The following is Part One of a special three-part focus on the Housing and Development Board’s public housing policies. Parts Two and Three will be published on Tuesday and Wednesday respectively.
Leong Sze Hian
I attended the HDB’s Resale Seminar which was attended by over one hundred persons.
Judging from the 75 minutes Q & A, during the 3 hour 45 minute seminar, and mingling with the crowd during the break, I estimate that about 80 per cent of the attendees were permanent residents (PRs).
Many questions centred on when PRs could sell or rent out their flats, and when they can repatriate profits from the sale of their HDB flats, when they leave Singapore.
To what extent has HDB policies led to undesirable outcomes for Singaporeans, relative to PRs?
Minimum Occupation Period (MOP)
A PR can sell his or her resale HDB flat after just 1 year’s MOP.
A Singaporean who buys a resale flat with a bank loan, can also sell after just 1 year.
However, many Singaporeans buy new flats, or resale flats with a CPF Housing Grant, which have a MOP of 5 years.
For resale flats with a HDB loan, the MOP is 2.5 years.
The increasing “headache” for some Singaporeans may be that they cannot afford the Cash-Over-Valuation (COV) on a resale flat.
Since foreigners do not need to contribute to CPF, they generally may have more cash to pay for the COV, when they become PRs.
As to new flats, since a typical Build-To-Order (BTO) is about 3 years, plus another 5 years MOP, it may be about 8 years before a Singaporean can sell his or her flat.
What if you can’t service your mortgage before your MOP?
What if you need to be divorced without children before your MOP?
Let me use an analogy. You want to invest in a property and also need a house to stay.A property developer offers you a private property at a discount of 20 per cent, using its unique “market subsidy pricing” policy, but it will take 3 years to build, and you cannot sell it for the next 5 years.
Another developer offers you a similar property that you can stay in immediately (and save on your rental for 3 years), and allows you to sell anytime.
Which property would you buy?
I think the developer with the “subsidy” may hardly get any customers at all.
But, many Singaporeans are fixated with the notion that a new flat is sold with a “discount”.
Imagine you had applied for a new BTO flat in 1990 and saw your flat appreciate greatly in value until the last peak in 1996, and then declined in price by as much as 40% for the next 13 years.
Your headache may be that you couldn’t sell when the price was high, because of the MOP.
Will PRs ever have this “headache”? No, because they can’t buy new flats. A blessing in disguise perhaps – no need to wait, can buy immediately and sell after just 1 year.
Resale Levy
When a Singaporean buys a second new flat, the resale levy has to be paid, based on the first flat type sold earlier.
For those who may be financially stretched, who can’t afford to pay the Resale Levy, they will have to purchase a resale flat instead.
Do PRs have this “headache”? No.$
In fact, when they become citizens, they can buy their second flat, which is considered as their first subsidised flat, with a 1st-timer grant as well.
HDB Concessionary Loan
When a Singaporean buys a second flat, he can only get a second HDB loan if the flat purchased is a bigger one.
This may entice him to buy a bigger flat than he can afford.
PRs don’t have this “headache”.
When they become citizens, they can buy their second flat of any size and get a HDB loan.
Since bank loans are typically lower than the HDB loan’s 2.6 per cent interest for the first 3 years of the housing loan, a PR who becomes a citizen within say 3 years, may actually pay a lower interest than HDB’s in the first 3 years, and then convert to a HDB loan when they become citizens, say before the 4th year.
Income Ceiling
Singaporeans are subject to the $2,000 and $3,000 Income Ceiling for the purchase of new 2-room and 3-room flats. This may in a sense “force” Singaporeans to buy a bigger flat than they can afford.
For example, if your household income is $3,001, you must buy a 4-room or bigger flat, as you have exceeded the 3-room Income Ceiling.
Why is it that the Income Ceiling is $8,000, instead of $3,000, for 3-room flats in mature estates like the recent Queenstown (Dawson) where the prices of flats are very high?
Since the lower the household income, the higher is the Additional CPF Housing grant, Singaporeans may be tempted to buy a flat before they can really afford it.
For example, a household with monthly income not exceeding $1,500 gets the highest grant. But, how many households earning less than $1,500 can really afford to buy, and run the risk of default over the next 30 years?
So, to buy earlier so as not to cross the Income Ceiling and get a higher grant may be a “headache”, if you can’t pay in the future.
Buy later when you can afford, but risk crossing the Income Ceiling, and be “forced” to buy a bigger flat, also a “headache”.
PRs don’t have this “headache”. They just buy any size resale flat that they can afford. Even if a PR earns $1 million, he can buy a 2-room resale flat as there is no Income Ceiling for resale.
CPF Housing Grants
Some Singaporeans also perceive that it is better to get a CPF Housing Grant. But you may have noticed in recent years that every time the grant is increased, the prices of new flats increase by even more.
So, is an increase in a grant that is less than the increase in the price, really a benefit?
Renting Out Rooms
PRs may generally have smaller families as they may not have their parents in Singapore, or not have children yet.
So, some may rent out rooms immediately after they buy a flat. [PRs can rent out rooms immediately but not for the entire flat.]
Some foreigners may also be accustomed to sharing a flat before they become PRs.
So, they may be able to pay higher prices for resale HDB flats, because they plan to rent out the rooms for income.
Singaporeans, on the other hand, generally buy flats to stay without the intention to rent out rooms immediately, as they may generally have larger families of parents and children.
I think most Singaporeans see a HDB flat as their home for life, and not as a temporary investment, providing income as well as saving on housing costs whilst in Singapore.
How can our housing policy allow PRs who own private property to buy a HDB resale flat and rent out the rooms immediately, as long as they stay in their HDB flat as well?
Are these some of the possible contributing factors to why HDB resale prices are skyrocketing?
In this connection, HDB resale prices rose about 8 per cent last year, compared to only about 2 per cent for private property.
Why is it that two PR siblings of any age can buy a resale flat, whereas two Singaporean siblings must be either orphans or age 35 and above before they can do so?
Review HDB Policies
HDB policies could be reviewed, with a focus on the undesirable outcomes for Singaporeans, and at the same time vis-a-vis PRs.
Policies should not be maintained for reasons of solving a problem – like PRs need housing too, IR foreign workers need housing too, etc.
Policies should also not be maintained for reasons of avoiding a problem – such as if new flats are priced lower on a cost-plus basis, the property market will crash and HDB resale prices will not grow.
This reasoning is in my view fundamentally flawed, as even if new flats’ prices are gradually reduced on a cost-plus basis, it will be about 8 years (3 years BTO plus 5 years MOP) before they can be sold in the open market.
So, it may not cause resale prices to drop.
Instead, it may help to moderate the current skyrocketing prices which may be an increasingly unsustainable asset bubble.
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95) RW on January 12th, 2010 7.33 pm
The conditions imposed is based on whether you take subsidies or not.
Obviously, a non-citizen cannot take subsidies, so they will not have to follow the conditions. Even if they want to be imposed the conditions (in exchange for subsidies), they cannot do so.
But citizens themselves are ‘forced’ along the route to take the subsidies due to having lesser cash (locked in CPF). The choice is, as i said before, not equal. All things being equal, why would anyone want the ‘citizen’ route which gives you a roof only after 8 years, during which 7 of those years, you can be earning rent?
[i]Oh Holy on January 13th, 2010 10.27 am The problem is, since 1996, when the property market crashed, HDB had decided to make HDB never fall and always rise becos, they…the smart ones tot that with rise and fall, it be fun and will encourage speculations so that they can earn more money, since fall or rise, they will gain money.[/i]
that what they did to the hongkies immigrant.. the hongkies snapped all the 2ndhand 3 room flats @ high prize..we even sell them shops way above market rates @ lauya spots…
now the hongkies left 1 by 1
To the question “Can single PR buy HDB?”, the answer is “No”.
The ascertion that PRs have more cash to spend on Singapore Real-Estate because they do not have CPF (first I assume it means “CPF for as along as citizens”, since PRs also buy into into CPF) does not hold water.
Now the statement would assume that PRs, like Singaporeans, would put all their retirement savings into Singapore real-estate.
I would hope that they are smarter than that and that they would have invested a good portion of their money elsewhere, hence reducing their cash available for real-estate money.
In fact it is the Singaporeans who would have the most money to spend on Real-Estate and would be inflating the prices *because* their CPF money can mostly be spent into real-estate.
A much better article:
http://singaporemind.blogspot.com/2010/01/high-hdb-prices-curbing-surge.html
Refer to (101) by [hopeless]
” all PR who buy house in singapore must convert to singapore if not pay a levy of $100000. That will test their loyalty. we don’t wants to stay with people who will escape during war time. ”
PRs will not come to Singapore if they need to pay levy of $100,000 or prove their loyalty in order to buy a house in Singapore.
PRs must not be loyal to Singapore because they are citizens of their own countries.
Singaporeans must guarantee that they will ensure all PRs are safely escorted out of the country before a war erupts, or else no PR will come to Singapore.
105) Charles on January 14th, 2010 10.13 am
The ascertion that PRs have more cash to spend on Singapore Real-Estate because they do not have CPF (first I assume it means “CPF for as along as citizens”, since PRs also buy into into CPF) does not hold water.
A PR doesn’t immediately become PR upon arrival in Singapore. First, s/he works as a Foreigner that does NOT buy into CPF. … did you read the article or not?
Quote from Article: Since foreigners do not need to contribute to CPF, they generally may have more cash to pay for the COV, when they become PRs.
In 1996 PRs and singaporean private property owners couldn’t buy resale flats, 400k for a 5-room was high. Back then, direct hdb prices were still in the range of 100k, if my memory doesnt fail me. 1997, property prices peaked.
In 2005 when PRs and singaporean private property owners were allowed to buy resale flats, hdb resale prices never looked back. 2007, property prices peaked, most surpassing the 1997 peaks.
If the PRs and singaporean private property owners were not allowed to buy resale flats back then, the liquidity from the enbloc boom could have caused the private property to increase even further, and the average hdb dweller will never materialise their condo dream. The policy made a lot of hdb upgraders dream come true, so they will love the old man for it.
It was a political move to me and I don’t foresee the policy to be retracked.
Well done, Mr. Leong.
They said “citizens first”, really????
In general, I think there is a lack of knowledge of real ground situation. For example, the policies may apply to a large number of citizens but missing out on those who fall in between the gaps. Instead of rejected citizens, HDB should really study each problem on a case by case basis and have some passion for those who fall in between the gaps. When I mention case by case, I think there should be some passion and feel for the citizens instead of basis of evidences and proofs. Right now, we keep appealling but end of the day, there are no alternatives for us. Since public housing is the main home for us, I think we should have a alternative. HDB is not solving problems for those who fall in the gaps but keep saying their jobs is to solve issues for us when it comes to elections. I am very skeptical on this. The policies kept changing and it’s really one sided benefit at one time. There is no real address to issues of those who fall in the gaps. By changing the policies here and there, there are major changes always. There isn’t a fine tweak of policies to ensure policies improve over a long term but always the drastic changes over the policies. This is a reactive approach and not a proactive approach due lack of understanding of real ground issues.
While I agree buying a HDB flat should be more affordable to Singapore citizens than PRs, I must say this article is biased, unfair and unenlightened.
Why?
“Since foreigners do not need to contribute to CPF, they generally may have more cash to pay for the COV, when they become PRs.”
Then, since foreigners do not need to contribute to CPF, they also don’t have the quick access to pay the downpayment from the CPF Ordinary Account. Paying COV doesn’t help if you don’t have enough for the downpayment in the first place!
“When they become citizens, they can buy their second flat of any size and get a HDB loan.”
If Singaporeans want to buy their first…and second.. and third… and nth flat without a HDB Concessionary loan, no-one will stop us. And when we want to buy the (n + 1)th flat (OF ANY SIZE) using HDB loan, we will still qualify!
“PRs just buy any size resale flat that they can afford. Even if a PR earns $1 million, he can buy a 2-room resale flat as there is no Income Ceiling for resale.”
Singaporeans earning a million dollars are also free to buy 2-room resale flat as there is no Income Ceiling for resale. what’s your point?
“Some Singaporeans also perceive that it is better to get a CPF Housing Grant. But you may have noticed in recent years that every time the grant is increased, the prices of new flats increase by even more.”
It’s every Singaporean’s right to refuse CPF Housing Grant. No-one forces it on any of us! It’s like this: Singaporeans are offered a cake, and PRs are not. Whether we want to eat it or not, it’s our choice. Why blame the PRs, who are not even offered this choice? Also, you said “every time the grant is increased, the prices of new flats increase by even more.” Actually, it’s the other way around: every time the prices of new flats increase, the grant is increased by more! That’s the whole point! To make it easier for Singaporeans to buy their flats, even when prices rise! You want the CPF grant to increase, but not HDB prices? You thought the CPF grant is free money?
Please don’t make Singaporeans sound like a spoilt lot. We are generally lucky to have the HDB option. Many people in other countries have to rent a home all their lives, because their government does not want to get involved in housing them, and leaves it to private developers who charge a bomb!
Hi,
I have a 5 room flat in Punggol and have been renting out for the last 7 years as I have been posted to work overseas every since I got the flat. I have applied to HDB to legally sublet our the room. Also, I have exhausted my CPF savings and as such, I am paying the loan with cash every month.
My question is if I can sell my flat in the open market. Can HDB allow case like mine? My house would be better off for people who really need a house to stay in and I can benefit from the selling.
If yes, I look for an agent to assist me with this.
Eugene
Hi, I’m not well educated so do excuse me if my suggestions below sounds lame.
Part of the way to solve the problem is to only allow HDB purchase or rental if one or both applicants are SCs. Unfortunately, this will dampen demand so some may not be to happy about this, but we can’t have everything in life. We have to decide.
It can also help with the FT sintuation because anyone coming here to work alone or with his family must factor this higher cost of housing before accepting employment here. Employers must decide who they want to hire – locals who need a higher liveable salary, or FTs for whom he may have to include a housing component on top of the salary acceptable to the FT.
Same principle should apply for school fees and medical fees in Gov’t clinics and hospital.
Its the same for Singaporeans when we are hired to work overseas. We have to ask for a package that includes housing, medical, schooling fees if we want to take our children along, etc….
If the employer really needs the FT because they need the often tauted “higher skills” or “better” attitude, they must be willing to pay for this premium.
HDB is supposedly a publicly subsudused housing system. Why should non-citizens like prs (Never done NS?) be allowed to buy?
But a more important wuestion which no one has asked (or no one has dared to publish?) is why are we handing out PRs? Isn’t it supposed to be a first step to citizenship? If so, why do we have a whole bunch of people who remain PRs forver and never take up citizenship. Even worse, disappear back to their own country and legally let out their HDB flats, depriving honest citizens. And why does the government allow it? Three years should be long enough of a transition. Anyone who then doesn’t take citizenship should have their PR status taken away