Tan Kin Lian's Blog: Asset enhancement

Thursday, January 07, 2010

Asset enhancement

Since the mid 1980s, the Government implemented market pricing and the asset enhancement policy for public housing, i.e HDB flats. The aim was to allow the heartlanders to have a chance to enjoy the appreciation of their HDB flat, which represents the the key assets for most of them.

This policy has led to a more than 10 fold increase in the price of HDB flats during the past 30 years. For most HDB flat owners, the increase in asset price does not translate into real wealth. They still need a place to live in, as the HDB flat is the only home that they hold. If they sell the flat, they have to buy a private propety at an even higher price.

The only people who can benefit from the appreciation in the HDB flats are those who emigrate from Singapore and the few who are able to downgrade to a smaller flat. Some of these people are permanent residents who are able to cash out on the appreciation to return to their original country.

For the majority of Singaporeans, the increase in price is actually a financial burden, as the monthly installment will represent a larger proportion of their earnings. The high prices hit the future generation harder who now has to pay a much higher price and monthly replayment for a roof over their head.

Too many people are paying too much for a HDB flat. To be comfortable, a person should not spend more than four or at most five years of the combined family income (after deducting the cost of employing a maid) to buy a home. I believe that many people are over-streching to six years or more.

Tan Kin Lian

27 comments:

Anonymous said...: But Mah Bow Tan recently said HDB flats are still affordable.

Maybe he knows something that we don't.; January 07, 2010 11:52 AM
Anonymous said...: Yes, I can attest to that ex-PR residents are gaining the rise in value of HDB flat when they return to their homeland.

I have a ex-colleague making a profit of cool $100,000 cash when he & family returned to china. Saying bye bye to Singapore. (The flat he sold to is a couple of Singaporean & PR. Alamak, money flies overseas while this couple would probably work the next 20 years for the money outflow.)

What about the rest of us ? The so-called assert gain is still locked inside our property. I spend my whole life slaving for the HDB property. When I retire, my CPF account is miserable. Can I still cash in my property then ? The re-sale price could be fallen. No one can tell...; January 07, 2010 12:45 PM
Parka said...: This is precisely the situation. It's a no gain for those who actually stay in the flat, instead of treating it like a product with high turnover rate.

For this reason, I always shrug whenever I hear my friends and colleague say anything to the line of "Hey, did you check out that property. It's going to appreciate in the future." Yes, but are you trading in property in the first place?; January 07, 2010 1:09 PM
Anonymous said...: The bubble will just get bigger and bigger and when it burst there will be blood all over. Pity the future generation.; January 07, 2010 1:47 PM
Anonymous said...: Of course the Honourable Mr Mah finds HDB flat affordable!

And it's not that Mr Mah knows something we don't. Mr Mah simply has more of something that we don't.

The original aim of HDB was to build good, affordable housing for Singaporeans. And also to give citizens from a largely immigrant stock, a stake in Singapore.

How did something so clear cut and crystal clear become so complicated within a space of two decades is beyond me. I guess we will have to pay a million dollars to a scholar to tell us. Sigh!

Just like our education system.

First you pay school fees to get your kids educated. Then you pay again for private tuition because your kids are unable understand what the school is teaching.

In any case, it's the parents fault. Never the school, teachers or education system. And it's always the parents and family who will have to pay to get the problem fixed.; January 07, 2010 2:36 PM
C H Yak said...: I agree that majority will not enjoy the "asset appreciation" by cashing out later on. Majority can only afford one property since HDB new & resale prices is so high.

While a big portion of one's CPF saving (and/or plus real saving) is used up to prop-up and sustain this paper "appreciation", fast taking the form of another "property bubble".

As Mr Tan put it "The high prices hit the future generation harder who now has to pay a much higher price and monthly replayment for a roof over their head".

I view it as one generation trying to make money out from the future generation. If the future generation is not procreating enough as demographics show, the Govt. is just going to bring in more FTs, although their necessity is debatable.

I refer to the article "PREPARING FOR THE WORST" by Robert Kiyosaki (Author of Rich Dad Poor Dad book); once shared in this blog by Mr Tan. The mechanics is the same.

Is the HDB market manipulated? And by whom?

Just as the article said :-

Quote : Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth.".

But they have to have a HDB roof over their head which is getting more and more expensive. The HDB is collecting "market subsidy" from the Govt., and not you as in the early days.

And the old want to cash out investment dollars of the young (in HDB flats) to sustain their old age. If they can realise the appreciation to support their old age, it is still not that bad.

What if they are wishing and speculating to enjoy a sudden appreciation 5 years down the road so that they can jump onto the back-wagon in the also spiralling private property market.

Then it is not a simple zero sum game of home ownership, national development plus enhancement asset with so called "market subsidy" by the Govt.

It put too much burden on the young unmarried, the poor and particularly the next generation; even if they can succeed to join the lower middle income group.

To add to this already complex equation, this policy actually encourage people to cash out by migrating overseas, while the Govt. has to "work hard" to get more FTs at the probable expense of locals.

As a result the poorer and less capable Singaporeans are marginalised in turn and find it hard to compete in terms of salary expectations. They will feel enslave under the system.

Generally all living here will have to work longer hours and even delay their retirement because of this "property asset trap" instead of "asset enhancement" which can be easily realised.

This is a "poverty trap" of the new age.; January 07, 2010 2:49 PM
Anonymous said...: furthermore, when price rises, gotta pay higher annual property tax . .; January 07, 2010 4:18 PM
Anonymous said...: My humble opinion is that the true wealth of a nation lies in the creativity and ingenuity of its citizens. This translates into an ability to invent and produce innovative products that are desired all over the world.

A country with such capabilities generates sustainable wealth.

I'm not so sure about wealth generated from rising property prices. No real economic value is created. It's the same brick building sitting on the same piece of land 10 years later, but with a higher price tag.

If anything, high property prices inhibits risk-taking and the entrepreneurial spirit.

We hear of entrepreneurs from poor beginnings (they have no money and they owe no money). But I'm not sure if I have heard of too many entrepreneurs that start with a $300K HDB property debt. Such folks are too busy clinging onto their steady monthly job income to service the monthly mortgage payments.

But having said all that, I want property prices to go higher since I plan sell out to retire overseas. It's good for me, but not so good for the Singaporeans and my kids who are staying behind.; January 07, 2010 6:25 PM
Anonymous said...: At the rate they are importing cheaper, better, faster PRs, foreigners and new citizens, I'm sure many in s'pore government will be more than happy if poorer and less capable singaporeans are encouraged to cash in the HDB flats and migrate to the jungles of Malaysia, Indonesia and Thailand.

This whole asset enhancement is a ponzi scheme. To participate, you need to pay more than the person before you. In order to have this rising demand, you need increasing demographics, new families with cash being formed. If local citizens cannot procreate enuf or have enuf money, then import more foreigners and give them PR status so they can participate too. In order to attract foreigners, govt needs to boost GDP figures, make it pro-business. So we have policies like no welfare, no minimum wage, cheaper better faster, work beyond retirement age etc. Many many elites, govt entities, GLCs and home-grown companies have their wealth in property. They will do whatever it takes to ensure property prices keep going up.

If one day the elites can no longer prevent a long-term secular decline in property prices, don't be surprised to see many top honchos in govt and industry move out from s'pore.; January 07, 2010 6:33 PM
Anonymous said...: REX comments as follows,

To anonymous at 11.52 am the first post.

The government has a strange mind, deliberately or otherwise. When they said "the flats are affordable", it means it is affordable because you can stretch the loan extra 10 years to 30 years. That is the trick.

Do you know what is subprime crisis? That was started in the USA some years back when the banks with no restrictions from the authorities starting out giving loans to anybody even to those who didn't have a proper job. Subprime loans, a pseudonym for loans which are likely to go bad because buyer can't pay at some point in the future. So the entire financial crisis was started really by the subprime loans which when the banks realised were going bad, repackaged to CDOs and other stuff like Lehman minibonds, to try to share the risk burden, but with the housing bubble of bad loans collapsed the entire banks collapsed too (due to the credit creation standard system supported by loans which turned bad).

I feel that taking a loan to more than 20 or even 30 years, increases the probablity of it being a subprime loan. If numerous hdb loans default in the future, even our big four banks will be in big big big trouble.

One should never be indebted for too long and spending beyond means, and Mr Tan's advice is timely reminder.

The government just don't get it. They pretend this doesnt happen. The day of reckoning will come but then who cares, by that time the current party is long dead and gone for sure.

REX; January 07, 2010 7:58 PM
Anonymous said...: Our national pledge-"We the citizens of Singapore........." sounds very hollow nowadays. Very soon it will be "We the minority citizens of Singapore,pledge ourselves as one divided people......."; January 07, 2010 9:02 PM
Anonymous said...: It works for MBT. In the few years he has left for his millions dollars salary, his KPI will look good to justify his increasing obscene salary. What did they say? A million people will have to suffer to support the glory of the paper general.; January 08, 2010 2:11 AM
Anonymous said...: To think about paying the monthly housing loan on time, every time for the next 30 years will make you have endless sleepless nights.

HDB flats are getting more and more expensive !; January 08, 2010 6:30 AM
fievel said...: The problem I see amongst friends is that while they can pinch and save on other smaller items, when it comes to a hdb flat purchase, it is as if they have lost their senses. They simply grouse that it is "soooo expensive" and then with a simple "what to do?? my wife and i need a place to stay leh" as reason, they trot out to the resale market and buy themselves one friggin overpriced flat, locking themselves into slavery to money and the singapore system for the next 30 years.

Once they get used to seeing $400,000 to $600,000 flats for a while, they begin to think that is the fair range to pay. I think Singapore is stretching itself to the max as a nation of mortgage slaves.

This is bad...real bad.; January 08, 2010 12:38 PM
Anonymous said...: The HDB loans are affordable.
How much does it cost to borrow 300K?
or 500K? It is also deducted from CPF
and the amount is small. Most will share this cost with spouse or siblings.

Yes. the loan period is stretched to 30 years, and that is what makes the monthly repayments affordable. Despite this, there are people who will commit to even more loans! buying a car!

Housing in any economy forms the biggest expenditure of anyone.
Ask any British, German, Japanese Indian or Indonesian.

Lets view the property prices in context.; January 08, 2010 1:59 PM
Anonymous said...: you said:

For most HDB flat owners, the increase in asset price does not translate into real wealth. They still need a place to live in, as the HDB flat is the only home that they hold. If they sell the flat, they have to buy a private propety at an even higher price.

my reply:

Your statement above is not entirely true. Most families own 4 room and above(more of those build than hdb 3rms) and that allow for downgrade so families in financial difficulties can cash out the difference which may help to alleviate their financial problems if need be. Furthermore, no two similar sized homes are of the same value. For argument sake, a well located hdb 4 rm in central area can fetch $600k(asuming breathe taking view etc) and above whereas one which is located in tuas area may worth only $300k.

if the former decided to sell and move to tuas, there is a definite substantial financial gain for the family.

you don't even need to downsize and the gain varies according to facing, height etc etc of course.

and that's only one of many ways as government and people we can profit from a STABLE property market

i hope you will espouse a more balance view.; January 08, 2010 2:10 PM
Anonymous said...: Such talk by the politicians about asset-enhancement are patently aimed at your greed. It beats me always who no one present when they make such remarks bothered to make a monkey out of them by REBUTTING them about the real worth of such so-called 'enhancement'. Enhancement that are unrealisable for the VAST majority of the property owners. Ask them simple questions like, "Mr Minister if I sold my property can I move in with you so that I can collect the cash? If he asked you to downgrade, tell them the downgraded property would now also cost a bomb. So where is the gain. Then, you tell them the GAIN actually goes to govt which can now sell new flats at even higher prices -with their 'new' meaning for 'subsidized housing which is basically a paper discount from CURRENT prices! Not forgetting higher property taxes and all other charges in a property transaction.

Give the ministers a full blast full in their faces of of your fart (Chinese saying) and they will not be so blatant with such empty remarks.

If you give face to them, you lose out since they will simply 'chiak' you.; January 08, 2010 3:16 PM
Anonymous said...: Just sold my HDB flat in end Nov 09 for a gross profit of 200k in 10 years meaning 100k for 5 years!

My COV is over 30k for a low floor unit! Buyers are S'poreans upgraders not S'pore PRs.

Though I have made a tidy profit but I feel sad for the next generation. By then the new HDB flats will be beyond their reach unless they go for more than 30 years housing loan let alone resale HDB flats.

The govt is very smart to tie most people down with "asset enhancement" HDB flats so that they have no choice but to continue working even at a low pay due to the huge influx of "FTs" but this asset is only a paper asset unless you sell it to cash out the value.

But if you buy high now can you sell high later? Even if you can sell high later you still need to buy high for another "asset" to stay unless you migrate to be a "quitter".

The only way to escape before retirement is to be a quitter and start a new life elsewhere where cost of living is lower than S'pore but standard of living may not be lower than S'pore.

It's every retiree dream to retire in dignity though many would want to retire like a king but the future S'pore will not give you dignity retirement let alone to retire as a king.; January 08, 2010 3:25 PM
Anonymous said...: "Though I have made a tidy profit but I feel sad for the next generation. By then the new HDB flats will be beyond their reach unless they go for more than 30 years housing loan let alone resale HDB flats."

not true. there is the housing grant or subsidize we can pressure the government to increase to help those at the bottom to own a modest flat.

no one who holds a decent job need to worry of not having a stake in this land.; January 08, 2010 4:05 PM
Anonymous said...: "Such talk by the politicians about asset-enhancement are patently aimed at your greed."

not completely true. we pander more to greed if we allow the property market to rise and then fall again and then rise. in such an UNSTABLE MARKET, the rich, with the resources, will profit big time and the poor will suffer.

therefore, in a boom and bust market, the rich will get richer at the expense of the mass market owners.

however, a stable market eschewed by our wise government will ensure the rich do not profit exuberantly(greed) at the expense of the poor or not so rich and the growth or STEADY asset appreciation will be more equitably distributed - rich or poor.; January 08, 2010 4:16 PM
Anonymous said...: I have a uni friend, china couple, both of them with PR, under some MOE scholarship to study in NUS, scholarship only for PR (aka foreigner), no bond, only the tuition grant "bond" which requires them to work in singapore for 3 years before they can leave, and they planned to go to US for further studies once they finish serving the 3 years in singapore, so they bought a resale HDB flat to make money and also because the repayment (full cpf) was cheaper than paying rental (full cash). Lost touch, so not sure where they are now.; January 08, 2010 4:31 PM
Anonymous said...: "not true. there is the housing grant or subsidize we can pressure the government to increase to help those at the bottom to own a modest flat.

no one who holds a decent job need to worry of not having a stake in this land."

Do you believe that HDB actually mark up the selling price of new flats and give you "housing grants" or "subsidies" to make it "affordable" to you? LKY had said before on "no free lunch" and it's true for HDB new flats!

How to "pressure" the govt if most of them vote in the govt out of whatever reasons on the polling day?

I hold a decent job but I don't think I have a stake in this land (my birth land) except "owning" a HDB flat which is only an "asset" on paper unless I sell it to cash out the value?

Right now I only know that I'm "asset" rich but cash poor, who's fault?; January 09, 2010 10:54 AM
Anonymous said...: My sis bought her first new HDB 4 rm flat (floor area 113 sqm, mid floor) opposite Yew Tee MRT station in 1994 for 150k.

Now after 15 years later the new HDB 4rm flats (BTO) at Limpang Green cost about 250k on average but the floor area is only 90 sqm.

It costs about 1.7 times more now but the floor area is about 1.3 times lesser. Don't think my sis salary from her decent job is 1.7 times more now.

The govt has asked S'poreans to have more babies but at the same time all new HDB flats has a smaller floor area now, why? Becos of more PRs and FTs now that's why need to reduce floor area to build more "affordable" new flats??

If we use psf as a benchmark to compare cost of a new HDB flat now and years ago, it's definitely much more expensive to buy and maintain a new HDB flat now unless our salaries now also increase in tandem with the price of new HDB flats. If not the price of new HDB flats now should not be "market based"!; January 09, 2010 11:17 AM
Anonymous said...: This was strongly advocated by GCT if I remembered correctly. He told the media that S'pore will equal the Swiss standard of living in 2010. And the 2010 World Cup dream by having MBT to set up S=League. Millions had been spent and where are we now? After more than a decade, memories faded...
I have the impression that our gahment seem to like to copy the West and follow "In Things", while I think China seem to be able to do their thinking and stand firm to their own belief and policies. Just my personal observations, may be I'm wrong ?; January 09, 2010 2:10 PM
Anonymous said...: Flats becoming smaller and more expensive?

The Sunday Times 3/1/10 carried an article about people in Japan living in coffin sized pigeon holes!

Maybe that's the way the govt want Singaporeans to see things in perspective and also how lucky they are!; January 09, 2010 4:34 PM
Anonymous said...: Who started the so-called ' asset enhancement' scheme? The easiest way is to jack up HDB price so that your flat's paper value to go up. Who benefit the best? Remember CPF contribution was only 5 % each for employer and employee during the colonial days. With so much money in your CPF, the Government must suck out money from your Account. Who benefit again when HDB prices go up. The biggest land owner in Singapore is the Government when acquiring the land based on 1973 compensation rate ( since revised now when almost all the available land has been acquired.; January 09, 2010 7:20 PM
The Drake said...: The cost of a HDB flat is too damn expensive. I just got married 3 years ago and me and my wife had to apply for BTO flat which cost at least $300,000! Calculating my income level and the loan needed..I'll have to pay back more than $1000/mth even if i take less than 30 yrs loan! Affordable housing? more like "squeeze-you-dry-cos-there's no choice" housing price. And the resale flats' prices are even more ridiculous! all the COVs flying around like whole of singapore are rich ppl! Wake up Mr MBT!!!!!; April 26, 2011 5:45 PM

Thursday, January 07, 2010

Asset enhancement

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