www.shaproperty.com

Published August 28, 2007

Some may slip through the HDB safety net

IT is a sensible policy to encourage home ownership. Secure housing, one of our most basic needs, also provides the place where we connect with the wider community through education, employment and community networks. In addition, owning one's home provides stability and makes for sound financial planning.

As Prime Minister Lee Hsien Loong said in his recent National Day Rally speech: 'Home ownership through an HDB flat is the best form of social welfare for citizens, as it gives every Singaporean a stake in Singapore's success. When we help you to buy a house and give you something which is valuable and which is rooted in Singapore, when Singapore grows, property values go up, your flat value goes up.'

A big part of the social support system in Singapore is centred on helping Singaporeans own an HDB flat. The public housing board will assume an even bigger role with the changes announced by Mr Lee in his speech.

To help more of the lower-income own their own homes, the government will give a more generous housing grant, raising it to $30,000 from $20,000. Meanwhile, more people will also become eligible for the grant as the household income limit will be increased from $3,000 to $4,000. The government will also be helping elderly flat owners to unlock the value of their flat and convert it into a stream of income to supplement their retirement expenses by offering a form of reverse mortgage. HDB will buy back the tail end of the flat's lease and leave the individual with a shorter lease of 30 years. HDB will then pay a lump sum to the owner and monthly payments for the rest of his or her life which will serve as a form of annuity. These new policies will reinforce the unique Singaporean HDB-centric social support system.

As noted in a report by Citigroup economist Chua Hak Bin yesterday, already the current distribution of social support or transfers is heavily skewed towards the decision to buy an HDB flat. The most generous of the subsidies are HDB housing grants of $30,000-$40,000 and a 20 per cent price discount for the purchase of new flats. Mr Chua posed the question of whether, over the longer term, Singapore's social support system should shift towards a more Workfare-centred one rather than the current HDB-centred one.

He said: 'Tying the most generous social support to home ownership may penalise those who are too poor to purchase an HDB flat and encourage the assumption of a heavier debt burden than otherwise. Should lower-income households who do not exercise their privilege to buy an HDB flat be given the lump-sum cash grant equivalent to $30,000-$40,000 (perhaps deposited into their CPF accounts) upon reaching a certain age instead? Such an option may produce an outcome where the social transfers are more a function of need rather than a decision tied to home ownership.'

Singaporeans who don't own HDB flats may number 200,000 or less. Not that large a group, but they are most likely the ones who need help most. Hence the suggestions are definitely worth considering.