Housing market wish-list for Budget 2016

Darius Cheung

February 19, 2016


Budget 2016 will be unveiled next month and it is hoped that the Government will consider the following measures in the area of housing:

ASSISTANCE SCHEME FOR S’POREANS STRUGGLING WITH RISING MORTGAGE RATES

Many Singaporeans bought one or more private residential properties following the global financial crisis of 2008, partly motivated by steep plunges in mortgage rates as the United States Federal Reserve held its key interest rate target near zero. It was common to find mortgage loans with interest rates as low as 1.7 per cent right up to 2012.

Meanwhile, many Singaporeans switched to private bank loans for their Housing and Development Board (HDB) flats, since HDB concessionary loans — pegged at 0.1 per cent above the prevailing Central Provident Fund Ordinary Account rate — were much higher at 2.6 per cent.

Last December, the Fed marked the end of its zero interest rate policy era with its first hike in nearly a decade. Although the hike was small at 0.25 per cent, interest rates are expected to rise further as the US embarks on its normalisation path.

This will, in turn, affect home loan rates in Singapore, and homeowners here will need time to adjust to bigger mortgage repayments.

There is also a possible scenario of some Singaporeans becoming unable to cope with rising repayments and losing their homes. As such, it would be good if the Government can set up a temporary assistance scheme to help homeowners cope with rising home loan ratios.

[If Singaporeans bought these private properties at the time simply because of low mortgage rates, then it is likely that these property were bought for investment purposes, not for essential housing. If so, why should the govt help people with their secondary property investment? If they can afford private property, they are NOT the low income. If they bought the property for investment, they should be able to turn a profit (though in the current market, a sale may take some time). 

As for those HDB flat buyers who may be living in essentially their primary residence, and had switch from the HDB mortgage to a private bank mortgage, the current re-financing rate is still LOWER than the 2.6% HDB rate. It is just that these rates are NOT published, and banks make the offer to the individual on a confidential basis. Panicking about possible future mortgage interest rate hikes beyond 2.6% is speculative at best, and shows an unfamiliarity with how things are done. 

But YES - IF (and only if) the private bank mortgage rates (refinancing) rises above the 2.6% HDB mortgage rate, the govt could allow HDB mortgagee to switch back to (refinance) with HDB. That is if the mortgage is for essentially the primary residence, then the HDB flat owner should be given one chance to switch back.]
FINALISE AND IMPLEMENT FRESH START HOUSING SCHEME

The Fresh Start Housing Scheme was first discussed around the time of last year’s National Day Rally, and the Government has been seeking public opinion. The scheme, targeting Singaporeans in rental flats and those who have lost ownership of their HDB flats, affords a second grant and another chance at home ownership.

This year is a good time to implement this scheme, since the residential property market is facing a supply glut. The total number of flats is expected to grow from about 1.28 million to 1.43 million units — an increase of 11 per cent — by 2018.

The scheme will mop up some of this oversupply and give Singaporeans a second shot at home ownership — everybody wins.

Here is hoping that we see generous grants for the scheme, along with a second HDB concessionary loan for second-timers.

[A part of me is wary of this. On the one hand, these are mostly the low income group. So we should help them. But there is moral hazard.

But in this case, I say, let's err on the side of being helpful to the low income. And yes, let us acknowledge that some people may game the system and exploit the system and take advantage of govt largesse. But so what? Just to prevent one cheater, we don't help 100 people who needs help?

So let's give the low income families a Fresh Start.]


BETTER HOUSING GRANTS FOR SINGLE PARENTS

Single parents have to wait until the age of 35 to purchase a HDB flat and must do so under the singles scheme. This generally means a grant of S$15,000 as opposed to S$40,000, with some exceptions. The provision of higher grants for single parents is important because it affects the children they raise, and their incomes are often more stretched than those of married couples.

At the very least, it would be good to see some form of subsidised rental rates for single parents.

[Again, moral hazard. But as a high level civil servant once commented (one of the more enlightened civil servants, I may add), we don't want to encourage single parenthood. But once the child is born to a single parent, we should ensure that the child is protected and given every benefit other children receive. There is no justice in punishing, or disadvantaging the child for the choices of the parent. 

So yes, let's help single parents provide a stable and secure home for their children. Subsidies and priorities for parents (single or otherwise) should be in place to allow them to secure rental flats quickly for the sake of their children.

And yes, let's give them more housing grant if they wish to purchase a flat. And to speed them towards the purchase of a flat, lets allow single parent to buy a flat if the parent and child's age add up to 35 or more. So for example, a 30 yr old with a 5 year old child can buy a flat, instead of waiting 5 more years (when the child is 10, and the last five years were spend in a series of rental homes and rooms). 

And yes, moral hazard. What if singles got pregnant just to "jump queue"? Do people have kids just to game the system? Probably. There are all sorts of foolish people. But most sensible people won't. A single who wants to live independently is not likely to choose to have a child (which is the most "unindependent" thing you can do to yourself!). 

But yes, there may be moral hazard, but again, instead of worrying about how people might game the system, let's look instead at how the system will help those who truly and honestly need help.]

SPECIAL SCHEME FOR ELDERS FORCED OUT OF THEIR HOMES

There has been a recent and disturbing trend of children leaving their parents homeless. In a typical scenario, the parents sell their flat and give the proceeds to their children, and then move in with them. Later, when problems set in, the children would force the parents out of the house.

This prompted Mr Khoo Oon Soo, Commissioner for the Maintenance of Parents, to warn the elderly to never sell their flats. Good advice, but it does not do much to help those who are already caught in the situation.

Let us put in place an assistance scheme targeted specifically at the elderly, who may have been played out by their ingrate offspring. Provisions for rental flats would help — such as subsidies for half the monthly rental, while their children are forced to pay the other half.

BONUSES TO DOWNGRADERS, REGARDLESS OF AGE

At present, there is a Silver Housing Bonus that gives retirees S$20,000 when they right-size their HDB flats. They do this by selling their existing flats and buying either smaller, cheaper flats from the resale market, or smaller flats directly from the HDB, such as a two-room flexi unit or a three-room flat. This is a good idea because it helps free up larger homes for families to settle in and supplements the income of retirees.

But why not do it for anyone who is willing to downgrade? If someone can be persuaded to vacate a four- or five-room flat and downgrade to a two-room unit, which would provide space for a new family, why not encourage it?

That would be in line with trying to raise our birth rate. In addition, there are some people who struggle with mortgage repayments but continue to cling to a flat bigger than they can afford. This can be due to a variety of reasons, from a decline in income to the inability to get a good resale price. These people are in dire financial straits and should be given an incentive to do the right thing and buy a more affordable place.

Mop up supply and assist with rising interest rates: These moves will help boost the struggling housing market.

As the turmoil of 2016 presents more challenges ahead, hopefully it will also provide opportunities to improve our long-term well-being.



ABOUT THE AUTHOR: Darius Cheung is CEO of 99.co, a property portal he founded in January 2014 together with Dominic Ee, Conor McLaughlin and Anuj Bheda. 99.co has raised funds from investors including Sequoia Capital and Facebook co-founder Eduardo Saverin.