What you need to know
[OPINION] How Singapore's pension-housing financing model squeezes its citizens.
Singaporeans are slowly coming to the realization that their dreams of “owning” their own homes are just that, dreams.
The country’s public housing programme has received wide acclaim but all is not what it seems. Even Singapore’s ministers are throwing shade at Singaporeans.
In March this year, Minister for National Development Lawrence Wong wrote on the ministry’s blog that for the “vast majority” of the public housing flats that Singaporeans “buy,” “the leases [of these flats] will eventually run out, and the flats will be returned to HDB, who will in turn have to surrender the land to the State.”
HDB is the Housing Development Board, the government agency that oversees Singapore’s public housing programme. According to the HDB, 80 percent of Singaporeans live in HDB public flats, and whom 90 percent of them “own” the flats.
Wong then dropped the bombshell on Singaporeans: “as the leases [of the flats] run down, especially towards the tail-end, the flat prices will come down correspondingly.”
So what does this mean?
“The Minister confirmed that the value of the flats will be zero at the end of their 99-year lease,” opposition politician Gerald Giam from the Worker’s Party explained – he had asked the then-Minister for National Development Khaw Boon Wan a similar question as well in 2013.
Giam explained: “all HDB [public housing] flats are sold to Singaporeans on a 99-year lease. We are technically not home owners, but lessees.
As such, Giam said, “I asked the Minister for National Development, during the 20 January 2014 Parliament sitting, what the value of HDB flats would be once their leases expire.”
The then-Minister for National Development Khaw said: “like all leasehold properties, HDB flats will revert to HDB, the landowner, upon expiry of their leases.
“HDB will in turn surrender the land to the State.”
This was what Wong said too. Khaw had in 2013 said what Wong said this year. But it took Singaporeans four years for the reality to sink in, and for them to take notice.
High prices, zero value
Singaporeans will no longer “own” their homes. The homes that they pay one of the highest housing prices in the world to “buy” will have zero value.
But Khaw added that there is a “Selective En bloc Redevelopment Scheme (SERS) [which] is part of the Government’s estate renewal strategy for older estates.
“It offers an opportunity for flat owners to buy a new replacement flat with a fresh 99 year lease,” he added.
For a while, it looked like there was a way out. Khaw said this in 2014.
But four years later, in March this year, Wong put the lid on any such hope. He retorted: “please do not assume that all old HDB flats will be automatically eligible for SERS.”
He dropped another bombshell: “only 4% of HDB flats have been identified for SERS since it was launched in 1995.”
In other words, at the current pace that SERS is being implemented, 96 percent of HDB public flats will most likely have their leases run out, these Singaporeans will no longer own their homes, and their homes will have zero value.
There were some unhappy comments on Wong’s Facebook page where he shared the blog post.
Yj Zhao said: “unfortunate citizens who outlived their flats [w]ill be homeless, [this seems to be] the implied message. [… The] possible solutions for Singaporeans should be debated robustly as this is a national issue. We cannot leave it to doubt that some of us [w]ill be kick[ed] out of our public flats that we bought at a relatively higher price from [the] previous generation.
“Please be sensitive to our feelings, deal with the difficult issues [with] a win-win situation,” he added.
But Zhao has to understand that this is a lose-lose situation for Singaporeans.
Chia Johan added: “so [this] means that once the time is up for the lease of the flat, we must give [our flats] back [to] the government with nothing coming back into our pockets?”
“Then [it’s] not worth [it to] buy [the public flats because] after 99 [years because the government will] take back [the flat], [then it is] better [to] rent [a] house,” Mike Lee Meng added.
“[The government] keep[s] saying [that it wants to] improve [our] living environment [but does it] mean nothing???” he continued.
But Cynefrid Pua made the most pointed comment: “Dear Minister, in [other] word[s], our house [will] actually depreciate[s] and not appreciate in the long run?
“So buying [a] house in Singapore is a liability and not [an] investment?” he asked.
Again, this smacks in the face of what the Singapore government had previously said.
In the 1990s, the government began “upgrading” HDB flats. Former Prime Minister Goh Chok Tong said in 1995 that, “the upgrading programme is the way to share some of our country’s wealth with you.”
Goh added: “it is to enhance the value of Singaporeans’ assets. [...] They will have the value of their homes increased through the upgrading programme.”
And then he coined the now-famous phrase: “Now, in the 1990s, we embark on a new phase where the Government increases your asset value through the Assets Enhancement Programme.
“It is a concrete demonstration of how the Government can make you wealthier through its Assets Enhancement Programme,” Goh said.
But Goh’s “asset enhancement” pronouncement is now widely mocked.
In his book, Ngiam Tong Dow who is a current Adjunct Professor at the Lee Kuan Yew School of Public Policy and who became Singapore’s youngest permanent secretary in 1972 at the age of 35, and served in the Prime Minister’s Office and several other ministries, as well as being the chairman of the HDB and CPF Board – so he knows what he was talking about – he revealed that when the upgrading programme was first conceived, "the clear intention was for the lessee to pay 50 percent of the cost, with the other 50 percent from the government.
But to qualify for the upgrading schemes, there needed to be a 75 percent majority to vote for upgrading, and to secure that vote, the share of the lessee was reduced from 50 percent to nearer 20 percent.
“Even then, in one or two polls in recent years, the HDB could not secure the 75 percent majority to proceed. The reason was simply that the increase in the resale value of the flat after upgrading has of late been less than the cost of upgrading.
“So much for asset enhancement in property," Ngiam mocked.
Tay Kheng Soon, who is a current Adjunct Professor at the National University of Singapore, gave an interview to Singapore’s cable news television Channel NewsAsia and said, “unfortunately, somewhere in the 80s and 90s, the narrative changed. It became asset enhancement. This is a big mistake. Because the issue of asset enhancement has changed the people’s expectations. People are now doing what S. Rajaratnam had voiced, had feared. An issue which Rajah said in the early days called ‘Moneytheism’ - worship of money.
S. Rajaratnam was Singapore’s former deputy prime minister from 1980 to 1985.
Tay added: “It was brought up in Parliament recently. It alarmed everybody because of the false expectation that was created - asset enhancement. People believed that. Such is the trust that people have in the Government. Believing that the asset will be continuously enhanced.
“It’s not going to be enhanced. It’s going to drop off,” Tay said.
And the government has finally admitted to this as well.
In fact, Professor Joseph Cherian with the National University of Singapore Business School, computed that a HDB flat’s value would peak at the 66th year of its lease and then start to drop off, declining to having zero value at the end of the 99-year lease. But it is likely that people would stop buying a resale flat way before the prices drop off, which means that even by the 50th year, the resale flat could no longer be sold at a higher price. Resale flats are HDB public flats which are re-sold by their “owners” – or rather, lessees – on the open market.
On his blog, opposition Secretary-General Chee Soon Juan of the Singapore Democratic Party (SDP) – an equivalent to the United Kingdom’s Labour Party – also questioned: “in the face of such uncertainty, how is the PAP going to make good on its asset enhancement promise?”
This is especially so, since “when the 99-year lease is up, a flat […] becomes worthless.”
Perhaps then it is most laughable that when the Worker’s Party came out with a housing proposal during the 2011 General Election to build cheaper flats, that then-National Development Minister Mah Bow Tan criticised it an “asset devaluation policy”.
It turns out that it is the current ruling government which has been in power for nearly 60 years now which has a housing policy that should be rightfully categorised as an “asset devaluation policy”.
The “asset enhancement program” that both Goh and Mah likes to champion is turning out to be the “asset devaluation policy” that Mah mocked the Worker’s Party for.
In fact, it now seems that it is the Worker’s Party which has a more far-sighted housing programme. The Worker’s Party had proposed to peg new HDB public flat prices to the median incomes of households instead of to resale flat prices. Opposition Singapore Democratic Party (SDP) proposed that “public housing [should only be] sold under the principle of cost-recovery [… and where] buyers will pay substantially lower prices (by as much as half of current prices) because the HDB will only recover the costs of construction and administration, and no more.”
But whose bright idea was it to price new flat prices to resale flat prices?
Mah had said in 2010 in Singapore’s newspaper Today: “Owning an HDB flat gives Singaporeans an asset that grows in value along with the country’s progress.
“We must allow this value to be realized upon the sale of the flat in the open market,” he added.
But what would Mah say now to HDB flat prices that would depreciate in value – along with the country’s progress, something that he would have known all along?
Assets over incomes
But even current Prime Minister Lee Hsien Loong has continued to propagate such a notion to Singaporeans.
In 2012, he said at the Economic Society of Singapore Annual Dinner: “Unlike most other countries, we have emphasized boosting Singaporeans’ assets more than incomes. In particular, our HDB program has been a major means of uplifting our people. The large majority of Singaporeans own their homes, including low-income households. They have used their CPF savings and received very generous subsidies from the Government.
The CPF is the Central Provident Fund or Singapore’s public pension scheme. Singaporeans use part of their pension funds to finance the HDB flats.
Lee added: “in fact, households in the lowest income quintile (20%) have on average more than $200,000 of equity in their HDB flat! This is the direct result of government policy.”
It should become clear by now that what this may really mean is that the lowest income quintile has an average of more than S$200,000 in liability, of which the flat would be losing its value.
And as can be alluded to, it is thus “the direct result of government policy” that Singaporeans will be losing their homes.
Debate rages on
Even so, Wong is adamant. He tried to salvage the situation in a Facebook post a month after his blog post.
Wong continued to claim that HDB flats are “a good store of asset value, so long as you plan ahead, and make prudent housing decisions.”
One wonders what Wong meant when he had also said on his previous blog post that, “as the leases run down, especially towards the tail-end, the flat prices will come down correspondingly.”
Can a flat where its “prices will come down correspondingly” also be “a good store of asset value.” There is no logic to this, no?
As Belinda Peck said on Wong’s post, “I read your blog but it doesn't make sense to me. In your example of a 30-year-old couple who can buy a HDB resale [flat] with a [lease of] 65 years […] or longer, how can the property appreciate in value over time? Assuming the couple reaches 60 years old and decide to either downsize or move in with their children, how is it possible for this couple to sell their HDB flat at an appreciated value, when the lease life would then be [about] 35 years, since you mentioned that the value will go down as the lease life moves to maturity?”
But Wong said: “The general point is that your HDB leasehold flat is […] a good home.”
But this is precisely the point. Singaporeans do not “own” their homes – they are only leasing it. Nowhere in his Facebook post does Wong mention anything about Singaporeans “owning” their homes.
In fact, he titled his Facebook post: “Leasehold Properties as Assets.”
Doomed to fail?
It is a silent admission that Singapore can no longer sell its “home ownership” program, as it is becoming clearer to Singaporeans that they do not actually “own” their homes and will lose their homes after 99 years.
Cynefrid Pua caught on this and commented on Wong’s Facebook post: “Sir, I guess what we have is not a national home ownership scheme. It's just a national transferable home lease scheme. I propose we should do the right thing and not mislead the populace. I guess [that] now [for] most of the old flats, demand will drop, [r]esulting in [the] HDB resale market crash[ing]? Thanks for reminding us that our house is not an appreciating asset but a depreciating asset, [which is n]ot much better than a car.
As Lakes Oliver commented on Wong’s post, “what asset are you talking about when [the HDB flat] does not belong to you after 99 years [of] lease? I refuse to buy your story.”
But Singaporeans are only beginning to realize the truth of things.
The HDB was set up in 1960. HDB’s mandate at that time was to provide cheap public housing for Singaporeans for rent. But in 1964, the Singapore government changed tack and decided that it would start “selling” the flats instead.
Perhaps what Singapore's first Prime Minister Lee Kuan Yew said in 2000 might provide some insight to the rationale behind Singapore's public housing program.
He said: "My primary preoccupation was to give every citizen a stake in the country and its future. I wanted a home-owning society. I [...] was convinced that if every family owned its home, the country would be more stable.”
With the knowledge now that Singaporeans do not actually “own” their homes, what of the older Lee’s belief then?
The late Lee continued: “I had seen how voters in capital cities always tended to vote against the government of the day and was determined that our householders should become homeowners, otherwise we would not have political stability.”
Was the SDP’s Chee right then?
Chee had said that the current ruling party – the People’s Action Party (PAP) – had tried to bolster its “grip in politics through [t]his asset enhancement and HDB upgrading schemes.”
But the late Lee continued: "My other important motive was to give all parents whose sons would have to do national service a stake in the Singapore their sons had to defend. If the soldier's family did not own their home, he would soon conclude he would be fighting to protect the properties of the wealthy. I believed this sense of ownership was vital for our new society which had no deep roots in a common historical experience."
But yet again, what now if Singaporeans do not “own” their homes? Are they really just fighting to protect the wealthy?
This nest egg may be rotten
Interestingly, under the Income Tax Regulations, under the provisions relating to HDB flats, it is stated that the “HDB flat is directly sold by the HDB to a lessee.”
Also, a “lessee,” in relation to any HDB flat, means a purchaser of a leasehold interest in the flat and includes a purchaser under an agreement for lease of the flats.”
But Prime Minister Lee Hsien Loong continued to sell the idea that Singaporeans “own” their homes.
In 2011, Lee said during the Debate on The President's Address in Parliament that, “the most important thing we do for Singaporeans of course is to help every family own a home, a HDB flat […] and to give them a valuable asset and a retirement nest egg.
But is it still an asset, or is it a liability? Lee also repeated what his father – Singapore’s first prime minister – said.
“We are using the HDB flat as a means to give every Singaporean household a stake. This (the house) belongs to me, this is what I am going to work for and help pay for, this is what I am proud of, this is what I will defend,” he said.
In a dialogue session at the Singapore Symposium at the Taj Palace Hotel in India in 2012, he also spoke about how the government “enabl[ed] 85- 90 percent of Singaporeans to live in public housing and of those 90 plus percent owning their own house and having some substantial equity to their names.”
But again, do Singaporeans really “own” the flats?
At the end of 99 years, Singaporeans no longer have ownership over the flats they “bought.” The ownership is returned to the HDB, which in turn returns the land to the government.
When questioned in parliament last month, Law Minister K Shanmugam said, “generally, land will revert to Government upon expiry of a lease. The land will then be re-allocated, in accordance with planning guidelines.”
Could the government perhaps extend the 99-year lease then?
But to this, Shanmugam revealed that since 2008, only seven residential developments had their leases renewed and topped up to 99 years – just seven, mind you! And there is no information on whether these residential developments were public or private housing.
Shanmugam added that in these cases of lease renewals for the seven residential developments, “the property owner will have to pay a lease renewal premium upfront in order to effect the lease renewal.”
Public anger building
Two weeks ago, Singapore’s broadsheet The Straits Times reported on another news item which angered some Singaporeans.
The Straits Times reported, “freelance tutor Thomas Zhuo and project manager Jasmine Ong "lived like students" in their 20s, putting aside more than half of their take-home pay so that they could get their own home by the age of 27.”
It added: “At 27, they got the keys to their Built-To-Order five-room Housing Board (HDB) flat in Punggol. They have enough savings to pay off their 30-year housing loan of S$230,000 today, should they need to.”
In order to do so, they “would spend S$30 a week on food, [… and] cut down on movie dates and went on one or two holidays a year. […] They used to spend S$10,000 a year on holidays, but have cut that down by half to save for the renovation.”
On The Straits Times Facebook page, where the article was shared, at the time of writing there were more than 2,300 reactions and 1,384 shares, with many of the 392 comments lambasting the paper.
Ron Ng said: “[Please] report something that [the] majority of us are facing rather than the rare ones. Face it la[h], living in [Singapore] is [expensive], [I am] not complaining but stating the fact.”
“This article is just another [government] propaganda,” Paul Tham also commented. “The numbers don't add up and it's beyond belief to survive on just $30 a week.”
In a comment that has received 367 reactions, Vincent Tayy did his own calculations and estimated that to be able to save S$230,000 in 4 years, the couple would have to save S$57,500 a year or S$4,791 a month. He said: “they must have high income[s] and no commitment. If your income is [S$5,000] then why not[?] How many people take back [S$5,000] per month[?]”
Debbie Takumi also did her own calculations and estimated that, the couple would need to “save approximately [S$2,400] each a month in order to pay off their loan in 4 years. That's more than what an average [S]ingaporean earns... even by working [l]ong retail or shift hours, the average pay is around [S$2,000] excluding commissions. So that's fairly hard for the average citizen to achieve that kind of monthly savings.”
Of course, the S$230,000 figure accounts for only the housing loan. Where the couple would have needed to pay between 10 percent and 40 percent in down payment, the flat would cost them between S$250,000 and S$390,000.
But as Tayy opined, “how many people take back S$5,000 (US$3,620) per month?” In fact, the median wage in Singapore was only S$3,467 (US$2,500) in 2015. Worse still, there were still 8 percent of Singaporeans earning less than S$1,000 (US$720).
To put this into perspective, Singapore has been ranked by The Economist as the most expensive city in the world for the fourth year in a row now, and when you look at countries with a similar cost of living, Japan has a minimum wage of about US$1,250, in Tokyo, it is about US$1,400; Australia’s minimum wage is about US$2,140, and in Luxembourg, it is EUR 2,308 (US$2,590). In Switzerland, the “minimum wages in various low-pay sectors were […] 3,000 francs (US$3,090), and the minimum rate in the construction industry in other high-income countries like Denmark is EUR 2,425 (US$2,720), EUR 2,622 (US$2,945) in Sweden and EUR 3,027 (US$3,400) in Norway.
This means that about a quarter to a third of Singaporeans earn less than the minimum wage in Japan, and close to half of Singaporeans who earn less than the minimum wage in Australia, with more than half earning less than low-income workers in Denmark and Luxembourg, while 60 percent of Singaporeans earn less than the low-income workers in Sweden and Switzerland, and a staggering 70 percent of Singaporeans who earn less than low-wage workers in Norway.
In short, a quarter to 70 percent of Singaporeans earn less than low-income workers in these other high-income countries.
Or in other words, if you earn a median wage of S$3,500 in Singapore, you are considered a low-income worker – or not even one – in Australia, Denmark, Luxembourg, Norway, Sweden and Switzerland.
According to the World Bank, Singapore’s GDP per capita in 2015 was US$52,889 while in Sweden and Denmark, the GDP per capita in these countries were comparable, at US$50,585 and US$53,015 respectively. However, there are still 8 percent of Singaporeans who still earn less than US$720, and 50 to 60 percent of Singaporeans who earn less than the minimum rate wage in Denmark and Sweden.
Priced out of the market
But what about housing prices?
In Singapore, the median “price” for a new Build-To-Order (BTO) 4-room flat is between S$236,000 (US$170,290) and S$475,000 (US$342,740) in May this year, and the median resale price of a 4-room flat is between S$350,000 (US$252,530) and S$811,500 (US$586,760) for the first quarter of 2017. Note that all these prices are for public flats.
In Japan, average detached house prices were going for JPY33,700,000 (US$301,910) in Tokyo in the first quarter of 2017. In Osaka, it was JPY20,660,000 (US$184,550). In Sweden, the average price of a house in Stockholm was 5,500,000 SEK (US$633,050) between May and July of 2016, and it was 2,800,000 SEK (US$322,300) for the whole of Sweden. The Global Property Guide also showed that in Denmark, “nationwide, the average price of owner-occupied flats stood at DKK2.02 million (US$304,690) in March 2016” while it was DKK2.32 million (US$349,930) in Copenhagen. And in Norway, according to the Global Property Guide, “the average price of dwellings sold was NOK 3.5 million (US$ 413,800) in the last quarter of 2016”. In Australia, the mean price of residential dwellings in Australia was AU$623,000 (US$460,230) in June 2016, which ranges from AU$320,000 (US$237,960) in Tasmania to AU$880,000 (US$654,380) in Sydney. Switzerland is an outlier, where the median asking price for single-family homes were between CHF 1.11 million (US$1.1 million) and CHF 1.62 million ($1.7 million).
When you compare the prices of Singapore’s housing prices – for public housing, mind you – with that of these other high-income countries, Singapore’s median price of between US$170,290 and US$586,760 sit in the range of between US$184,550 and US$654,380 in these other high-income countries, sans Switzerland.
As a comparison, the homeownership rate in Australia, Denmark, Japan and Sweden is between 50 percent and 80 percent.
On the nose
If it is not immediately apparent, Singapore’s public housing prices cost as expensive as some of the world’s most expensive private property. Already, Singapore’s private housing prices already rank as the 10th most expensive in the world, but Singapore’s public housing prices would in all likelihood rank in the top 20 or arguably as the most expensive public housing in the world.
But where 8 percent of Singaporeans still earn less than S$1,000 and as many as 70 percent of Singaporeans earn less than the low-income workers of these other high-income countries, it is outrageous that Singaporeans also have to pay one of the most expensive prices for housing – not least public ones – in the world.
Thus when the Singapore Prime Minister claimed his government would “keep HDB flats affordable and accessible to all Singaporeans,” this was something of a smack on the face for many Singaporeans.
What’s more, if you buy a home in these other high-income countries, for most of the time you own your home – like really own your home – and it belongs to you freehold. In Singapore, the home you “buy” – you don’t really own your home – is only yours for 99 years. Yet, Singaporeans have to pay as expensive prices as these other countries to “own” homes which they can only “own” for a fraction of the time – for a finite 99 years.
The logic simply does not work no matter how you look at it – how are Singapore’s public housing flats “affordable” when they are not affordable. Why are Singaporeans paying one of the highest prices in the world for their public housing – and the same as other high-income countries for private housing? Why do Singaporeans earn the lowest wages among the other high-income countries but pay one of the most expensive housing in the world, and for public ones at that? Why are Singaporeans paying one of the highest prices in the world for their public flats, when they are only allowed to lease them for 99 years? There are many more “whys” you can ask, but the housing financing situation in Singapore simply does not make logical sense at all. But the logic does work in Singapore, or at least Singaporeans have somehow willed themselves to believe in such a distorted logic that the Singapore government puts out. Well, good luck to them.
No wonder about low purchasing power
Taken together with how Singaporeans pay the highest social contribution of their wages for pension (CPF) in the world but get back one of the least adequate pension returns among the OECD and Asia Pacific countries, how Singaporeans pay for one of the highest social contribution of their wages into health (Medisave) in the world but get back arguably the lowest returns in the world for healthcare while the government profits immensely from Singaporeans’ contributions, and where Singaporeans yet have to pay the highest out-of-pocket expenditure for healthcare, when converting to purchasing power parity, and where Singaporeans pay for the world’s top 10 most expensive university education, and where because Singaporeans earn the lowest wages among the high-income countries and where Singaporeans pay for one of the world’s most expensive housing, and arguably the most expensive public housing in the world, it is no wonder that as early as 2011 that the UBS Prices and Earnings Report ranked Singaporeans as having the lowest purchasing power among the developed countries, and equivalent to Kuala Lumpur in Malaysia.
In a report by the Singapore Management University’s Lien Centre for Social Innovation, it was estimated by academics and economists that 20 to 35 percent of Singaporeans are living in poverty. And according to the HDB, “for families who are unable to afford home ownership and have no family support, HDB offers public rental flats. The monthly household income ceiling to rent an HDB flat is $1,500.”
Last month, Senior Minister of State for National Development Koh Poh Koon revealed that, “there are about a million HDB flats, of which about 56,000 are rental flats comprising a mix of 1- and 2-room apartments.” But this means that only 5.6 percent of the flats in Singapore are available for low-income families.
But where it is estimated that as high as 35 percent of Singaporeans could be living in poverty, with only 5.6 percent of flats available for low-income Singaporeans, this is quite out of whack.
On top of that, HDB's claim of ensuring that "vulnerable groups in society [...] can depend on HDB for extra help,” and that it will “actively work […] to promote [… a] secure, happy, and harmonious” community is now being called into question.
Last month, The Straits Times reported that a single mother had to resort to adopting her own biological child. The Straits Times reported that Ms Tan “initial impetus for the adoption was the Baby Bonus cash gift and the Child Development Account (CDA) of up to $6,000,” which are financial incentives the government introduced and aimed at increasing Singapore’s fertility rate, which has become one of the lowest in the world, understandably.
Ms Tan explained that after adopting her own child, “I noticed more benefits.” The paper noted that financial incentives were “extended to children of unwed mothers born from September last year.”
Initially, the Ministry of Social and Family Development (MSF) said: "Government benefits that support the growth and development of children are given to all Singaporean children, regardless of their legitimacy status."
However, two weeks later, the MSF did an about turn and told The Straits Times: “benefits such as the Baby Bonus cash gift and housing benefits are tied to the parent's marital status. The benefits will not be extended even if an unwed mother adopts her own child, as they are meant to encourage parenthood within marriage”.
The MSF said that single mothers who would need more support could approach them for help. But The Straits Times reported that, from 2014 to last year, of the 400 appeals that HDB received from single parents to buy flats, only a fifth were approved.
The Straits Times interviewed a 42-year-old woman who said: "I understand the Baby Bonus is an additional incentive but I'm asking for basic things, like a roof over our heads. But even though I've adopted [my child] to make him legal, HDB still wouldn't give us a house."
Opposition Singapore Democratic Party also called out the unfairness and said that, “in order that equal opportunity be given for single parents and their children to succeed in life, it is imperative that they have a stable roof over their heads and a nurturing environment they can call home.”
What was perhaps shocking was that Paulin Straughan, an Associate Professor at the National University of Singapore whose research interest includes studying families, also seemingly supported the government’s stance: "these are pro-family schemes to encourage younger Singaporeans to get married, then to have children - it's very clear.” Straughan was previously an unelected member of parliament, who was nominated to being one by a Special Select Committee chaired by the Speaker of Parliament, who is also a member of the current ruling party.
Gender equality advocacy group Aware blasted the MSF and “highlight[ed] the inappropriateness of branding children “illegitimate” and penalising their families.”
It also launched a petition to urge the Singapore government “to make the rules and system more inclusive, including to allow “unmarried mothers to form a family nucleus with their children to apply for HDB housing.” The petition had garnered 4,768 signatures at the time of writing.
Lawyer Eugene Thuraisingam who specializes in human rights law, shared the petition on his Facebook and wrote: “for there to be any proper solution to the matter, it must be for the Government to end its discriminatory practice. It is difficult for private citizens, as well meaning as we may be to contribute in a significant way.
“So while we will continue to work on our own solutions, it is sensible also if we could all try to talk some sense to and convince the Government that we Singaporeans want them to share our sense of justice and fairness and end this discriminatory practice,” he added.
Opposition Dennis Tan from the Worker’s Party also said in parliament: “the government may think that they are just penalizing single parents. But actually, the government is making lives harder for the innocent children of single parents for they have to grow up with more challenges and fewer resources.
“This should be about ensuring better and fair support for their children. These children are Singaporeans, sons will serve National Service and daughters will continue to bear and nurture future generations for Singapore,” he added.
Indeed, did not both Prime Minister Lee Hsien Loong and Lee Kuan Yew also said that the aim of the HDB flat was to give Singaporeans something to defend?
Tan added: “See the value, not the cost. We should acknowledge the value that these children will bring to our country, our people and our economy. When one sees the value then the cost becomes insignificant, the stigma becomes unnecessary.
“Give these children the same opportunities as others, without the stigma,” Tan said.
Ng Kok Hoe, an assistant professor at the Lee Kuan Yew School of Public Policy, and Teo You Yenn, an associate professor and head of sociology at Nanyang Technological University, chimed in, in an opinion piece in The Straits Times this week, where they pointed out that in research projects they have conducted, other than single parents, “divorcees who are required to sell their matrimonial flats have to wait three years before they can purchase another subsidised flat. The income ceiling for HDB rental flats, at $1,500, is very low - well below the market rate of rental flats - and so some single parents have an income that is too high to qualify for HDB rental flats, but too low to afford open market rentals.”
Ng and Teo described how, “some families are forced to move from place to place, staying with relatives or friends for a short period each time, before they become an inconvenience and need to move on again [and how] some parents live separately from their children because it is difficult to find friends or relatives who can take in the whole family.”
They added: “yet, housing policies continue to disadvantage single parents, expressing the assumption that as a society, we are fine with these families being penalised. […] In Singapore, where HDB housing dominates and private housing caters mainly to people with higher incomes, barring single parents from public housing discriminates against, not just single parents in general, but lower-income single parents in particular,” they wrote.
“The issue at hand is therefore also one of fairness and equality: Public goods should be evenly accessible to all members of society,” Ng and Teo added.
But even for couples, the wait to get a flat has resulted in Singaporeans applying for new flats from the HDB even before they get married.
In fact, "Do you want to apply for a BTO together?", is the joke about how Singaporean men would propose to their girlfriends, as a Straits Times article last week wrote.
The Straits Times wrote that, “unmarried couples can apply for an HDB flat under the Fiance/Fiancee scheme, but are given three months to register their marriage after getting the key, earlier if they have applied for grants.”
Let's talk about sex
But there are risks.
“A check with HDB found that an average of 6,500 applicants who apply for new HDB flats under the scheme are aged 25 and younger,” The Straits Times wrote. “HDB says this figure has remained fairly constant for the past five years. This group made up a third of the applicants for the scheme last year.”
However, the paper continued: “HDB declined to say how many young applicants end up giving up their flats, although there have been stories of break-ups. These couples may end up forfeiting the sum they have already paid, which is about 5 percent of the flat's price.” For a flat that costs S$400,000, the forfeited sum would be S$20,000, or almost 6 times the median monthly wage, or 20 times the basic wage of S$1,000 that cleaners earn.
Strangely, The Straits Times reported that sociologist Paulin Straughan whom we mentioned earlier, said that, “this is an encouraging statistic”. She said: “it'll encourage them to think seriously about marriage and parenthood. People think that before 25, you're still a kid, but if you turn back the clock 20 to 30 years, people were getting married at that age.
“Once you've made that decision, you better start investing in your courtship - it's the start of a long commitment,” she added.
But on The Straits Times’ Facebook page where the article was shared, Susan Khoo commented: “it's good to plan early. But I have also encountered couples who were pressured to get married just [to buy] a BTO flat. Unfortunately, these marriages didn't last.”
As lawyer Eugene Thuraisingam opined of The Straits Times article on his Facebook page, “how can this be an honest article when HDB refuses to say how many flats are given up due to couples breaking up before even moving into their flats?”
And, what if “young people are not getting their flats early enough to have children,” in a question The Straits Times posed.
But “you need a very small space to have sex,” Senior Minister of State Josephine Teo replied. Teo was suggesting that young people did not “need to have a flat first” to “have a child.”
She added: “in [Singapore’s] case, man meets woman, man falls in love with woman, man proposes to woman, they then plan the wedding and do the house.”
“In France, in the U.K., in the Nordic countries, man meets woman, tonight they can make a baby already. They love each other. Both of them partly have their own family, so it is a matter of living in yours or living in mine, and they also don't have to worry about marriage - that comes later,” she added.
Another issue that Singaporeans are disgruntled about is with the size of HDB flats which have been shrinking since the mid-1990s.
However, strangely, then-National Development Minister Khaw claimed in 2012 that, “there’s been this misunderstanding that HDB has somehow in recent years shrunk the units but we have not. If you visit our new three-room, four-room and five-room (flats), they are very comfortable.”
But my own personal experience was telling. Two years ago, when I visited a friend’s new three room flat in a Western suburb of Singapore, I was shocked that in his bedroom, there was only enough space to put only a single bed and an elongated desk table. I asked my friend where he put his wardrobe and clothes, and he showed me to the storeroom.
The fact of the matter is that, HDB flats have become smaller. In fact, HDB Chief Executive Cheong Koon Hean admitted so. She told Channel NewsAsia: “the size of HDB flats has shrunk by five to 10 percent over the last 20 to 30 years.”
“For example, a five-room flat in Bukit Batok Central built in 1989 has a floor area of 121 square meters, compared to 110 square meters for a similar unit built in 2003,” the Channel NewsAsia reported.
So, the flats have shrunk. But Singaporeans have to pay even higher HDB flat prices – and one of the most expensive housing prices in the world, and arguably the most expensive public housing prices in the world.
But what is perhaps most worrying is that there appears to be no transparency as to how the HDB flat prices are determined.
In 2014, then-National Development Minister Khaw Boon Wan declared in parliament that, “[the government] control[s] the construction program; secondly, we set the price.”
And he said: “so do not worry.”
But there is much to worry about.
Even though Khaw did not reveal how the HDB flats are priced, he did say this in parliament in 2013: “the core principle for pricing these new flats follows from the strategic intent: their prices must be affordable for these families. In operationalising this principle, we set the price by taking into account the typical household income of these families, the market price of similar resale flats in the vicinity and the attributes of the flats including their size and location.
He added: “we apply a substantial price discount to ensure that the flats will be affordable.
Then again, he said: “The quantum of the price discount and the size of the housing grants are within our control. By varying them, we ensure that we achieve the strategic intent of helping Singaporean families own their homes.”
Again – control – the Singapore government seems toi have an overarching power over how it determines the prices of HDB flats.
But it is clear by now that HDB flats are not “affordable”, and if indeed the government does take into account the “typical household income of these families” to price flats at an affordable level, then surely by international standards, HDB flats can hardly be called “affordable” at all.
This led Member of Parliament Lee Bee Wah to ask: “If I heard correctly, the Minister mentioned just now that the resale price of the flats in the vicinity is taken into consideration.
“I thought the Minister mentioned recently that the price of the new BTO flats has just been delinked from the resale price. May I have a comment from the Minister, please?” she added.
Just a few days earlier prior to speaking in parliament, Khaw had given an interview where he said that the government had delinked the prices of new flats from the resale flat market. Thus his response in parliament seemed to contradict what he said earlier.
But Khaw had an answer prepared. Wait for it.
He said: “the Member has not heard wrongly."
Then he added: “in recent months, when I say delink the new flat price from the resale price, the meaning of delinking is I vary the discounts so that the prices can remain steady.”
So, was there any delinking?
Following with a question this year, opposition Secretary-General Low Thia Khiang from the Worker’s Party asked in parliament what the pricing mechanism of Build-To-Order (BTO) flats was.
National Development Minister Lawrence Wong replied: “new HDB flats offered under the Build-To-Order (BTO) and Sale of Balance Flats (SBF) exercises are priced using the same methodology, which takes into account the prices of comparable resale flats in the vicinity.”
So, no, there is no change.
But the government still refuses to disclose how they price the HDB flats.
In 2014, the government claimed that the HDB was making losses of S$1.97 billion in 2014. In 2015, the government claimed that the HDB lost $2.02 billion.
But Khaw continued to argue in 2013: “you need to acquire a piece of land [when constructing a new public flat], you need to reclaim a piece of land. […] And even when you have got that land prepared, then land is only valuable when we invest in infrastructure, roads, MRT, etc etc. And all those costs billions of dollars.
“So to say that land cost is pittance and therefore should be excluded from total construction cost, I myself think it is not quite an appropriate argument,” he added.
But Singaporeans did not say land cost is "pittance". In fact, it is hefty.
Khaw then said: “So let us not perpetuate this talk about, HDB is making money out of building houses because if it was so simple, life would be straight forward, but that's not the case.”
But still, no statistics on how new HDB flat prices are priced.
Some clarity on pricing
According to Sock-Yong, “the increasing average price [per square meter] for larger flat types (from S$1,956 to S$3,082 per square meter for similar housing type) is an indication that the administered price of each flat type is based on factors other than development costs. The HDB has clarified that it determines the prices of its flats by “first looking at the recently transacted prices of resale units nearby. Adjustments are then made to account for factors like location, finishes of the flat and other attributes. The price reflects the flat’s value at the point of purchase and is what people are willing to pay on the open market for such a unit. The HDB then sells it at a significant discount, which is the subsidy given by the Government”
A 2013 study by the property consultancy DTZ also helps to shed some light on this.
The Straits Times reported on the study which said that, “land costs have grown at an average compound rate of 18.2 percent a year” from 2008 to 2013 and HDB resale prices had grown by 9.1 percent.
However, “land prices have also risen faster than salaries,” The Straits Times reported. The average household income only grew by 5.3 percent.
And then the revelation: “land now makes up about three-fifths of development cost on average, up from two-fifths in 2008,” The Straits Times reported.
The government does not want to release a breakdown on how housing prices are determined, but now, we have an estimate – land costs could make up as much as 60 percent of the prices of new HDB flats. In Singapore, the government owns about 90 percent of the land. There is not much available information on the land sales statistics but some scattered statistics can be found. The Singapore Land Authority (SLA) manages the land sales system. In 1997, it earned S$14 billion in land sales, which was a historical record. In 2006, revenue grew to $6.2 billion, before reaching S$12.4 billion in 2007 to hit a ten-year high. And in 2012 alone government receipts from land sales totalled the equivalent of £9.1 billion (US$11.7 billion), according to the book, 'Rethinking the Economics of Land and Housing'. Surely, this is not a “pittance.”
So, contrary to what the government is saying, it still seems to be getting significant income from land sales. But how the mechanics between the HDB and SLA works, no one knows, or at least no one wants to say.
In his book, ‘The East Asian Welfare Model: Welfare Orientalism and the State’, Christopher Tremewan, a research fellow at the University of Auckland, wrote that, "opposition leader Chee Soon Juan of the SDP claimed that 'Closer scrutiny suggests that the costs of building HDB flats [are] actually much cheaper than building private apartments. In other words, there is no subsidy for HDB flats.' Chee points out, as others have done, that the government pays little or nothing for the land on which it builds housing estates, that the majority of construction workers are foreigners on low wages and employers pay a monthly levy to the government in order to employ them, [...] that HDB residents have to pay for car parks and at the end of ninety-nine years the apartment reverts to the government.”
Tremewan added: “Without access to the statistics it would seem highly probable that the government makes a considerable gain from the difference in the price it pays for land and the final market price of the flat. In a context of widening income disparities and of rising housing costs the issue of whether a profit is being made from HDB housing and by whom is a highly sensitive one. The lack of transparency is likely to ensure it remains so.”
Singapore has the highest income inequality among the developed countries.
And if you think about it, for a 40-storey flat, for a flat price of say, S$400,000, every person who “buys” a flat will pay about S$240,000 into land costs, and if there are 8 flats per floor, then each flat would reap the government S$76.8 million that is paid for the land costs. The government would only need to sell 10 block of flats to reap S$1 billion. So, what loss is the government talking about exactly?
Where does all the money go?
In Singapore, land sales "are secured as reserves and cannot be spent by the current government."
Deputy Prime Minister Tharman Shanmugaratnam acknowledged at Singapore’s last General Election in 2015 that many in Singapore questioned where the monies from the land sales go to: “Why do we not spend in Singapore monies we get from selling land instead of putting it in the reserves where it can earn income?
“It doesn’t mean we’re hiding the money, it means we will draw continually on the reserves every year by using the income on reserves,” he added.
But Chris Kuan, a social commenter and previously Regional Head of Capital Markets and Treasury at Portigon AG, disagreed with Tharman’s line of thinking.
He said: “for most intents and purposes, the sale of land generates a revenue that ought to be reported as a revenue line item in the budget.
But because it is not, “the government has no obligation to report land sales as a revenue line item in the budget.”
“Similarly when the government draws on the financial reserves to reinvest in land such as land acquisition and land reclamation, it again regards this as a movement within reserves and has no obligation to report this as an expenditure line item in the budget.
“What is also not reported is the total amount of earnings derived from investing the reserves […] Again the government has no obligation to report the full earnings as a revenue line item in the budget.
He added: “if you think this is exceedingly convoluted, it is."
“The total lack of transparency means that the government's budget position cannot be challenged since no hard evidence [is] publicly available to support a challenge or to provide backing for competing, alternate budget proposals.
“Needless to say, all this is also anti-democratic since it entrenches the power of the People's Action Party. Bear in mind, finance is the weapon of choice in political warfare,” he added.
As social commenter and past president of Singapore’s Society of Financial Service Professionals Leong Sze Hian pointed out, in its reporting of the budget surplus to Singaporeans, the Singapore government does not follow the standard framework as set out by the International Monetary Fund (IMF)'s Government Finance Statistics.
In the estimated budget surplus that the Singapore government reported for FY2016, it reported only S$3.45 billion. However, in a separate cash surplus, there is an additional S$10.1 billion reported under the category, “Sales of Land”, Leong said. As he explained, this figure should have been included as revenue under the budget surplus, according to IMF guidelines. However, the Singapore government has omitted this figure.
Leong calculated that the cash surplus for the ten years from 2005 to 2014 would be S$189.8 billion, or billions of dollars in land sales that the government would have earned that it does not report to Singaporeans in the budget surplus.
What about the CPF?
Here is the other thing – the government extracts 37 percent of Singaporeans’ wages into the public pension fund – the Central Provident Fund (CPF). This fund is set aside for pension and healthcare, and also – for housing
As Singaporeans have to pay 37 percent of their wages into the CPF pension fund and are not able to utilize it since they are not of the age to receive their pension, nor are they in constant need of healthcare (not that much of the contribution that they pay for health gets returned back for healthcare anyway), there is therefore a massive pool of money sitting inside the CPF which if Singaporeans do not use for housing, they would not be able to use their CPF for any much else.
And when you compare Singapore with the other high-income countries with a similar cost of living, and where a quarter to 70 percent of Singaporeans earn lower wages than the citizens of these other countries, you would understand how the money that is retained in the CPF is money that many Singaporeans would need if they want to be able to afford housing. In the end, this has led to the common refrain among many Singaporeans that they have no choice but to use their CPF pension funds to pay for housing, which otherwise their monies would be stuck inside.
But there are multiple issues with using the CPF to pay for housing. First, according to The Straits Times, 23 percent of the wage contribution into the CPF pension fund can be used to “buy” homes – or part of the CPF fund known as the Ordinary Account. According to then-Minister for Manpower Tan Chuan-Jin, Singaporeans at 55 years of age and who have used their CPF to finance their flats withdrew an average of 55 percent from their CPF Ordinary Account to do so for the five years preceding 2014. As such, even though Singaporeans pay the highest social contribution rate of their wages in the world into pension, they are instead left with one of the least adequate pension funds in the world, according to the OECD.
Second – and this is a contentious issue – when Singaporeans borrow from their own CPF to pay for housing, other than paying an interest to borrow from their CPF, Singaporeans have to also pay another interest – known as the accrued interest.
The first interest is similar to typically the interest someone pays when borrowing from a bank – but this is an interest that Singaporeans pay to borrow from their own CPF pension fund, which is pegged at an interest of 1 percent on top of the prevailing interest rate that the CPF pension fund earns.
For the second – accrued – interest, this is how the CPF Board explained it: “the accrued interest is what you would have earned had you not used your CPF for housing.
“When the property is sold, you and any property co-owners would use the sales proceeds to refund the principal amount used and the accrued interest into your [CPF],” the CPF Board said.
The Singapore government said: “it is only right that if we were to sell our home, we should return what we have borrowed (i.e. the principal amount) plus the interest we would have earned had the money not been taken out from our CPF account (accrued interest).”
Singaporeans waking up
If Singaporeans take out their CPF pension monies to pay for housing, they would therefore not be able to earn an interest on their CPF. The government mandates that if they “sell” their homes, they would have to pay the interest back by themselves, but where this interest would have been paid by the government if the CPF monies were not taken out in the first place.
Investment consultant Gary Seah explained on his blog that for a flat that cost S$400,000, if “we assume we pay off the full [S$400,000] using CPF [and] if you sell on the 10th year, you will need to return back [S$112,000] CPF Accrued Interest more on what you have draw[n] out. The total amount will be [S$512,000].
He added: “so imagine this – your cash proceeds [from the sale of your flat] is never going to be as high as you think it could be.
“Yes all the money still belongs to you as it is returned back to your CPF account. But the CPF accrued interest will easily wipe out any cash gains you think you have,” he highlighted.
He continued: “At the end of 30 years, the accrued interest will now be [S$439,000].
“So 30 years later, in order to make [profits] from this HDB flat you will need to sell [the flat] at [S$839,000] and above.
“Is this really possible? […] Can you imagine what will happen to the Singapore property market when a 50-year old HDB flat can sell at [S$839,000]?
And as we have seen earlier, the value of the HDB flat will already start to decline after 50 to 60 years, so it is unlikely that the HDB would reap high profits anymore, with this knowledge becoming more widespread.
Another real estate salesperson Gaynor Lim illustrated on his blog with a “real-life example.”
He explained: “for my current property which is a HDB flat, I have already used over [S$100,000] to pay for the flat. Take note, this doesn’t include my wife’s contribution. Simply using $100K from my CPF has already resulted in an accrued payable interest of [S$21,000]. That is about 20% of the amount used.
Then Lim made this point: “right now, the S$21,000 is interest is actually coming at my own expense – which is the cash proceeds when I sell the flat.
“But if the [S$100,000] was left alone in my CPF account, it would actually have earned this S$21,000 by itself,” he added.
Indeed, if a person had not taken out his CPF to “buy” the flat, the government would be the one paying the interest earned on his CPF. But if he takes out his CPF to “buy” the flat, he would need to pay this interest back using his own money.
But the accrued interest has caught some Singaporeans dumbfounded. Lim shared his post on his Facebook page and it garnered 769 reactions and 414 shares at the time of writing.
Ronald Low commented on Lim’s post: “this is an important article as I have [friends] and relatives who were caught [off guard] by [the accrued interest] when they wanted to downgrade [their flat] upon retirement.”
Adam Koh also pointed out on Lim’s post that, “many [Singaporeans] use [their CPF] to pay [for] their first home, […] except [for] the rich. So can anyone afford to buy a [HDB] without using the [CPF?]”
But Melz Hann pointed out: “[what’s] the point of talking [about] all this when at the end of it, [the government is] still the one who make[s] the decision on how to "use our [CPF]” be it for home or retirement”?
Indeed, Singapore’s pension-and-housing financing scheme is a lose-lose situation for Singaporeans.
But let’s break it down.
First, Singaporeans pay 37 percent of their wages into the CPF pension fund. Of this, 8 to 10.5 percent of their wages is channelled into a healthcare fund, the Medisave. Up to the age of 50, only 6 to 8 percent of the wages are put into the Special Account, which is reserved for pension (and earns an interest of 4 percent). But of the rest of between 19 to 23 percent of the fund, which goes into the Ordinary Account, this can used for pension (but earns a lower 2.5 percent in interest), but it can also be used for housing.
To summarize, of the pension that Singaporeans pay, part of it is channelled into healthcare, part into a fund reserved solely for pension, and part into a fund which can be used for pension, and for housing as well. The former two funds earn a higher interest of 4 percent, while the latter fund earns only 2.5 percent.
And here are the problems. As some academics and economists have pointed out, the pension fund is a pension fund and should not be used for housing. The pension, healthcare and housing portion should therefore be split and should not be cross-utilized.
Ngiam Tong Dow pointed out in his book that, "when CPF rates rise above 30 percent, HDB will be tempted to overbuild, as they anticipate more demand.” The CPF contribution rate is currently higher than 30 percent – or 37 percent.
As Lum Sau Kim, Associate Professor at the National University of Singapore, said, “the ability to withdraw CPF funds for housing has “constrained retirement adequacy,” Today reported.
“If so much of CPF funds are dedicated to housing, then we have poorly diversified household portfolios ... so the nest-egg that we have will be vulnerable to housing sector shocks and greater risks,” she added.
A clearer picture
Thanks to opposition parliamentarian Pritam Singh who dug out a Straits Times article from 1999, we also found out that Linda Low, who was previously an Associate Professor at the National University of Singapore, had even then said that, “the CPF is slave to so many schemes, it cannot serve all its masters simultaneously.”
B.C. Ghosh, former professor at the Nanyang Technological University, also “call[ed] for the CPF to go back to basics and restore old age as its focus,” The Straits Times reported him as saying.
In fact, Professor Koh Seng Kee, an Associate Dean at the Singapore Management University, had noted as early as 1999 that, "as most properties are sold with 99-year leases, Singaporeans are investing their lifetime savings in depreciating assets."
He also warned that, "unless and until the Government signals that it is prepared to renew property leases, Singaporeans' savings will not last beyond two generations."
It has been nearly two decades since Koh’s warning but the Singapore government still has not taken heed. And Singaporeans are only finally awakening to this reality.
So this is where the issue arises – Singaporeans pay 37 percent of their wages into the CPF pension fund but the government only sets aside 6 to 8 percent (of wages) to be for pension (in the Special Account). However, according to a paper written by the Center for Retirement Research at Boston College, “if [individuals] start saving at 35 and earn a real return of 4 percent, they will need to save 15 percent of earnings each and every year to be able to retire at 65 with financial security,” and to be able to attain a replacement rate of 70 percent (or a retirement income of 70 percent of the pre-retirement income).
As Mukul Asher, Professorial Fellow at the Lee Kuan Yew School of Public Policy, pointed out even way back in 1999, The Straits Times quoted him as saying that, "most countries [...] set their mandatory retirement savings at 10-12 percent of wages.
“In Singapore, however, only 4 percent of wages goes into the Special Account, that component of the CPF that is used exclusively for retirement,” The Straits Times reported Asher as saying.
Today, the Singapore government allocates only 6 to 8 percent of wages into the Special Account – meaning Singaporeans’ replacement rate would only be half as adequate as what the Boston College calculated would be adequate.
Indeed, the University of Michigan’s Michigan Retirement Research Center computed that median optimal target replacement rate for married couples should be 75 percent (and 55 percent for singles). However, the Allianz International Pensions puts Singapore's CPF gross replacement rate at half of that – at 38.5 percent in 2014, and the OECD also computed Singapore's gross replacement rate at only 38.5 percent for men and 34.4 percent for women in its 2013 report.
Pay it forward
But it is not that Singaporeans are underpaying for their pension fund – at a 37 percent contribution rate, they are already overpaying. Already, 19 to 23 percent (of wages) is allocated into the Ordinary Account, which can be used for housing. What the Singapore government should do is to carve out more of this fund from the Ordinary Account and put it into the Special Account, to be reserved for pension. Weirdly, the government chooses not to do that.
In fact, Singaporeans’ pension monies are so low that when Singapore Deputy Prime Minister Tharman Shanmugaratnam revealed in parliament how much the median CPF Life payout for pension in 2011 was, it was only S$260 (US$185) a month. The CPF Life is an annuity pension scheme that CPF holders are automatically enrolled into. In 2014, the median payout increased to only S$394 (US$280). There are no publicly available statistics for the other years.
But National Development Minister Lawrence Wong insisted that the HDB flat is “still […] an asset which can be monetised for retirement.”
He said that older Singaporeans “can sell their flat and right-size” to a smaller flat with a shorter lease, where they could receive a Silver Housing Bonus (SHB) of up to $20,000 in cash. He also pointed to the Lease Buyback Scheme (LBS) where Singaporeans can sell part of their flat’s lease to HDB and receive a cash bonus of S$10,000.
But Leong Sze Hian exposed the flaw in the SHB and LBS schemes. Leong highlighted the case of an elderly woman who visited him for financial counseling and who was “unable to get the Silver [Housing] Bonus, because she ha[d] to use […] her flat sales proceeds to top-up her CPF.”
On the LBS scheme, he also drew a comparison with Taiwan. He quoted a Straits Times article that reported that, “a 70-year-old man [in Taiwan] whose home is assessed to be worth NT$10 million (S$420,000) will receive up to NT$34,800 (S$1,460) a month until he breathes his last.” Strangely, The Straits Times article is no longer available online.
Leong calculated that, “with the HDB Lease Buyback Scheme, I estimate that a similar 70-year-old man [in Singapore] who has a 3-room HDB flat valued at S$323,000, may get a CPF Life Scheme monthly life annuity of about S$926 to S$977 […], according to the CPF Life Estimator calculator.”
Leong calculated that for a Taiwanese home of the equivalent price of S$323,000, the corresponding monthly annuity would be S$1,123.
He explained that, “it would appear that Taiwan’s scheme pays about 18 percent more a month than Singapore’s HDB Lease Buyback Scheme – $1,123 [in Taiwan] versus $926 – $977 [in Singapore].”
Leong also added that, “Taiwan’s scheme allows the retiree to stay until death, whereas the HDB Lease Buyback Scheme is only for 30 years.”
As such, even the government’s purported scheme to help elderly Singaporeans “monetise” their “asset” for retirement is also questionable.
Moreover, Wong might say that, “Singaporean couples enjoy significant subsidies when they purchase a HDB flat for the first time, be it a new flat or one from the resale market.” He gave the example of how a 30-year-old couple, with a combined monthly income of $5,000, looking for a resale flat in Woodlands near their parents, can get up to $75,000 in grants off the resale flat price.
A question of logic
On HDB’s FAQs, HDB explained that the Additional CPF Housing Grant (AHG) is “treated as part of [the] CPF funds” of the buyer(s) of the flat, and when flat is sold, the grant “and its accrued interest will have to be returned to the […] CPF accounts.”
The HDB insisted that, “The AHG is a grant, not a loan,” but it also said that, “the funds are ultimately channeled back to the flat buyers’ own CPF accounts.”
So, is the “grant” really a grant? You decide for yourself.
Based on the current allocation structure of the CPF (into Medisave, and the Special and Ordinary Accounts), Singaporeans would therefore not necessarily have enough in their CPF to use for retirement. To this effect, the government therefore mandates that if Singaporeans borrow from their own CPF to pay for housing, they would have to pay not only the principal sum borrowed and the interest, but also for the (accrued) interest, on the basis that Singaporeans would otherwise not have adequate pension savings.
But the logic here seems questionable.
First, if Singaporeans would have been able to save enough inside their CPF for pension, would they have to pay back the accrued interest? Most likely not. Therefore, if the government had allocated 15 percent of the CPF into the Special Account (instead of 6 to 8 percent) to be used solely for pension (and paid a real interest rate of 4 percent), Singaporeans would not face the problem of having inadequate pension. But as Hui Weng Tat, Associate Professor at the Lee Kuan Yew School of Public Policy, showed, since 1990, the real interest on Singaporeans’ CPF has never gone above 4 percent, which means that even if the government were to allocate 15 percent of Singaporeans wages into the Special Account, the interest rate has to be drastically increased.
Second, if Singaporeans did not pay too much – 37 percent of their wages – into their CPF and have more cash on hand, they would have been able to pay for housing with cash on hand instead of from the CPF. They would not need to borrow from their CPF to “pay” for housing, and then pay an interest to borrow from their CPF, and then another accrued interest. Basically, if the government had simply reduced the CPF contribution rate to what is needed for pension and healthcare, the rest will be released to Singaporeans as cash for Singaporeans to decide how their monies should be used. In fact, Singaporeans would be able to even invest their own monies, and instead of paying an interest, would be earning an interest instead.
So, do you see what is happening? Because of the Singapore government’s current pension-and-housing funding model, Singaporeans therefore have to pay double in interest, when in a fairer model, they could be able to earn an interest instead. To this effect, the government gets to be the one earning the interest and Singaporeans are the ones paying for it. Instead of the government, Singaporeans are the ones lending their money, but unlike banks, they do not earn an interest and do not become richer because of it. As such, the Singapore government turns Singaporeans into banks but act as the bankers instead.
And third, since Singaporeans are paying for a 99-year lease and not freehold ownership of their homes, if Singaporeans would have been able to have cash on hand to decide how to use it, they would be able to decide whether to “buy” a flat or to rent. Working on this assumption, they could pay a small amount in rent every month, and be able to let the rest of their savings earn interest. They would not have to use their accumulated CPF monies to pay the down payment of the flat and would not therefore have to pay an accrued interest. Instead, with additional CPF or cash in hand, they would be able to earn an interest on these and be able to accumulate their savings.
Finally, fourth, if the HDB flats are meant to be “affordable” and since the government boasts that it controls the construction programme and sets the prices for the HDB flats, there is absolutely no reason why HDB public flats should be priced as one of the most expensive properties in the world, or as arguably the most expensive public housing in the world, especially since the wages for the large bulk of Singaporeans are lower than these other countries where housing prices are as high as Singapore, and private ones, to boot.
If you understand what this means, Singapore’s current pension-and-housing funding model is a lose-lose situation for Singaporeans.
And also, because the interest that Singaporeans earn on their CPF – of between 2.5 and 4 percent is lower than the global average of 8.7 percent last year, based on a 5-year compound annual growth rate, and because the CPF is channelled into the GIC to be invested and which earned a rolling 20-year real rate of return of 5.7 percent (in nominal USD terms), the interest earned that is therefore not returned is also an implicit tax that Singaporeans are paying.
The GIC is one of two Singapore’s government investment firms. The Chairman of the GIC is also the Singapore Prime Minister Lee Hsien Loong. The CEO of the other investment firm, Temasek Holding, is his wife, Ho Ching. GIC and Temasek Holdings have become the 8th and 12th largest sovereign wealth funds in the world. On the other hand, Singapore’s CPF pension scheme has been ranked by the OECD as one of the least adequate among the OECD and Asia Pacific countries.
There are other options
In her book, Linda Low said that, “perpetuating the CPF-fiscal link or implicit taxation enables the People’s Action Party regime to commandeer both financial resources to finesse the political economy of its developmental state as well as dictate CPF members’ choices in consumption, saving and investment.
But as Asher explained, “the existing Central Provident Fund (CPF) system is based on direct-contributions, which implies that individuals and households implicitly bear macroeconomic, longevity and inflation risks. It was intended to alleviate absolute poverty and does little to combat relative poverty”.
But Low and Tar Choon Aw, who was a professor at the National University of Singapore, also wrote in their book, ‘Housing a Healthy, Educated and Wealthy Nation Through the CPF’, that, “in any case, it would be too disruptive economically and politically to change the rules with so many people committed to large housing mortgages and repayments. This lock-in effect of many CPF schemes must also be noted as they effectively reduce the degree of flexibility the next time CPF adjustments are considered in any macroeconomic stabilization exercise.”
Still Asher said, “If de-linking the CPF scheme from housing finance is considered too risky, then the CPF scheme could be formally divided into three components: housing, health care, and retirement.”
As Professor Joseph Cherian and Danny Yong, CIO and a founding partner of Dymon Asia Capital, put, “we should not encourage CPF members to dig into their retirement pot (which is meant for life expenses and health care needs in retirement) to finance kids’ education and that dream HDB home along the way. Education and housing programs should be run as separate tax-advantaged programs.”
Phang Sock-Yong, Professor at the Singapore Management University, and Matthias Helble, a Research Fellow at the Asian Development Bank Institute (ADBI), Tokyo, therefore surmised in a paper for the ADBI: “the mandatory nature of the CPF, together with the dominance of the HDB, could have resulted in over-allocation of resources to housing. The CPF collects from members more than what is required for housing. This could have crowded out consumption and, as CPF savings are illiquid, it has been cited as a reason behind a weak domestic start-up sector. The large allocation of savings for housing and the risk of housing price declines pose risks for retirement financing. The phrase “asset rich and cash poor” neatly captures the basic problem.”
The question then is, why Singapore has created and stuck to such a system that constantly locks in the wealth of Singaporeans. The Singapore government would obviously understand this pension-and-housing financing model that it has created for itself – it has to – then the question is why it has created such a system that has entrapped the wealth of Singaporeans while enriching the reserves of Singapore – but for what?
On top of that, if Singaporeans could earn higher wages, if benchmarked with citizens of the other high income countries, Singaporeans would have higher wages and cash on hand and would be able to afford to buy housing without actually having to be forced to contribute their wages into such a complicated pension-and housing financing system.
‘So you don't want to learn from Singapore’
The government might say that “it is only right that if [Singaporeans] were to sell our home, we should return” the accrued interest. But actually, it is only right that if the government is making Singaporeans overpay into the CPF that it should return Singaporeans' monies and stop what could be seen as the excessive extortion of Singaporeans' hard-earned savings.
One wonders if the former Prime Minister Lee Kuan Yew knew something that Singaporeans do not when he said in an interview with the South China Morning Post in 1993: “So we had to devise a system which gave everybody a home, which he owns. Everyone has something substantial in property. Everyone has a retirement account and medical-cost account. It's not as cosseted a society as say Britain. But it's a lot more cosseted than Hong Kong.
“So you don't want to learn from Singapore,” he said.
Indeed, you do not want to.
As Phang and Helble said, “the tactics on which Singapore relies – compulsory savings, state land ownership, and state provision of housing – can easily spawn widespread inefficiency and corruption,” though they wrote, “in other sociopolitical contexts”.
As the late Richard Groves, former director of the Centre for Urban and Regional Studies, wrote in his book, ‘Housing and the New Welfare State: Perspectives from East Asia and Europe’, “such extensive intervention and government control over resource allocation can be potentially abused and may carry a higher cost than inaction.”
Editor: Edward White