In not-so-latest news, Minister of National Development, Lawrence Wong came out to caution people from buying older HDB flats* in hope that the government places the flats under a SERS programme under which owners of the old flat get compensation in the form of cash (with the flat valued at market rates) or a choice selection of a new flat in the vicinity.

Of course, the good minister didn’t want his words misconstrued as “all other flats not selected for SERS, which make up a majority, have a chance of their value plummeting should the leases be allowed to run its course” so he came up with additional thoughts on why HDB flats retain their value.

First thing to notice is that the good minister did not say that HDB flats are a good form of wealth enhancement. He only said “store of value” which everyone who has done econs 101 would interpret as keeping its “real value”. In other words, any monies sunk into an HDB flat will retain its purchasing power should you wish to monetise your flat. If you make money from your HDB flat, then count yourself lucky.

The second problem, which other netizens have pointed out, is that Mr. Wong’s example doesn’t reassure buyers who bought older flats which have already run through a good chunk of the leasehold life. (For details, see this link)

This brings me back to a point I made some time ago. Most Singaporeans sink their CPF monies into their property. If your property is going to, at best, hold its value, you better think twice about counting solely on your property to retire.Even

Even monetising your HDB flat through the HDB’s lease buyback scheme where you trade the remaining years of the lease for a monthly income has problems. First, the payouts are not inflation-indexed. Second, inflation for retiree households tends to be higher as healthcare and transportation are two of those components in CPI that rise faster than the average component in the basket. In short, fixed incomes and rising costs don’t make a sound retirement plan.

 

Notes:

*HDB or Housing Development Board flats are Singapore’s form of public housing. The flats are of decent size (compared to places like Hong Kong), decent quality and generally cheaper on a dollar per square foot basis compared to private property. However, all HDB flats are on a 99-year lease from the government. At the end of the lease, the flat is returned to the government. However, with Singapore being such a young country, there hasn’t been a single case of whether the government pays any compensation for taking the flat back or the value of the flat goes to zero.

 

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