BTOs have always been a hot topic, but recently it received even more attention because of the delays and exorbitant prices. Associate Professor of Computer Science at NUS Dr. Ben Leong wrote an opinion piece reflecting on this issue. He made a number of good points.
The current BTO scheme delays Singaporeans’ plans to start a family
First of all, the shortage of flats mean that if some Singaporean want to get married and wants a new house straight away, they have to resort to more expensive options. Or they will have to wait.
Not only that, BTOs take at least 3-4 years to build. Even if couples do get a BTO upon their first application, they have to wait for it.
“What the BTO also does is that it delays the child-bearing for many couples. I encourage my students not to wait for BTO, but to marry and rent first. No need to wait for BTO to start a family! However, most think renting is a waste of money and they are not entirely wrong. My wife also tells me that women have this nesting syndrome and they want to have a place of their own before they start their families.”Dr. Ben Leong
Expensive BTOs mean that future generations have to stress about not being able to afford a roof over their heads.
The issue with our BTO scheme spans into the future. Despite the government’s promises that they will try to keep housing affordable, Prof Ben points out that the fact BTO prices are now at $700k makes this promise unbelievable.
This seemingly empty promise also makes the government seem like a tone-deaf bunch.
“One of likely the blind spots of the present government in my view is that the policy makers don’t seem to understand that “their” understanding of what affordable means is not what many people like as a definition of affordable.”Dr. Ben Leong
Moreover, when the lease on their flats run out, the money depreciates to zero. It is no wonder that the younger generation these days are worried about their future.
Prof Ben believes that the rich are to blame.
Vast majority of properties are owned by the rich. These people become even richer when they rent out apartments to foreigners who come here to work.
“I would venture to suggest that the vast majority are own by the rich, some locals, some foreigners. It doesn’t matter who owns the properties, what is true is that they are collecting rent and these days, *a lot* of rent.”Dr. Ben Leong
Moreover, they like to preach to the young about how smart they are for investing with properties.
Proposals for the government to consider.
For those who are about to criticize Prof Ben for complaining without offering solutions, he actually offered some viable options.
Proposal 1: Cost-Plus with No Resale. Basically, this means that HDB can only be sold back to HDB.
Proposal 2: Completely exclude private property owners from owning HDB.Those who move from HDB to private properties should not be allowed to retain their flats.
Proposal 3: Make foreigner ineligible to buy more than one property in Singapore and they must die die stay inside if they own it. This curbs demand, and protects Singaporeans.
Proposal 4: Ensure the Supply Exceeds Demand. To predict the demand, the government can first use birth and marriage statistics. For foreigners coming in, the government can decide how many to let in.
“Anyway, we don’t need to match supply and demand perfectly. In fact, we want to have excess supply, but not *too* much. Now, let’s take a moment to convince ourselves that this would work. I make 2 claims:
(1) A person can only physically sleep in one house at any one time;
(2) An unoccupied house is a money-losing proposition.Dr. Ben Leong
The first claim is self-evident. As for the second claim, for the properties that are not fully paid up, the owner need to pay mortgage and doesn’t get to collect rent. That is clearly net negative. But forget cash flow, even if the property were fully paid up, a 99-leasehold property would be depreciating every year. Even a freehold property will incur periodic maintenance and repair costs.”
Proposal 5: Use Political Will to Coerce the Market to Behave. This is about managing expectations.
“What the government probably needs to do is to make it abundantly clear where the government wants the market to go and that it has the willingness to inflict whatever pain it takes to make it happen (credible threat), and it might be enough.”Dr. Ben Leong
These are really good proposals, and the government should really consider working on it.
Read Prof Ben’s full piece here.