Wednesday, October 31, 2018

Falling HDB Resale Prices A Thorny Issue For Singapore Government

HDB resale prices could slide by up to 2.0% this year.

There could be severe political ramifications if the Singapore government fails to adequately address the downtrend in the prices of HDB resale flats and the loss of their value as the lease dwindles, reported Bloomberg recently.

“The government has to walk a tight rope on this,” said ZACD Group research head and executive director Nicholas Mak, who expects HDB resale prices to slide by 1.0 percent or 2.0 percent for the whole of 2018.

Find HDB flats for sale or read our HDB guides and BTO guides

The authorities can neither extend the leases of HDB flats “for free” nor let prices of such properties fall too much, he explained, as its impact on the wealth of homeowners could have serious political consequences.

Cushman & Wakefield also thinks that the fall in values would not only dampen public sentiment, but could also negatively affect demand for private homes as fewer HDB flat dwellers will feel comfortable enough to upgrade to private condos.

Previously, an HDB flat purchased for around $72,500 in 1985 is now selling for about six times that amount, translating to annual compounded price growth of 5.6 percent.

However, the value of HDB resale flats has been declining, while that for private residential properties has recovered in the last five quarters. This has resulted in a price gap of 13.8 percent, or the biggest in over 10 years.

Latest data published last Friday (26 Oct) by the Housing Board also shows that the HDB resale price index slid 0.1 percent quarter-on-quarter in Q3 2018. This took place even though the number of resale transactions rose 18.9 percent quarter-on-quarter and 21.6 year-on-year to 7,063 cases.

Nonetheless, the government is carrying out measures to tackle this issue. Among them is the Voluntary Early Redevelopment Scheme (VERS), which will allow homeowners to vote on whether to sell their HDB flats to the government once the age of their block hits 70 years before the 99-year lease ends. However, Credit Suisse said VERS won’t be implemented for another 20 years and won’t apply to all HDB flats.

Meanwhile, the Housing Board announced that it will offer around 3,800 Build-To-Order (BTO) flats in Yishun, Tengah, Tampines, Sengkang and Sembawang next month. It will also hold a concurrent sale of balance flats.

In particular, those buying BTO flats in Yishun, Sengkang and Sembawang will have a shorter waiting time of 2.5 years instead of the usual three to four years.

URA guidelines change for new condos: All you need to know

SINGAPORE: On Oct 17, the Urban Redevelopment Authority (URA) - Singapore’s urban planning authority - announced several new guidelines for condominium developments that would take effect early next year.

Among other things, the rules included reducing the maximum number of units allowed in new condominiums outside the Core Central Region (CCR) of Singapore.

The reasons behind the URA guidelines change? To discourage developers from building shoebox units, counter shrinking condo unit sizes overall and hopefully “manage potential strains and stresses” on Singapore’s infrastructure.

For developers, this is bad news. Lowering the maximum number of units can mean eating into their potential profits down the road. But what can homebuyers expect? Read on to know all about the new rules and the implications:

New URA guideline #1: Maximum dwelling units lowered
Before: The formula used to calculate the maximum number of housing units allowed in developments outside the CCR is gross floor area (GFA) in square metres divided by 70 sq m (GFA/70 sq m).

Now: The formula is now updated to be (GFA/85 sq m). Given the same GFA and assuming developers maximise their GFA quota, this translates into about 18per cent fewer units being built per development.

Why: According to URA’s group director for development control, Ms Goh Chin Chin, this allows developers to provide a more balanced mix of unit sizes. The goal is to cater to the diverse needs of home buyers, not just investors.

Implication for homebuyers: Average unit sizes of new launch condos will increase down the line. As cheaper shoebox-sized units may be a thing of the past, property investors with limited budgets might be priced out of an investment, unless they turn to resale.

Even those who can afford the larger single-bedder units might work out a diminished rental yield, because while the bigger square footage costs more, it might not justify a higher rent in the rental market. Meanwhile, those buying homes for their own stay might welcome the fact that new developments will be less cramped.

For buyers who are worried that developers might increase their prices to recoup lost profits, let’s just say that, after the July cooling measures, developers are aware that raising prices — by raising the per square foot (psf) price — would be akin to shooting themselves in the foot multiple times. Buyers might have to pay a higher absolute price for slightly bigger square footage of the larger units, but in psf terms they’re unlikely to get a worse deal.

Plus, if the market is indeed cool, developers might even be forced to sell at a lower psf price in order to keep the absolute price of units affordable.

New URA guideline #2: More precincts with special maximum unit controls
Before: Four areas are subject to special requirements when it comes to maximum unit controls. These areas are: Telok Kurau, Kovan, Joo Chiat and Jalan Eunos. In these estates, the GFA is divided by 100 sq m (GFA/100 sq m) to arrive at the maximum units allowable.

Now: Nine areas have to adhere to the special maximum unit controls. These areas are: Marine Parade, Joo Chiat-Mountbatten, Telok Kurau-Jalan Eunos, Balestier, Stevens-Chancery, Pasir Panjang, Kovan-How Sun, Shelford and Loyang.

Why: While URA hasn’t said so explicitly, it’s likely they want to maintain the low-density profile of these neighbourhoods. It happens that these neighbourhoods are characterised by networks of small streets/narrow roads, hence stricter maximum unit controls are needed to prevent new developments putting undue strain on infrastructure in the future. Think of this as a preemptive measure of sorts.

Implication for homebuyers: Those who are looking to live in a more laid-back neighbourhood for decades to come now know where to look. They can also be reassured that if they do want to sell or rent out their homes in these areas further down the road, they wouldn’t face much of an oversupply issue. But note that because of the maximum unit restrictions, properties in these precincts will be less attractive en bloc options for developers too, so it’s a double-edged sword.

New URA guideline #3: Allowance for indoor communal spaces (Bonus GFA scheme)
Before: No such guideline/scheme in place.

Now: Under the bonus GFA scheme, developers may build indoor recreations spaces such as gyms, libraries, function rooms and reading rooms, and apply for these to be counted as bonus GFA.

The maximum bonus GFA is capped at 1 per cent of total area for residential developments, or the GFA of the residential component for mixed-use developments. Take for example a project the size of Kent Ridge Residences, with a GFA of 41,490 sq m. The bonus 1 per cent GFA is equivalent to about 415 additional indoor sq m, about the size of a basketball court.

Why: Again, URA hasn’t said so explicitly, but we see this as a move to increase neighbourliness and kampung spirit within condo compounds with more common spaces.

Implication for homebuyers: They can expect more indoor facilities in future new launch condos. With fewer units and more facilities, we think condos will become better living environments. More indoor facilities will also mean greater utility, as these can be used regardless of the weather.

New URA guideline #4: New rules for balconies
Before: Back in 2001, URA stipulated that private developers could build additional space over the maximum development intensity to make allowance for balconies for residents. More specifically, the GFA of residential developments could be extended by 10 per cent, with the caveat that the additional space should be designated purely for a balcony.

There was also no minimum width requirement for balconies, so certain projects ended up with balcony spaces that look more like oversized planters.

Now: The bonus GFA cap for private outdoor spaces will be reduced to 7 per cent. On top of that, the total balcony area for each unit will be capped at 15 per cent of the net internal area. Balconies must also now have a minimum width of 1.5 metres so that the outdoor space can be used meaningfully by residents.

Why: URA has observed that some developments now feature excessively large balconies in relation to the size of the unit’s indoor spaces. (Moreover, the common sentiment is that home buyers find it difficult to look for units without waste-of-space balconies.)

Implication for homeowners: They can look forward to better-proportioned homes with balconies that have greater utility. Hopefully, we’ll see the end of shoebox units with balconies the size of a bedroom.

How will the latest URA guidelines impact buyers?
The new URA guidelines are likely to bring about larger unit sizes (and possibly lower psf selling prices), and they definitely favour homebuyers over investors.

Considering that we can expect an influx of new units fuelled by the recent en bloc fever, this is a timely move to curb oversupply and overcrowding. If you’re thinking of buying a condo in the next few years, it’s time to rejoice.

Quick guide to becoming a successful landlord in Singapore

SINGAPORE: Renting out your property takes experience. After a few years, you’ll know which tenants will be great, and which ones will add therapy to your costs (judging from experience, the ones who go out of their way to impress you, such as by bragging about their high level job, tend to be the most problematic).

Until you’re a veteran who’s had at least six or seven tenants, here are some hacks to make things easier:

1. Keep note of the exact paints used
This is to make sure you can get the exact shade and colour for the inevitable touch-up. While most contractors can look at the paint and make a calculated guess, mistakes do happen – and there really can be a few hundred shades of white. Unless you want a patchwork effect on your walls, note down the brand, name, and product number of all paints used.

The other alternative is to just repaint everything in a new shade – but that can be expensive.

2. Use the 15 per cent rule for tax claims
In case you didn’t know, mortgage interest is tax deductible. But only the interest portion, and not the principal (this amount should be detailed in the regular letters from the bank).

In addition to claiming the mortgage interest, you can also make claims for maintenance costs. This can get a bit complicated – you need to list all the items and costs of replacements. So save some time: you can claim the mortgage interest, plus a flat 15 percent of gross rental income.

Note that you shouldn’t be too quick to do this if you’ve undertaken major repairs – the claimable amount could come up to more than 15 per cent.

3. Pre-arrange site inspections
In Singapore, landlords cannot disturb the peace and quiet of tenants with unannounced inspections. And quite frankly, no one is paying to live in a military barrack, so it’s best to lay off the stand-by bed. The problem is, you'll want to know when something is broken or falling apart as soon as possible.

A good example of this are floorboards – especially if you get fungal issues (it really is possible for mushrooms to grow in your condo toilet, even on the 20th floor). Once floorboards start to warp and rot, you need to quickly fix the issue. Let the problem stew for half a year, and you’ll have to rip out the entire floor.

Arrange to investigate your property every six months (with the tenant’s permission, of course). It’s good for them too, since it lets them update you on what’s faulty and in need of replacement.

4. Place plastic or vinyl on the bottom of kitchen cabinets
Kitchen cabinets have a tendency to spoil fast, especially if food spills on the various drawers or floorboard. And keep an eye out for cabinets that conceal pipes: If they leak, the bottom of the cabinet can start to rot.

You can ask the contractor to lay plastic or extra vinyl (from flooring) along the base of drawers and cabinets. Do not use towels or newspaper – not unless you want to cultivate experimental lab bacteria. That only works if the tenant is willing to change them regularly; and most won’t.

5. Make the place as bright as possible when trying to find tenants
Strong, white light – along with white walls and ceilings – give the impression of newness and spaciousness. Avoid yellow lights, or similarly coloured walls when trying to draw tenants. In particular, avoid using wallpaper.

If the wallpaper gets damaged, and that particular print is not made anymore, you will end up changing the wallpaper for the entire room. So whenever possible, just use white paint.

6. Keep in touch with your tenant’s situation
Send the occasional birthday card, and drop by to talk to the tenant. It’s not just about being friendly; you want to keep yourself updated on your tenant’s situation. If they have just lost their job and are looking for a new one, or are homesick and want to fly back, you’ll get early warning.

This will give you fair time to prepare your finances, to cover a month or two when you may have to look for another tenant. You don’t want to find out at the last minute or when the lease expires, that they have no intention of renewing.

7. Use renovation loans before personal loans
Whenever you need to make major renovations and you need a loan to cover it, always use a renovation loan first. The interest on this can be as low as 3 to 4 per cent per year, whereas personal loans tend to be between 6 and 9 per cent.

If you have just bought the unit, the mortgage banker may be able to get you a good reno loan deal with the same bank. Sometimes you can get six month interest-free loans. Alternatively, use loan comparison websites to find the cheapest deal of the month.

Whatever the case, always use the renovation loan first. Only use the personal loan for the portion that would exceed the reno loan cap (most reno loans are capped at $50,000).

8. If you want to renovate while the tenant is there, position it as an upgrade
So you want to install a feature wall, or a bathtub, or an air-conditioner. Only problem is, you don’t want to annoy the tenant with the sound and dust. The solution is easy: Tell the tenant you’ve decided to upgrade the place for them, at no cost.

This makes it a little more acceptable to most tenants (and changes nothing for you, since you were going to do it anyway). The key is to always phrase it as a benefit to the tenants, which really it should be anyway.

9. Paint the furniture and appliances
So the furniture or an appliance is faded, rusting, peeling, etc. It happens. There’s only so many times you can yank a fridge handle, for example, before the silver coating peels to reveal plastic. The same thing often happens with shower faucets, because it’s such a moist environment.

If it works though, don’t be too quick to junk it. Get the right kind of paint from a DIY store (tell the shopkeeper what you are trying to repaint), and just paint over the ugly bits. Most of the time, you’ll find the results are quite passable.

10. Started out as unfurnished, then buy over from the first tenant
Don’t want to furnish the apartment yourself? Here’s one alternative:

The first time you get a tenant, rent the apartment as unfurnished. Encourage your tenants to bring in their wardrobes, floating shelves, sofas, etc. When your tenant needs to move back home, offer to just buy over the furniture from them at a discount. Voila. Instant furnished apartment.

Of course, this runs the risk that they may not furnish it to your liking. But you can also pick and choose the bits that you want, and buy those over at second-hand prices. The tenant should be pretty happy to easily sell on their furniture rather than having to list and arrange hand over to multiple other people- as long as the price is right, of course.

Wednesday, May 2, 2018

99-year HDB flats a chance to review homeownership and retirement policies

With the impending lease expiry of private residences along Lorong 3 Geylang, Ng Kok Hoe explores the challenges of framing homeownership as an appreciating asset that provides a source of retirement income.

SINGAPORE: In March, National Development Minister Lawrence Wong reminded the public that Housing and Development Board (HDB) flats must be returned to the state when their 99-year leases expire.

Therefore, flat buyers should not fork out large sums for old resale flats on the chance that they may profit from the Selective En-bloc Redevelopment Scheme, he emphasised.

There has been no test case for this policy position so far, as major construction of HDB flats began only in the 1960s, which means that the earliest leases will only expire after 2060.

But in June, the owners of private residences along Lorong 3 Geylang were given notice that when their land leases expire in 2020, their properties must be surrendered to the Singapore Land Authority with no compensation.

Although these were private residences on 60-year leases, and most have been rented out to foreign workers and temple operators instead of being owner-occupied, the episode served as a reality check for many HDB flat owners.


The public response has ranged from a mere shrug to disappointment and anxiety. Some people point out that the 99-year HDB lease is a known fact and that then-National Development Minister Khaw Boon Wan had already issued a similar statement in parliament in 2014 when responding to a question from Mr Gerald Giam.

But others feel wrong-footed by the announcement and argue that the state should provide compensation when flat leases run out.

Why would something so obvious come as such a surprise?

One reason is myopia, a recognised problem in public policy. People often do not plan adequately for the distant future, favouring what is beneficial in the short term instead. Ninety-nine years feel like a long time and many people do not expect to outlive their flat leases.

Many young flat owners also expect to sell their flats and move to something newer and better long before the lease runs out. Public housing policy has responded to as well as encouraged “upgrading” aspirations by increasing the proportion of larger flat types within the HDB housing stock.

These expectations of housing mobility draw attention away from the finiteness of a 99-year lease.

Policy communication that does not fully spell out the facts has played a role too. Public housing tends to be presented rather simplistically as an asset that will invariably grow in value. Homeownership is often described as a source of retirement income that can make up for low cash savings in one’s CPF account.

In fact, as Mr Wong recently clarified, HDB flats will only appreciate in value in the medium term. Mixed messages like these create uncertainty and anxiety.

Important policies are designed based on the same assumption that housing is an appreciating asset.

When policymakers switched from a model of public rental to public homeownership in the 1960s, they drew a sharp distinction between renting as current consumption and ownership as investment for retirement, and put in place policies to nudge the population to the latter.

The stock of 1- and 2-room HDB rental flats was cut from a peak of 135,000 units in 1982 to a low of just 46,000 units in 2008. These rental flats are reserved only for low-income households and have strict eligibility criteria.

In support of homeownership, CPF withdrawal rules were also gradually liberalised, such that housing now accounts for the largest use of Singaporeans’ CPF savings. In the 2000s, about half of all CPF withdrawals were for housing, compared to 20 per cent under the various retirement schemes.

Around 94 per cent of HDB flats today are owned.

In this asset-based approach to social policy, homeownership is a cornerstone not just of housing policy but also social security.

Considering the amount of personal savings that have been invested in housing with encouragement from various government policies, it is no wonder the notion of HDB flats expiring with zero value attracted such controversy.


Expiring HDB flat leases raise questions about homeownership and retirement.

First, several existing policies for releasing housing equity in old age may no longer be feasible. The Lease Buyback Scheme pays a cash bonus and CPF top-up to flat owners who sell the tail-end of the lease on their flat back to the HDB. But this is only allowed for flats with at least 20 years remaining on the lease.

Another option is for retirees to sell their flat and move to a smaller place. The problem is that flats with very short remaining leases will have little value. An even more serious concern is that the owners may not be able to find buyers at all for a depreciating property.

It does not help that potential buyers of older flats face restrictions in housing grants and loans under current rules. Either way, the flat owners’ retirement finances will be squeezed.

Second, it has been suggested that as ageing HDB flats diminish in value, they offer a more affordable ownership option for people with less financial means.

This proposal envisions a future public housing system that is divided into two tiers of ownership: Newer flats that can be sold off for a profit for people who can afford to pay more, and older flats with short leases and limited monetisation potential for people with less means.

Such a system may exacerbate inequality in Singapore society. If the purchases are funded by CPF savings, the practical effect is equivalent to paying higher interest to people with more CPF savings.

In some ways, this has already started. The Fresh Start Housing Scheme, introduced to help tenants in HDB rental flats to buy their own flats, offers subsidies for 2-room flats with leases of between 45 and 65 years. But it also imposes a minimum occupancy period of 20 years, instead of the usual five years for a HDB 2-room flat bought from HDB under other schemes or from the resale market.

The scheme introduces rigidity in return for affordability. Tenants who choose the shortest lease of 45 years face the prospect of having to sell a flat with just 25 years of lease remaining should they wish to move.

The 2-room Flexi Flat Scheme allows people aged 55 and above to purchase new flats with shorter leases of 15 to 45 years. But these flats cannot be sold on the open market.

The spirit of schemes like these is to aid those who need help. Like many HDB grants and housing subsidies, they are meant to offer affordable housing options to people with lower incomes.

But they also illustrate an inevitable trade-off: Cheaper housing options are also a poorer store of value. While there is nothing wrong with purchasing an affordable flat just to meet immediate housing needs, it detracts from the principle of asset-building and does little for retirement preparation.

This is not so much a problem of housing policy as a fundamental limitation of using housing as social security.

Third, current CPF contribution rates – among the highest in the world – anticipate the funding of long-term mortgage commitments that can eventually be reconverted into retirement income.

But is it right to channel CPF savings into older HDB flats that are not clear-cut investments for retirement? And as the supply of cheaper flats with short leases increases, would it still be necessary to retain large sums of money in one’s CPF?

A conundrum arises as to whether CPF will remain the right channel to fund one’s housing needs, if the model of homeownership also starts to change.

Singaporeans would have more disposable income and may be in a better position to make individual choices on how best to finance their housing, including by renting, if employee contribution rates are lowered and income is less tied up in CPF accounts.

After all, when someone buys a very old flat, runs down the short remaining lease, then returns the flat to the HDB, there is little practical difference from renting.

In fact, tenants who rent have more mobility. They can move out anytime if they experience life changes, whereas owners of depreciating flats may have difficulties attracting buyers.

Lorong 3 geylang
Mr Yeo Chai has been living in his terrace house for 56 years at Lorong 3 Geylang, and has no plans on where to move to, after the plot of land expires. (Photo: Natasha Razak)

So it seems that out of the debate in recent months, basic questions have emerged regarding the policy rules for older HDB flats and monetisation schemes in old age. But there are also far-reaching implications for longstanding policy principles about homeownership and retirement preparation that have defined the structure of Singapore’s social security system.

In the future, we should expect the traditional lines between investment and consumption, or ownership and renting, to become less pronounced. Housing may only be an asset to some people, some of the time.

As a result, we also need to reconsider the viability of housing as social security and asset-building as a broad-based strategy for social policy.

The recent public interest in the 99-year HDB lease should therefore be seized upon as an opportunity to initiate a wider discussion and review of current policies on housing and retirement adequacy.

Ng Kok Hoe is assistant professor at the Lee Kuan Yew School of Public Policy.

The World’s Largest Economies in 2050

China and India were the largest economies in the world prior to the mid-19th century due to their large populations. In those days, economic output was a function of population rather than productivity. The industrial revolution added productivity to the equation and the United States became the world’s largest economy by 1900. Innovations in manufacturing, finance, and technology helped maintain this status to the current day.

Productivity peaked in the United States following the dot-com boom in the early-2000s and has been declining over the past decade. At the same time, globalization has accelerated the transfer of technology around the world. These trends suggest that population, rather than innovation, will once again become a key driver of economic growth. China and India will once again become the world’s largest economies over the coming years.

PricewaterhouseCoopers, a multinational consulting firm based in London, published a report called The World in 2050 in February 2017 detailing how the global economic order will change by 2050. In the report, the researchers believe that the United States economy will fall to third place—after India and China—and much of Europe will fall from the top ten largest economies. These trends could have significant implications for international investors.

Top 10 Economies in 2050
The PwC The World in 2050 report suggests that emerging markets will constitute many of the world’s top ten economies by gross domestic product (GDP) and purchasing power parity (PPP) by 2050.

The table below shows International Monetary Fund (IMF) estimates for 2016 and PwC’s projections for 2050 to demonstrate these changes.



United States
United States
United Kingdom
The PwC report also looks at the fastest growing economies between 2016 and 2050, which include frontier markets by today’s definition.


GDP Growth Rate

Position Change

5.1 percent
12 Places
4.3 percent
9 Places
4.2 percent
8 Places

Overall, PwC believes that the global economy will double in size by 2042, growing at an average rate of 2.6 percent between 2016 and 2050. These growth rates will be driven largely by emerging market countries, including Brazil, China, India, Indonesia, Mexico, Russia, and Turkey, which will grow at an above-average 3.5 percent rate, compared to just a 1.6 percent average rate for Canada, France, Germany, Italy, Japan, the UK, and the US.

Implications for Investors
Home-country Bias: Most investors tend to be overweight in investments within their own country. For example, Vanguard found that U.S. investors held approximately 29 percent more U.S. stocks than the U.S. market capitalization, which was 43 percent, as of December 31, 2010. Financial theory suggests that investors should allocate more to foreign securities, which helps increase diversification and long-term risk-adjusted returns.

The home-country bias could become even more problematic as the United States accounts for less and less of global market capitalization: If U.S. investors maintain the same allocations to foreign investments, despite a drop in the U.S. share of global market capitalization, they will have a greater home-country bias.

Investors should plan to allocate more to emerging markets over the coming years to avoid this costly bias.

Geopolitical Changes: The United States has enjoyed a leadership role in the global economy for many years, but those dynamics could begin to change with the rise of emerging markets. For example, the U.S. dollar has long been the world’s most important reserve currency, but the Chinese yuan could overtake the dollar over the coming years. This could have a negative impact on the valuation of the U.S. dollar over time and potentially destabilize the global economy if the yuan is volatile.

China, Russia, and many other emerging markets have also taken an increasingly large role in global conversations. This could present a challenge for the United States and Europe over the coming years, particularly when it comes to trade issues or global conflicts.

These dynamics could alter the current risk profile of the global markets by potentially increasing geopolitical risks as power struggles play out between countries over time.

The Bottom Line
The United States has been the world’s largest economy for a long period of time, but those dynamics are quickly changing as China, India, and other emerging markets gain momentum. Investors should be cognizant of these global changes and position their portfolio to avoid home-country bias through increased international diversification, as well as hedging against potential geopolitical risks that may arise from these power struggles.