Outdated ideas on home ownership and land shortage are crippling us (Singapore)

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Luckily most of it is available elsewhere. Since Chua Mui Hoong calls this a "Must read piece on the Hdb lease issue", I am filling in the gaps:

Outdated ideas on home ownership and land shortage are crippling us
Ku Swee Yong
Buyers of HDB flats must accept that these flats are sold on leases that decay to zero at 99 years

With the recent cooling measures introduced for the private residential market, discussions around the decaying value of Housing Board (HDB) flats aged over 40 years have quietened down for a while.

While the Government has said this is an issue it will study, as resolving it requires serious trade-offs, my concern is whether we may be tempted to kick the proverbial can down the road for future generations to inherit the consequences. As a society, we may be too wedded to outmoded ideas to tackle the issue realistically.

The truth is, as government ministers have said, that addressing the issue head-on requires Singaporeans to accept that any good solution will involve some pain and sacrifices for some of us. If not us, our children and their children will have to suffer the pains.

But how ready is Singapore to deal with the issue?

For example, many Singaporeans view their prized HDB flat as an asset whose value must appreciate, and make plans accordingly. This is not necessarily the wisest decision with a rapidly ageing population, where an increasing number of baby boomers will die as they age and add a significant supply of old resale flats to the market.

Meanwhile, the rhetoric of HDB flat ownership continues to be promoted on websites and official publications that talk about “buying” an HDB flat and becoming a flat “owner”. The Government continues this narrative of home ownership, when in fact those who pay for a new HDB flat are lessees for its 99-year term.

When the issue arose for public discussion some months back, HDB explained that flat buyers are owners, not just tenants. This is why they are allowed major renovations to suit their own tastes. The other explanation is that rental rates do not go up over 99 years, so the buyer is actually an owner, not just a lessee.

But in fact, a tenant can be allowed to renovate the premises extensively. I rented my office space and I renovated it to suit my tastes and my operational requirements.

As for the rental argument, if a tenant paid the full 99 years of rent upfront, in a lump sum, why should the monthly rents be expected to move up?

Any “buyer” of HDB flats who has signed official documents knows that the contract is a lessor and lessee contract. Consistent with most rental contracts, this contract grants the tenant a right-of-use and peaceful enjoyment of the premises for 99 years from when the HDB flats are completed. In the case of a “resale” HDB flat, the right-of-use and enjoyment is transferred, with its remaining lease tenure, to the next tenant.

However, unlike most residential rental contracts, the HDB lessee is responsible for paying maintenance fees and property taxes. Such terms can form any rental negotiations for private residences. It is not set in stone that landlords or tenants must foot the property tax and common area maintenance bills.

How about the argument that HDB flats are owned by their buyers, and this is why they are allowed to mortgage the flats?

But here again, it should be noted that long-term leases may be pledged as security to banks, such as the 30-year leases of factories in Singapore. In the United States, Toys ‘R’ Us collapsed in a mountain of debt secured against their long-term rentals of retail malls. So the argument that a mortgage indicates ownership is also flawed.

Singaporeans – citizens and the authorities alike – need to alter the language we use and the outdated mindset we cling onto.

I would recommend that we be honest with ourselves and recognise that we are merely lessees who rent the HDB flats for their terms.

We should change the words we use to describe HDB flats – from “buy”, “sell” and “owner”, to “lease”, “transfer lease” and “tenant”.

We should also question the concept of using HDB flats as a hedge against inflation, if they are merely depreciating leases.

Another concept that interferes with a proper understanding of ownership and decaying values of HDB’s flat leases is the idea that Singapore is in dire shortage of land. Most people are confused over private land sale on 99-year leases, and renting out HDB flats for 99 years.

The idea of land shortage is a planning assumption that was valid during the days of rapid growth during nation building, but is becoming more irrelevant today.

Singapore has expanded by more than 2 sq km per year for the last 59 years. Meanwhile, improvements in urban planning, the increasing plot ratios of HDB estates, and the release of massive new sites in the future will free up more land.

According to the HDB Annual Report 2016/17, existing HDB towns can house another 490,000 residential units. Bidadari, Tampines North and Tengah Forest Town are three new sites that started development in the past three years.

Beyond 2030, Paya Lebar Airbase and the Greater Southern Waterfront at Pasir Panjang may add over 200,000 housing units. With the flight path of Paya Lebar Airbase removed, plot ratios in Aljunied and Hougang will increase, examples of which we can already see from changes to the master plan made to the Aljunied neighbourhood.

As I argued in an earlier article in 2016, the result is that land can be used more intensively. The current stock of 1.3 million units can be expanded, to house a bigger population of up to 10 million. This is not to say we should aim for such a population figure; my point is that increased land use density and the opening of new towns can significantly add to our housing stock.

In conclusion, Singaporeans should accept the immutable fact that HDB flats will be returned to the Government with zero residual value after being leased out for 99 years. HDB will then recycle the land for more appropriate and higher density use in the future.

Only by discarding the dead weight of outdated ideas about home ownership and land shortage will we find progress.

* Ku Swee Yong is a licensed real estate agent with International Property Advisor Pte Ltd and the co-founder of HugProperty.com