SDP's Non-Open Market flats: Experts give their take
On Sunday, the Singapore Democratic Party (SDP) released a paper proposing a radical change in the public housing system.
Chief among their suggestions is building a new class of 99-year lease flats called Non Open Market (NOM) flats. These would be sold at prices that do not factor in land cost, and can only be sold back to the Housing Board.
Existing HDB flats would be known as Open Market (OM) flats and can be sold on the open market.
They have also suggested creating a buffer of NOM flats to cater for periods when demand is high; that priority be given to first-time applicants with young children; and that the lease buyback scheme for senior citizens be converted into an annuity scheme.
Singapolitics asked four experts for their views on the suggestions:
More affordable, but also more divisive
Mr Yeoh Lam Keong, vice-president of the Economic Society of Singapore and independent economic consultant:
In terms of its stated objective, which is to provide affordable housing, the writers have come up with a viable solution. With the NOM flats, they are essentially de-linking first-time buyers from the private market. If we continue with the current system, HDB prices will keep increasing, pulled up by private property prices and/or the Government will have to keep increasingly large subsidies if it values land at rising market prices. So the smart thing to do is to cap the rising costs in a more rational way.
The writers suggest that land costs at market prices should not be factored into the NOM flats' pricing. This is fundamentally sound for public housing in Singapore. The Government already owns over 80 per cent of the land, most of which was purchased historically well below current value. So it makes sense to assign some of this land to NOM housing, and in this way give a more accurately smaller subsidy in a transparent manner for a good social priority - affordable housing for citizens. As the citizen population also faces finite growth and will demographically shrink after 2020, this seems like a viable and affordable proposition.
My disagreement with their proposed NOM system is that a NOM flat owner can only sell the flat to the Government. This seems overly restrictive. Over time, this could unintentionally create two classes of citizens: those who are stuck in the NOM system, and everyone else who can benefit from asset appreciation on their houses. It can thus potentially accentuate existing class differences as well and be socially divisive.
One solution is to allow buyers to sell their NOM flats on the open market either 10 years from the purchase of their first NOM flat, or five years after their last NOM upgrade.
All of these measures would ensure that the NOM and OM markets are sufficiently segmented so that there won't be short term speculation, but still allow citizens to have some form of long-term investment.
A scheme that requires Big Government
Nicholas Mak, executive director of research and consultancy at SLP International
What this NOM scheme amounts to is the Government creating and managing more rental flats. It would be a system which is more centrally controlled and more socialist, and it requires Big Government. It will have to hire more people to monitor and manage the system.
There is some merit to the system. The Government could look into expanding the current stock of rental flats, as there is a need for such flats as interim housing for those applying for BTO flats, and generally there is a need for better quality rental flats. So this NOM scheme could possibly solve this issue as a permanent pool of rental flats.
The question is how would they be able to fund all of this? I suspect it would have to come from the national reserves.
One problem is that if this scheme is opened to all citizens, more well-off people can also afford it. They can keep their spare cash to invest in other places. In this case, taxpayers will be subsidising more of these people which may not be very fair. Demand may outstrip supply, and the Government has to hire more people to police this problem.
The current lease buyback scheme is not taking off right now because of the financial mathematics behind it: if the value of the flat is low at the start, the amount of money they can get is very low also so people tend to hold on to it just in case they outlive the lease. The financial incentives proposed by the SDP are still not attractive enough to overcome this.
Proposals do not take into account actual costs
Mr Mohamed Ismail, chief executive officer of PropNex Realty:
The proposed SDP housing policy paper is interesting. However, it has numerous flaws.
It may seem like the NOM flats are priced affordably, in covering the costs of construction and administration. However, it failed to factor in the costs of building the township like the infrastructure, facilities and amenities in the neighbourhood. The proposed pricing of the NOM flat is not truly reflecting the actual costs of building a township.
This policy proposal will create a divide in the lower-income and the rich, resulting in a ‘class system”. In fact, the lower-income Singaporeans will be deprived of an asset (in this case, a property) to keep pace with inflation and enjoy its capital appreciation.
Indeed, the NOM lease buy-back scheme is equivalent to allowing Singaporeans to rent a flat, which is also available in the current market. Homeowners of these NOM flats will not take the effort to renovate their homes or to enhance the value of their asset. It only serves as an empty-shell in fulfilling the basic need for shelter. The plan does not factor in the fulfilment of a typical Singaporean’s aspiration of having a dream home.
In summary, the proposed housing policy is not totally holistic; SDP has to further address some of these flaws.
Gives people a choice, but will they choose it?
Mr Colin Tan, research head at Chesterton Suntec International:
The SDP’s proposal allows you to opt out of the investment element of buying an HDB flat, so you can just go for basic housing. So in that sense that is a good idea to think about, because it gives people a choice. And it provides a cheaper option, because their NOM flats are about half the price of current flats.
One issue is that with the low pricing, the NOM flats will be more popular during periods where property prices in general are more expensive. They are suggesting a buffer, and HDB will have to pay for the cost of maintaining vacant flats. But that’s a price worth paying to maintain overall stability in the market.
But I don’t really know how many people will want to opt for this. I feel Singaporeans may really like the idea of owning property as an investment, and most people still believe that Government is doing a good job and the economy is still growing, so you are assured of capital appreciation.
All the other schemes sound okay, but it’s also a question whether people can bring themselves to accept them. For example the lease buyback scheme for senior citizens, even with an annuity, I’m not sure if people will take it up because there is still a stigma about speculating on the date you will die.