Singapore Property Related Podcasts (Part 4)

What does HDB flat ownership really mean? (25 May 2018) – The Pulse Podcast

The Housing Development Board (HDB) resale market for flats has been lack-lustre, with the resale price index falling for 6 consecutive months and in general over the past few years. This could be attributed to the gradual decay of the 99 year leases and also after the government’s announcement that not all old flats are eligible for Voluntary Early Redevelopment Scheme (VERS). Increasingly, there will be more and more old flats.

Based on statistics, only 4% of flats are under Selective En-bloc Redevelopment Scheme (SERS) programme currently and Singaporeans should never pin their hopes on that. There are currently around a million flats in Singapore. After 99 years, the government will take back the land and possibly re-develop it, and this will rejuvenate the land for the new generation.

Is home ownership a misnomer? Are people buying a 99 year rental from HDB? Now, you can also re-sell the lease to someone else or even a portion back to the government under the sale-and-leaseback scheme. However, people need to realise that they don’t own the land. Only recently did people start talking about it and start realising the truth. For a long time, many people are able to sell their flats for profits, so they didn’t see a need to worry or even complain.

HDB should consider the terms ‘lessee’ and ‘lessor’ instead. Now, there are lease buy-back schemes, 2 room flats for the elderly etc. Singaporeans expect that government will buy back their own flats via SERS. However, if you do that, HDB will be like de-facto freehold property. This SERS scheme is very expensive for HDB and to the state and HDB is claiming that they are running deficits every year. As such, it is unrealistic for them to conduct SERS for all flats and indeed, the government has never promised SERS at all. Moral of the story: Never believe too much in what your housing agent says.

There are suggestions of removing the profit element of HDB, to level the playing field, as it is only a home. One way is to allow people to sell it back to the government, and the authorities can do a revaluation, and sell it off to someone else. However, through this, people won’t be able to make a profit from selling their flats. You can monetise your flat to fund your retirement. Perhaps for new flats, you could only impose that you can only sell back to the government. There is ‘definitely’ a cost to enjoy your property, which people need to understand. In modern times, the truth is that people are making less profits from selling their HDB.

In the gig economy, not many will have stable incomes. As such, HDB should give young people the option to rent flats at a cheap rate. In many countries, people overseas will rent from the government for public housing. If you let private developers buy over government land and old HDB flats, then it will be like DBSS, which is flawed and the scheme was eventually scrapped. This could reduce the number of public housing in the future.

If you limit the use of CPF to buy a flat, then flat prices will drop but you will have more to spend in your retirement. The thing is that some Singaporeans are only asset rich, but not cash rich. However, the social contract of the government and the people is that Singaporeans enjoy asset appreciation from their flats. It may be possible to allow others to rent HDB, and have a home rental scheme. The government should try to avoid kicking the can down the road and there needs to be a more open forum for Singaporeans to discuss this issue.


Investment Related Podcast (Part 1)

Making the Most of the CPF (Asian Business First Podcast – 24 Jan 2019)

Interest rates have been low after the 2009 global financial crisis. How are you going to derive good investment returns after the financial crisis?

Savings and retirement plans need to be planned. In Singapore, there is a need for a compulsory savings plan and it’s called CPF. For CPF, you can get a payout from age 55. The fact is that everyone is working longer and retiring later nowadays and that CPF contribution rates get reduced as you get older.

CPF contributions get divided into Ordinary Account (OA), Special Account (SA) and Medisave. It is definitely important for everyone to think about their future and retirement right now. For OA, you can use it for mortgage repayments, loan to children for university fees, to buy insurance and to buy investments. Special Account (SA) is for retirement monies, and it has a higher interest rate of 4%. For Medisave, you can use to pay premiums for Medishield life, Eldershield life, and also hospitalization bills. Some people use the CPF Investment Scheme (CPFIS) to invest their OA monies.

Risk-free rate for CPF is at 2.5%, which is higher than bank deposit rates. Government provide additional options for others if they wish to invest. You should beat the 2.5% if you want to use the CPFIS to invest. For SA, do not use it to invest in any products, guaranteed at 4% per year, and it is risk free. For Medisave, you can’t use it anyway.

One could use the monies from OA to pay for mortgage and if you don’t use cash to invest anyway, then might as well use it to pay for the mortgage, rather than using CPF. If you are willing to take some risk, you can use the OA to make some investments. CPF provides an option for conservative investors. In general, equities should outperform the 2.5% CPF interest rate.

The contribution rate is 37% for both employee and employer’s contributions. It limits your contribution to $6000 * 17 months * 37%, if you earn more than that, that portion doesn’t need to contribute CPF.

GIC will invest the CPF funds, and the government will guarantee the difference. You can top up your RA for up to $176,000, which is the max (SRS account). However, it is important to have liquidity before you do it. Or can top up the other 3 accounts, if you want to top up, as well (Voluntary contributory scheme), cannot top up OA only.

CPF Life guarantees the payout from age 65. There are standard plan ($750 to $800 per month), basic plan and escalating plan. Are the amounts sufficient for retirement? The standard plan pays the most when you are alive, however, the bequest after your demise will be the smallest. Basic pays lesser in your lifetime, but with the highest bequest upon death. For the escalating payout plan, the first payout is lower than the standard plan by 20%, however, it will increase over time. The standard plan is the default plan.

CPF is really an annuity. It is possible to transfer from the OA to the RA. CPF should fund the base of your retirement lifestyle. Liquidity is very important. Since Jan 2008, there has not been changes in the CPF interest rates. However, things may change in the future. Is it a good time to enter in the equity market? For equities, you should be assured at least of 2.5% if you want to invest in stocks. During end 2018, the market was at a low and it was possible to enter the market. For people in retirement, you do not want to take risks, and CPF is the best returns annuity scheme around.