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Should HDB Flats Be Allowed To Be Used As Investment?

DollarsAndSense looks at how public housing flats became investment tools for the rich, and whether this is equitable considering affordability of home is something Singaporeans struggle with.

It may be a little idealistic, but when someone mentions public housing, you expect it to be affordable for the people who do not earn enough. However, in Singapore, things are a little different, with about 80% of our population living in these flats. It has gradually become homes not just for the poor, or even the middle-income families, but also for the wealthier people in our population.

This is not a problem by itself. However, it starts becoming a problem when HDB flats become investments for richer families. This seems to go against the fabric of what these houses were made for – affordable homes of quality and value, which by the way, is HDB’s mission.

So how did HDB flats became an investment for richer families?

A brief history

Prior to 1989 – HDB owners had to sell off their flats if they wanted to buy private properties.

The logic behind this seems fair, as families who needed an affordable housing to live in should not be rich enough to afford private properties. This rule applied to all.

In 1989 – HDB owners who had bought their flats on the resale market were allowed to invest in private properties provided they still lived in their HDB flats. Private property owners were also allowed to buy a resale HDB flat, provided they lived in the flat subsequently.

This also seems fair. As people got richer, the government started allowing them to invest in private properties, which could be used to generate passive income, or for capital appreciation.

But this left out people who bought their flats directly from HDB.

In 1991 – Then Minister of State for National Development Lim Hng Kiang said those who bought flats directly from HDB could also invest in private properties, after a certain period, provided they still lived in their HDB flats.

This rule plug in the gap created by the earlier regulation and made the whole scene a fair one. With everyone able to buy both HDB flats and private properties, no one is left out. Of course, the caveat is that they still had to live in HDB flats, as private properties were for investment purposes only.

In 2003 – For years, this system worked well and fairly. Until 2003, the year in which HDB change its regulation to allow owners who had lived in their HDB flats for 15 years to rent out their entire flats, and presumably live in private properties. Previously, there were strict restrictions for renting out entire HDB flats.

This seems okay. It allowed families to stay in private properties that they already own without having to sell off their HDB flats. This apply to all families.

In 2010 – Amid a public housing shortage, which may or may not have been brought about by rich families choosing to rent out their flats and live in private properties, or by the steep increase in population due to the influx of foreign talents, the government ruled that private property owners now have to sell private units before buying HDB flats. However, if you already own a HDB flat and wanted to buy a private property, this ruling does not apply.

This made the scenario that Singaporeans faced extremely unfair since it only applies if you have a private property before buying a HDB but not the other way around.

That means that while HDB owners can upgrade themselves by buying and living in a private property while renting out their HDB flats, people who needed passive income from their private properties did not have the same option. This could of course include retirees, who previously had the option to buy a smaller HDB flat while renting out their private apartments for rental income.

After 2010 – Since then, there have been numerous changes to basically the same policies involving Additional Buyer’s Stand Duty (ABSD), Seller’s Stamp Duty (SSD) and the Loan-To-Value (LTV) to curb speculation.

In a parting thought, we just want to touch on the fact that we are not a welfare state and hence, it is important to ensure that our citizens are able to find ways to sustain themselves after retiring. Living off the passive income generated by owning multiple properties (including HDB flats) is one such way employed by retirees. However, it seems like the government, within their changed regulation imposed in 2010, took away that option from a signficant group of Singaporeans, forcing them to dispose their apartments if they wanted a HDB flat to live in.

Being the 3rd richest country in terms of GDP per capita, this nation has the capacity to build more than enough homes for prices to be affordable for the masses, there is no need to taper HDB flats supply, which will only be welcome news for property developers and owners.

Here’s why there is no need to taper, yet.

Year Total Population (‘000) Increase in population (‘000) HDB Flat Supply (estimated)(‘000)
2008 4,839.4 250.8 8.1
2009 4,987.6 148.2 13.5
2010 5,076.7 89.2 17.7
2011 5,183.7 107.0 25.0
2012 5,312.4 128.7 27.0
2013 5,399.2 86.7 25.1
2014 5,469.7 70.6 24.3
Total 881.3 140.7

(Source: Singstat and HDB Press Release)

Our total population has increased 881,300 since 2008. If we assume 80% will continue to live in HDB flats, that is 705,040 more people who require such accommodation. At the same time, HDB flat supply has only risen by 140,700 units. If we assume there will be 3.5 persons per unit, we require 201,440 HDB flats. So we are already behind the curve, and do not need to taper until there is some excess for younger people to become more confident to start having families, and to get flats at prices which are attractive to do so.


Image from Benjamin Lim. aims to provide interesting, bite-sized and relevant financial articles.

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