to renovate, singles are only eligible to buy 2-room flats. One participant argued that this was unfair because a single would be 39 or 40 by the time the BTO is ready. After applying for it at the age of 35, singles might have to begin thinking about their parents growing old, since the responsibility of looking after one’s parents is likely to fall upon the single child as opposed to siblings who may be married and have their own children to look after as well.
One participant responded to this example by arguing that what young people fail to realise is that 20 years from today, when a flat owner wants to sell her flat, he or she will need to fork out the unearned interest from the CPF. One participant shared his own experience: because he started owning a home from a young age and had all his CPF Ordinary Account money locked up in his home, he had not earned much interest from CPF. Recalling his experience of selling his home at a loss while having to use cash to top up a portion of money into his CPF account, he also gave the example of a person who bought a flat at $800 000 and sold it at $900 000 – he might think he made a profit but this profit would go back into the CPF and would not be for his own use to, say, start a business.
One participant pointed out that people who do not earn much, such as some freelancers, do not have a lot in their CPF. So, when they reach the retirement age, they will fail to meet the minimum sum because it increases regularly, and they will not have sufficient money to withdraw. Another participant replied that this is precisely the problem that many 65-year olds are facing today, because they started working in the 1970s and 1980s. At that time, their salaries were much lower and their contribution to CPF was much lower. Hence, by the time they retire, they find that they have insufficient savings in their Retirement Account. He added, “That’s why the young need to think forward. Would you want to become an entrepreneur some day? If you do, then you should have rented.” To this end, one participant argued that we need to change young people’s mindset about the glamour of owning a home versus renting a home and having more cash on hand and in one’s CPF accounts.
Practical advice for future home buyers
Finally, from the perspective of a recent home buyer, one participant offered some points of advice to prospective home buyers:
- When buying a HDB flat, read the papers carefully before signing them.
- Before you sign, you should know how big the area of your house will be, how much HDB offers to charge you for flooring, and whether there are cheaper prices available in the market.
- Search online for alternative fixtures which may be priced better than what HDB offers you.
In the latter half of the session, after a round of questions and comments from the audience, our speakers and audience were divided into smaller groups to share and discuss their thoughts about the future of housing.
Some of the views and questions arising from these discussions are summarised below:
- Should the HDB allow for commercial rental that is more attractive, accessible and relevant to everyone, with fewer restrictions on landlords?
- Why does the HDB seem to charge more for certain features such as flooring compared to the market rate?
- Is there a role for HDB or an independent body to give independent advice to people before they make important housing decisions?
- What policies can help promote rootedness in Singapore?
- Should children be allowed to inherit HDB flats from their deceased parents, whilst keeping their own flats, to collect rental?
- How should HDB flats be priced such that we do not have to use so much of our CPF money which is meant for retirement?
- Should the HDB resale market be wholly or partly closed rather than open, ie allowing resale only back to the HDB?
- Shouldn’t we keep prices low, especially for new flats, so that there will be less of a need for taxpayers to contribute so much for new home buyers’ grants to subsidise their purchases? This would mean that buyers would end up owing money for fewer years and would be able to pay back loans more quickly.
- In order to create more certainty, shouldn’t the Government provide more definite answers about SERS and VERS to help the market stabilise?