For the average Singaporean, our HDB flat is perhaps the single biggest purchase of our lives. We devote a significant portion of our lifetime earnings to pay off a Housing Development Board (HDB) loan over a few decades. Whilst financially daunting, Singaporeans have traditionally been very willing to take on the commitment of home ownership. The Government has also touted the promise of housing as an enabler of social mobility, convincing Singaporeans to own their homes instead of renting them. Lee Kuan Yew once said that if we work hard, save up and leverage on appreciation of the value of our HDB, we can look forward to upgrading to a better home in future.
This promise of social mobility has diminished in recent years as Singapore completed its transition from 3rd world country to 1st. As the economy matures, future growth potential diminishes. This affects the property market as well, with phenomenal growth rates of property prices since the 1970s no more. Instead, home owners today grapple with thin profit margins or simply try to break even.
This creates a policy dilemma surrounding the logic of continuing to encourage home ownership in Singapore. Is it still worthwhile to continue encouraging Singaporeans to buy their own houses and devote a large portion of their lifetime earnings to it? Knowing that there is now little promise of social mobility through a substantial profit margin enabling one to upgrade to a better house in the future?
My take is that it is still worthwhile to encourage Singaporeans to own their homes. However, the narrative of social mobility should evolve to one around liveability. Concurrently, the Government needs to promote awareness of and facilitate other avenues for Singaporeans to grow their nest egg. Examples include optimising available Central Provident Fund (CPF) schemes and leveraging private sector insurance and endowment schemes.
A changing narrative of our HDB flats involves letting go of the perception that our flat’s value will appreciate over time, and we can look forward to unlocking this value in future. The new narrative is one where we buy our flat as any other item, considering whether it is value for money. Our HDB flat should be a home where we are happy to settle down for the long haul. This means liveability is quintessential when buying our home. Liveability involves considering questions such as whether our flat has adequate space to start a family and bring up children through their formative years to adulthood, considering their needs over the years. Also, we should consider the right amenities to meet our needs are available as we move through the various stages of life. For example, when we are young, we look to fitness corners for our exercise needs. When we are older, we look for senior citizens’ fitness corners. If both are present in the same neighbourhood, it makes sense to settle in the neighbourhood for the long haul.
At the same time, the Government needs to promote awareness of other avenues for Singaporeans to grow their nest egg to move up the ladder as part of the new narrative.
First, one option is available CPF schemes. An example is CPF Top-Up schemes where one can contribute more on top of mandatory contributions to enjoy attractive interest rates. Awareness of available schemes is especially important for elderly members who often lack extensive knowledge on financial planning, and may hold more conservative attitudes in investing. They are often wary of taking the risk to invest their savings in plans offered by the private sector. CPF’s schemes are hence a safer option for them to fall back on.
Second, the private sector remains a key avenue for individuals to seek financial advisory services. Whilst the Government could also encourage Singaporeans to grow their nest egg by leveraging private sector investment, endowment or insurance plans as another option, there is hence a need to ensure financial advisors act in their clients’ best interests. Hence, the Government needs to regulate the industry more rigorously to ensure high ethical standards when financial advisors carry out their duties. This ensures clients receive good advice in picking the best financial instruments to invest their savings in.
Whilst spinning a new narrative which dissuades against viewing our homes as an investment instrument, our HDB flats can continue to function as safety nets, especially in our retirement years. Inevitably, there will be cases where home owners need to tap on the value of their homes given their inability to grow their nest egg adequately to provide for a comfortable retirement. In these instances, the Lease Buyback scheme could supplement home owners’ income streams and make the critical difference enabling them to finance their retirement needs.
In conclusion, narratives surrounding the promise of our HDBs as enablers of social mobility have waned as Singapore’s economy matures and hits a growth ceiling. However, I argue that it continues to be worthwhile owning a home. What we need to do is to adapt the narrative, of a home as an investment tool to a place we want to live in for the long haul. In growing our nest egg and moving up the ladder, awareness should be promoted on alternative ways, such as through CPF and private sector financial schemes.
(Photo credit: Lim Zhan Peng Dave)