Comment: Public Housing in Singapore - One big disguised Ponzi scheme?

[From a FB post in Sept 2009]

There has been a raft of letters to the press about how the surging prices of public housing is making it impossible for young couples and families to afford housing in Singapore.
In particular, house-hunters have pointed fingers at the Cash-Over-Valuation (COV) that sellers are demanding. HDB has replied to say that they strive to provide affordable housing, and COV are an instrument of the market over which HDB has no control.

So a flurry of letter followed about how HDB might tweak the system (to the benefit of the young house hunters of course). Such as banning COV, and increasing the supply of new flats.
http://heresthenews.blogspot.com/2009/09/cash-over-valuation.html

  

This is a classic case of the haves vs the have-nots. Existing flat owners would of course love that their flats have risen in value. The Have-nots, who want to acquire these flats would of course prefer to have the flats value to be stable (at least until they buy the flat; after which it should rise as high and as fast as possible!).

And HDB is walking a tightrope trying to ensure that existing flat owners see their property rise in value (so HDB can't just increase supply in matured estates to the point where supply dampens price rise), but that new flats do not costs so much that young Singaporeans can't afford the Singapore (middle-class) Dream.

And looking back historically and nostalgically, it would seem that the older generation having bought into the HDB dream seems to have the better deal, whereas Gen X coming late into the game is disadvantaged.

Like the later investors in a Ponzi Scheme, the new entrants' fees are used to pay off or reward the older investors. They in turn hope that even later entrants will enrich them.

And the dream ends at the end of 99 year when the lease runs out.

As some have cynically pointed out, the HDB doesn't sell you a flat, but merely sells you the privilege of borrowing the flat for 99 years. So at 99 years, the value of the flat effectively runs out.

So a baby boomer buys a new 3-rm flat from HDB in 1970 for something like $5000. 25 yrs later, he sells the flat for say $125,000 - a 2500% return on investment. The new couple who bought the flat sells it after 15 years for say, $250,000 - a mere 100% ROI.

The 3rd Gen owner only has about 59 years left on the lease. In 15 years time, is he hoping to sell the flat for $500,000 for a 100% ROI?

Alternatively, he is hoping for a reboot of the ponzi scheme, a.k.a. the Selective En-bloc Redevelopment Scheme or SERS (not to be confuse with SARS, which is a very bad thing). Then he would be hoping that HDB will buy his flat for $300,000 after just a few years, and offer him a new flat for about $200,000, which he hopes to sell for a 100% profit (or more!) in say 10 to 20 years.

That was then (2009). This is now (2022):

Alternate title for the above:

"WP PROMOTES OFFICIAL PONZI SCHEME" ?

And also this:

Alternate title:

"Young Singaporeans Priced Out of National Ponzi Scheme 

turns to Renting!"

HDB. CPF. Why it all feels like a scheme. Or a scam.

How to house a population?

1) Forced savings for retirement: CPF.

2) Using savings to build public housing (HDB).

3) Sell public housing (flats) to citizens. No money? No problem. Citizens can use the money in the CPF they have been saving for retirement? (You can use that savings, but if you ever sell off your flat, you need to return the money to the CPF for your retirement.)



How to fund the retirement of elderly citizens with insufficient CPF savings?

1) CPF savings not enough? Used it all (or most of it) to buy a HDB flat? Well, you can sell it!

2) The buyers have no savings in hand? But they have savings in their CPF? We’ll just have to unlock those savings right? (Since 1981, CPF funds can be used to buy resale flats)

3) CPF money now has no value other than to purchase property. Prices of Resale HDB flats balloon. Which is GREAT for the old folks trying to retire. And the young couple who bought their old flat at an inflated price are funding their retirement.

Q: who is going to fund the retirement of the young couple? Even younger couples in the future?



Clarification: What do you mean “CPF money has no value other than to purchase property”?

One of the properties of money is that it is fungible. $10 is $10 and can be used to buy food, clothes, entertainment – anything.

CPF money is “monopoly money” (i.e. “non-fungible”). At least not when you are below 55 and cannot freely access it.

You can only use your CPF money within a defined range of purpose – buying properties, investments, and maybe education. Most people use it for properties.

What do I mean by “Monopoly Money” (or non-fungible)?

If you have $1m in cash (or non-CPF savings), you would have a choice of how you spend that cash - you could buy a very nice car, or a condo apartment, or a yacht or a country club membership, or start a business, or go on a (or several) holiday.

And every one of those choices would impact the other choices. If you spend $1m on a condo, you would be foregoing your other options. That is the opportunity cost.

But there isn’t that opportunity costs with CPF money! (At least not immediately.)

If someone had offered $400k for a flat, and you could offer $450 with your CPF, there is no question of you having to sacrifice buying something else with the extra $50k. Your children won’t have to give up their enrichment classes, you won’t have to give up your car, your family won’t have to give up their annual vacation.

The opportunity costs only comes if you are unable to sell your flat later when you need to liquidate your “asset” for your retirement.



HDB Flats – Asset and Investment?

1) So people buy flats as an investment – an asset that would appreciate in value.