Minister, Khaw, Boon Wan, KBW, Ministry of National Development, MND, Singapore, HDB

Minister of National Development, Mr. Khaw Boon Wan

Minister for National Development Khaw Boon Wan recently mused out loud about the direction that Housing Development Board (HDB) policies would take in the future.

His revelations have sparked quite a bit of reaction from netizens, ranging the gamut of negative to positive responses. He highlighted two points specifically that the authorities are thinking over:

  • Lifting of income ceiling for HDB
  • Build-to-order (BTO) flat pricing set by HDB instead of following market rate, allowing it to influence market

 

For the government to specifically voice out such ideas is a tremendous step, make no mistake. It is a landmark moment because while many commentators, insiders and pundits have advocated such solutions, they have never been officially acknowledged as viable by the Singapore government. We feel credit should be given where it is due, and in this case Minister Khaw should be applauded for such a bold admission that these seemingly drastic mindset changes are required.

In this article, let’s take a look at the first idea (we’ll handle the other idea in the next article), removal of income ceiling for HDB flats. Buyers of HDB flats currently must have monthly incomes below a stipulated amount. This amount depends on the type of flat and type of buyer. Removal of this ceiling means that anyone satisfying other criteria (such as age, citizen type and ethnic quota) would be able to buy  such a flat.

This would mean that all Singaporeans are entitled to purchase flats from HDB , should they require it or feel it better fits their lifestyle and home choice. This birthright advantage would be given to all Singaporeans, no matter their monthly income. And why shouldn’t all Singaporean citizens enjoy this birthright? For citizens, many of whose predecessors worked hard for the Singapore economy, who set down roots here, who undertook defence of the nation, being able to purchase subsidised, public housing should be one of the perks.

But we do recognise that timing is important, and this change probably cannot be implemented right here and now. As some commenters have pointed out, these suggestions would likely have huge detrimental effects on HDB prices, causing them to spike even higher, resulting in more market upheavals. No, these should only be introduced after the market and HDB have been prepared with other measures.

Firstly, new regulations should be implemented beforehand, such as only allowing Singaporeans to own public housing. Similarly, it should be policy that any party owning public housing should concurrently own no other property at all.

Second, the supply issue must be resolved. As many commenters have correctly opined, allowing higher income families to buy HDB flats will tend to cause a further spike in prices if the current situation persists.  But they are missing the forest for the trees.  The reason that prices might spike is almost completely due to the tight demand and supply situation we are in now. As fellow blogger, Redbean has pointed out in his excellent commentary, supply of HDB flats must be sufficient and, might we add, a meaningful surplus should be maintained at all times.

Should Mr Khaw be able to address this separate issue effectively, exorbitant resale prices and sky-high cash-over-valuations (COV) would be unsustainable across the board. No one would be able to profit excessively from public housing, at the expense of another Singaporean or the state. Only those who cannot wait for a BTO unit in the exact area they want, will pay a reasonable premium for resale units. Everyone else would be able to purchase directly from HDB almost immediately if they are not fussy about the location (since there is a surplus), or wait a while longer for a BTO unit in their desired location. (This is something we will cover in the following article.)

In this way, it would be truly public housing that is a birthright for all Singapore citizens and won’t cause undue loss to our national resources. It would also alleviate that lottery-like phenomenon, enriching a small percentage of people who just happened to have gotten a BTO in a new town susceptible to sentiment bubbles and are able to sell at just the right moment.

In such a scenario, even if richer Singaporeans take advantage of public housing, it would not be lucrative to do so for the purposes of property investment. The very fact of owning a public housing unit would prevent them from buying other properties for capital gain or rental income. The amount that they could profit from a single round of buying and selling would perhaps be approximately the grant amount that they received, in the neighbourhood of SGD40,000 for a typical family, and maybe a little more if the estate has since developed into a desirable matured town. The returns in a good private property market would eclipse such a paltry sum.

These measures would create a differentiation that is needed between public housing and private property. Those who would just like a comfortable home for their family could opt for public housing. For those who want luxurious living or investment platforms, private property would be the choice. It would also have the effect of moderating prices of resale public housing, such that the income ceiling would not longer be needed.

In our following article, we will look at how HDB can dictate the prices of BTO units offered, instead of using market value to peg prices. How will this affect the market? What are the considerations for that decision? Stay tuned for our thoughts by liking or following us on our FacebookTwitter, and Google+ pages.

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