Sunday, April 15, 2018

Free up the market for old HDB flats

Many seniors now find it difficult to sell their aging HDB flats (with remaining lease less than 60 years). They faced a dilemma - they have inadequate CPF savings and need to sell the flats to realise cash for their living expenses.

They are disappointed that the promise made by PAP leaders in past years that HDB flats are a good investment had turned out to be untrue.

Let me first address the issue on why it is difficult to sell the old HDB flats.

The property market is now weak. There are more sellers than buyers. Many units are vacant. Rentals have fallen. This applies to the whole property market, namely the private properties and the HDB flats.

The economy has been weak for the past few years. Business has been bad. There are less foreigners who need to rent a place to live in.

The seniors would probably be happy to rent out a room to tenants, but they probably have difficulty in finding tenants in this weak market.

Apart from the poor market conditions, the HDB owners face two obstacles. These obstacles applies to HDB flats and not private properties.

They can only sell their HDB flats to eligible buyers, who must be citizens and permanent residents. They can only sell after the "minimum occupation period".

These two obstacles may not be too serious.

There is another obstacle that cause the problem. The buyer of the old HDB flats find it difficult to get financing for the purchase. The banks are reluctant to finance the purchase of HDB flats with a remaining lease less than 60 years.

Many people (including me) are not aware that the government now allows CPF to be used for leases of at least 30 years, subject to conditions.

I am not able to find out exactly what the conditions are. I used the calculator provided in the CPF website some inputs. I obtained an answer "Not eligible".

I have two suggestions to overcome the problem faced by the seniors in selling their old HDB flats.

First, we need to change the current regulation on the use of CPF savings.

At present, CPF can be used quite freely for the purchase of a property with a remaining lease of at least 60 years. We need to change the 60 years to 30 years.

In other words, a person should be allowed to use his CPF savings to buy a property of 30 year lease as freely as he is now allowed to buy a property with at least 60 year of remaining lease.

There might be some concern that the property will have no value at the end of the lease of 30 years. This means that the CPF savings is used for consumption over 30 years.

This argument is flawed. The buyer of a 60 year lease has to pay a higher price. One part of this higher price is consumption; the other part is for "investment". The consumption element for a 30 year lease and a 60 year lease is the same.

If we can get rid of this mental confusion between consumption and investment, we can free up the market that is now affected by this artificial obstacle. We will open up the market for the aging HDB flats with a remaining lease of less than 60 years.

Some young families may opt to buy the old flats because they are cheaper or located closer to their parents. The seniors will be able to sell these flats to realize cash.

With a more active market, the prices of the old flats will reflect the market price, rather than a depressed price.

If CPF can be used freely for properties with a remaining lease of at least 30 years, the banks will be happy to provide the loan. After all, they have been lending for purchase of cars that have a lifespan of 10 years. They should be happy to lend for purchase of a property tht have a lifespan of 30 years.
I have a second suggestion; the HDB can buy back some of the old flats and rent out the flats to eligible occupiers. This will increase the supply of rental flats for young families.
Some newly married couples may opt to rent the flats for a few years while saving to pay the deposit for the flats that they will eventually buy.

If the HDB does not want to be involved in this renting operation, it can formed a subsidiary to perform this function.

My two suggestions are aimed at freely up the market for the old HDB flats, so that the seniors can realize their investment in the HDB flats and get a fair market value.

It will also provide more housing options for the newly formed families and make it possible for more people to start a famly earlier.

I am not saying that all young familes should buy the old HDB flats. Many may be happy with the current arrangement, and may opt to wait longer to buy a new flat. This option will continue to be available.

However, we should also provide the option for the young families to buy an old HDB flats at a lower price or even to rent these flats for a few years.

If you like this suggestion, please click on "Like" and "Share" it widely.

Tan Kin Lian

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