Singapore's housing dilemma: What are the broader implications?

By Manu Bhaskaran / The Edge Singapore | September 20, 2018 3:00 PM SGT
SINGAPORE (Sept 17): In the past year and a half, the issue of the 99-year leases on Housing & Development Board (HDB) flats has triggered much debate. Now might be a good time to step back and examine what exactly has changed as a result of this debate and what the broader implications are. In fact, this issue could be a major game changer in many areas. Certainly, housing market dynamics will change, there could be shifts in savings behaviour and we are also likely to see major policy changes over time. These are big changes and it is important that Singaporeans have a clear understanding of these implications.
What has changed?
In March last year, the government clarified that when the 99-year lease on an HDB flat ends, the flat will revert to the HDB with zero value left for the owner of the lease. You might think that this was stating the obvious, but to many people it seemed to be a bit of a surprise. Clearly, the market in Singapore is not perfect, since it appears that there was a degree of myopia in how many Singaporeans viewed the HDB lease. This myopia had also been evident in the case of the 60-year leases on some houses in Geylang: When the government advised owners that the lease would run out in 2020 and the properties would revert to the government, some owners were taken aback. So, the first change is that this widespread misunderstanding about the lease has been resolved: Lease owners know what to expect and must therefore change their economic behaviour accordingly.
The second change is that the government has signalled that there is not much it can do to somehow magically create value for owners of the lease as it reaches its expiry date. National Development Minister Lawrence Wong explained that the Selective En-bloc Redevelopment Scheme was only practicable for a tiny fraction of all HDB flats. So, SERS, which many had assumed would be extended to most HDB flats to help overcome this fall in lease value to zero, is now known clearly to not be a solution.