I suggest the following approach to solve the housing problem in Singapore.
HDB should build a large number of flats for rental at affordable rentals that are lower than the current market rates. I suggest the rentals be set at the following level.
HDB should build a large number of flats for rental at affordable rentals that are lower than the current market rates. I suggest the rentals be set at the following level.
- 4 room flat $1,200 per month
- 3 room flat $900 per month
- 2 room flat $600 per month
These flats are to be built in the new towns and have modest finishes. They are to be given for rental to Singaporeans, with priority for those who have served National Service. It is easier and faster to build flats for rental - as the tenant is less fussy on their requirements, compared to a family who has to spend a large sum of money to buy a flat.
The rental rates can be adjusted yearly based on the change in median income. The above rental rates are lower than the current market rates, and can be considered as a subsidy to make it easier for Singaporeans to provide affordable public housing.
Renting has its advantages. It gives flexibility to the family to choose a flat that is close to the place of work or to move to a new rental flat when they change their job. By living close to the workplace, the worker will educes the time and cost of travelling and traffic congestion.
Families who rent the flat can invest their spare savings in shares or real estate investment trusts or other suitable investments and do not need to tie their investments to the home that they occupy.
When Singaporeans know that they can have a flat that is available at a reasonable rental, they do not need to panic and rush in to buy a property at its inflated price. This will help to stabilise the property market and preserve the value of the HDB flats that have been bought earlier, i.e. does not cause a drop in their values.
We also need to allow the use of CPF savings to pay towards the rental of the flat (up to certain limits), similar to the use of CPF to buy a flat. I do not know how to handle this tricky issue. I hope to get some views.
We also need to allow the use of CPF savings to pay towards the rental of the flat (up to certain limits), similar to the use of CPF to buy a flat. I do not know how to handle this tricky issue. I hope to get some views.
Tan Kin Lian
If we lower the price of new flats, it will bring down the value of the flats that were bought earlier, especially from the resale market. This may cause problem with the owners of the "older flats".
ReplyDeleteMy suggestion of providing rental flat will overcome this problem. By giving a chance for people to rent the flats at a modest rental, tied to the income, it will reduce the panic and stablise the price of the HDB flats.
Some people will still want to own their HDB flats in the long run - and they will have the choice of buying the flats. But they do not hae to panic and keep paying high prices!
rex comments as follows,
ReplyDeletei fully agree with your rental concept in this article and also a previous article.
from the citizens perspective i think it is long overdue that such a good idea should have been implemented long ago.
however, from the current government's viewpoint, rental units do not generate the kind of GDP they want, i.e. getting returns from stamp duties, etc etc.
unless there is a change in mindset by government to sacrifice something at the global level for better social infrastructure for citiznes, i think your proposal is falling on deaf ears.
The current government believes mostly in driving singapore at the company level, not driving it at a country level.
rex
Hi Rex,
ReplyDeletePlease help me to find a way to bring the ideas across to the government. Do not be discouraged that they are "deaf". Remember, they also want their President to be "dumb". Let us take a positive attitude and shout loudly so that the "deaf" can also hear.
No point in worrying about housing if nuclear power is coming.
ReplyDeleteSee article below about Germany's response to the Fukushima disaster:
http://www.safehaven.com/article/22448/in-the-aftermath-of-fukushima-germanys-renewable-energy-sources-rise-to-20-percent
personally i do not mind prices of my current flats go down if it serve the greater cause of affordable housing to singaporeans. if we continue to persue the route of asset appreciation , can our children afford it? do we want to see similar situation in australia where more and more children are opting to stay with their parents houses because they cant afford to pay for high interest rate and high property prices? will rental meet the aspiration of young singapore couples who wanted a asset? if not, want they want to seek a greener pasture elsewhere if they are mobile semi or professionals. our current HDB prices are not normal, much of it is speculation in anticipation to govt immigration plan. unlike australia, singapore govt being in control of 60-70% of apartments in singapore can and have the tools require to control the property prices. it is just a matter whether they place singaporeans first or simpply just GDP expansion.
ReplyDeleteI think your rental rates are too high. HDB should be building subsidized flats and the rates should be low, too, at least by 30% off the rates your just published. After all these flats have a perpetual lifespan.
ReplyDeleteHi 12:53 pm I understand that 1 room in HDB flat is now being rented out at $500 per month. So $800 for a 2 room flat seem to be quite good. But, you may be right that it can be made cheaper.
ReplyDeleteHi Mr Tan,
ReplyDeleteIt is not wise to advise a family to rent a flat and invest their spare savings in shares or other forms of investments. It is better to own a HDB in the long term which will appreciate in value with the economy. Should the owner need cash when old, he may choose to live in with one of his children and sell his HDB to cash out eg for his medical treatment. By advising the family to rent and use the rest to invest, we know many of the less savvy investors will get burnt and worse, end up homeless in their retirement years.
rex comments as follows,
ReplyDeleteI think there are 3 major hurdles to cross.
The first hurdle, as i mentioned above, is the underlying mindset of Lee & Son, which is hard as rock and not movable. For better or worse, i dunno... but, Nothing moves in Singapore without consent from top. What more, a radical idea of rental culture, it would not pass till L. agrees to promulgate it.
The 2nd hurdle is that in fact many citizens i know, themselves are completely, absolutely brainwashed into thinking that BUY=Smart and RENT=Stupid. This mindset comes from the silly notion that property price will go up forever, that 30 year loan is still better than rental. We require a culture change, like telling singaporeans that cholesterol is good and inflammation is the true culprit of diseases (i am not sure if you are aware of this, 90% of singaporeans don't know, and don't even want to find out).
The 3rd hurdle to cross is well rather personal. At this point in time it appears to me that the PE had resulted in your reputation being dented somewhat and unfortunately a lot of the electorate may not be ready to receive your ideas however great they may be. It is a sad situation.
But i believe you fully. Rental is much more reasonbable culture. In the current environment started by Mah Boh Tan that 30 year rent is reasonable, people are walking on high wire, very very dangerous game.
If i had power, i would outlaw home loans exceeding 15 years.
Singapore will suffer a subprime crisis soon, if people keep on doing 30 year loans. Subprime crisis in USA started because of loan given to people not able to afford the houses. To me we are heading toward such crisis through indiscriminate granting of 30 year loans as if 90% of people will hold the jobs for 30 years.
The ideas you mentioned about rental is what singapore really needs, just like many other great schemes which you have raised. It is a wonderful wholesome idea.
rex
I have created a survey to ask people if they wish to see lower HDB prices for new flats (which will cause a drop in existing flats) or whether they prefer to have the option to rent a flat more cheaply.
ReplyDelete90% said that they prefer to see lower prices and they do not care if this will cause existing flat prices to fall.
This could be the views of the young people who do not own a flat now. I wonder if the older people, who have bought a flat at higher prices, also don't mind to see their flat prices fall - to benefit the younger people?
@financialray
ReplyDeleteIf you invest in an indexed fund, e.g. STI ETF, for the long term, you will not get burned. You can get burned with a property, if you have to sell it in a bad market. Ask the people in Japan and USA.
Switzerland has a culture of renting property, rather than buying a property.
Renting makes sense, but we have a big hurdle (mindset change) to cross. So, we start to promote this idea, although it will take a long time.
HI Mr Tan,
ReplyDeleteIn my opinion, owning a HDB is still a better option. If I don't do well, at least I own a HDB that will appreciate in value over the long term, esp if Singapore's economy continues to chug along.
If I do well, the HDB is my springboard to maybe a private property.
The value of my HDB is definitely going to be worth much more than an indexed fund, considering leverage.
Also having my own HDB gives me a sense of pride and belonging rather than a rented place.
If anything, perhaps to kill 2 birds with one stone, those Singaporean families with kids or intending to have kids should get more monetary incentives to help in their repayment of loans.
As far as I can remember, property prices do go up over the long term like 20 to 30 years. Having a stake in Singapore over the next 20 to 30 years, a HDB will give Singaporeans a stake to ensure our economy continue to flourish for at least another 20 to 30 years.
If the trend is to rent and there is no sense of belonging to a nation, then when Singapore fails, the able ones will pack up and migrate.
HDB has appreciated a lot during the past 30 years. It is probably over-appreciated. The future appreciation is likely to be much lower. So, you have to be careful about investing in over-appreciated assets.
ReplyDeleteYes, Mr Tan,
ReplyDeleteHDB has appreciated a lot over the last 30 years. My father bought a 5 rm flat in the 1980s and it is worth more than 500k today.
With inflation, 100k today will appear miniscule 20 to 30 years down the road.
So having a HDB now will also hedge against inflation 30 years down the road.
The value of my HDB will be worth much more in 20 to 30 years as long as the economy of Singapore continues to flourish.
If in our twilight years, we are short of cash, then maybe downsize, move to stay with our kids, or maybe go for senior citizens' rental apartments and cash out from HDB sale. So the HDB is another nest egg for Singaporeans to tide over as a last resort if necessary when we are elderly. If HDB value drops, then our parents and grandparents who toiled for our economy will suffer.
Those who believe HDB's prices will go spiral down because of temporary economic downturn, they forget the PAP government is in a political strong position to continue bringing in more foreigners/immigrants to cushion the negative impact on prices, at least for the next 5 years before the next GE in 2015/2016. Such behavior has become a characteristic policy of the PAP government over the past decade. Do get real.
ReplyDeleterex comments as follows,
ReplyDeleteGenerally speaking it is not totally wrong to be desirous to possess a flat rather than rent it.
But the logic works only if you are able to afford it. That is to say, if one takes a 10 year loan or 15 year loan, i assume that it is a reasonable indication of affordability; and it is better than renting, in such case i dont dispute the views of most people.
The problem is that these days 30 year loans are legalised. In other words, people actually cannot afford the flats but are duped and enticed with all means to accept these 30 year loans as norm. It is in such cases that i strongly believe that rental is better. IF you cannot afford the flat and force yourself into believing you could *thanks to MahBowTan*, and sign a 30 year loan, you are in very serious trouble when the tide turns against you. Firstly, you have barely paid up 20 or 30% of the loan with interests, and even you sell you will not see any benefits, everything go to the bank. Secondly, nobody can see beyond 10 years. Prices can appreciate but it has to saturate somewhere because salaries will never chase up, for the masses at least. In my view we have already reached the saturation point. Please everybdoy listen to TKL, his views are correct!
So in summary, if you are comparing between renting and taking a 10 year loan to purchase, by all means purchase, not rent. But if you have to take a 30 year loan, please please please RENT RENT RENT.
When you rent, a mistake will cause you only a small amount and you can pull out easily. When you purchase on 30 year loan basis, you pay dearly, very dearly for any mistake.
rex
I think the duration of the loan depends on one's job prospects. My JC classmate came from a low income group and started with a 3rm HDB. He progressed to buy a private condo many years later as he is a professional.
ReplyDeleteAlso, we need to make sure that we buy a smaller HDB if we cannot afford a 5rm so that we do not overstretch our finances. Again, we need to assess our job prospects.
If job prospects deemed not too good, it will be worse to use whatever we save to invest in shares or if we are not savvy. Savings in owning a HDB property is definitely still safer and discipline is enforced. Even buying ETF funds will be subjecting ourselves to emotions such as greed and fear esp if self discipline is not good.
In my opinion, those with kids will need much more help in owning a HDB as cost of living is high. Perhaps a baby bonus of 20k or more maybe credited to a couple's CPF to help in clearing their housing loan and to assist them to upgrade to a bigger HDB esp when they have more kids.This should be on top of higher parental tax relief and child relief.
So, it is Asian culture that one has to own his/her house first, then buy another property to collect rent. This make sense as long as you have enough income to settle the loan fast during one's productive year which is normally less than 20 years.
ReplyDeleteOn average, the rate of appreciation can not be more than the interest rate you pay to the bank. After you have successfully paid off your loan, the amount you have paid is roughly the same as the selling price of your house.
In order to make money in the housing market, you have to speculate, that is to buy low and sell high in short period of time and very few people have enough information to achieve that.
My friend told me that the rental for a 4 room flat in Yishun is abotu $2,000. So the proposed rental of $1,200 sbown above is quite low, compared to the market.
ReplyDeleterex comments as follows,
ReplyDeleteThe post from Änonymous 9.46am 11.9.11 is very interesting.
The writer implied that, in the current environement, after the nett effect of accounting for interests paid and renovations and the need to purchase an alternate property at market price, selling off the house may actually result in just a break-even situation at best!! That is to say, what advanatage is there to BUY vs RENT, it is very ambiguous.
I propose again, the singapore mindset Buy=smart Rent=stupid, must be reexamined in total, because the environment of purchase is extremely unique in singapore case (30 year loan!!)
I emphasise again buying is better than renting, if and only if you found a really really excellent property, and provided the loan is no more than 15 years or so. Prices has gone up so much that any mistake is irreovcable on your finances. And, many people buy a property, only to regret after moving in. Why so small? Why so noisy? How come we didnt notice this before? Why this why that.
So in the current environment, rental may be a good choice and a new culture should be generated. The presence of a strong rental culture will also moderate the absurd rise in property prices because if young couples start life with rental apartments, the property demand will diminish and soften price rises.
Remember always, your first property purchase is most likely mistake prone because you have no experience choosing a good place. to be pessimistic even, how do you know you wouldnt divorce within 30 year time frame, in which case the house issue will become very complicated because so much of the loan is not paid up yet
Why suffer 30 years for a mistake. It is far better to rent for a couple of years at least *maybe even longer* because there is so much cost savings - no renovations, flexibility in arrangements, and you do not drain your cpf so much that you are left with nothing when you get old.
rex