The theory goes like this: you buy a house, you keep it over the years hoping for it to value, you sell the house, downsize and fund your retirement with the proceeds.
But that’s the problem – housing prices can only go up and it will then become the interest of the government to keep it up. Which means it is not in the country’s interest to see prices fall. Which also means, prices can only get higher and higher.
In Singapore, the Government starts off your homeownership journey with a grant. Lawerence Wong explains that a 30-yr old couple with a combined monthly income of $5k can get about $75k worth of grants. When the time comes to “right-size” some 35 years later, the Government gives you another grant of about $20k in cash.
We always say that the Government doesn’t fund social security in Singapore and that there is no welfare, but consider this: taxes fund government funding. If government funding rises, taxes have to increase. We’re ultimately using taxes to fund our retirement via property.
That’s welfare isn’t it? Albeit through a longer route and handing you control through the flexibility of ownership.
All this is good for the couple owning property today. But not so good for the couple buying a new house in the year 2052.
Inflation rises at 2% -4% a year, if salaries rise in tandem then HDB will have to give larger and larger grants in order to help them afford to buy. Add to this problem the fact that Singapore is land scarce and it may be a bit hard to fathom the price buyers will be paying in 35 years.
In order to preserve affordability of future property, perhaps it is time to consider if it is time for Singaporeans to re-orientate their expectations of HDB capitalisation.
I’m just giving a rough guess based on the conversations I have with owners, but for the past few decades Singaporeans have been realising gains of up to 150% over 10 years from the sale of their apartments. Is this a reasonable expectation moving forward?
The wealth accumulated in our homes has become a central part of our retirement. Because of this, the government cannot afford for prices to fall and as a consequence, future generations are going to have to work harder and longer to fund their own homes.
In many parts of the world, young people cannot afford their own homes and have to rely on renting accommodation.
If we do not alter our expectations, I fear we may be going the same way.