SINGAPORE (Aug 27): Looking wistfully out of the window from the living room of her HDB flat in Serangoon North, Sharon Tan is pensive about the future. Tan, 33, has been living in the unit for as long as she remembers. The flat was built in 1985 and is about as old as she is.

Now, talk about the value of the asset, as well as the possibility of having to move out of the flat she grew up in and shares with her parents, worries her.

At the National Day Rally (NDR) 2018 on Aug 19, Prime Minister Lee Hsien Loong announced a new Voluntary Early Redevelopment Scheme for some HDB homes. Similar to en bloc sales, residents in the precinct will vote whether to take up the VERS scheme when the 99-year leasehold flats reach the 70-year mark.

“It seems silly thinking about something that is not going to happen for another 40 years, if it happens at all. But the thought is just a little uncomfortable,” Tan says. “I’ll be in my 70s then, and faced with either having to move out and pay who knows how much for a new flat when I’m retired, or be left with a flat that is worth nothing. That’s worrying.”

Under VERS, the government will buy back the whole precinct, and residents can use their proceeds to help pay for another flat. Lee cautioned, however, that the terms will be “less generous” than that of the Selective En bloc Redevelopment Scheme.

If residents vote not to proceed with VERS, they can continue to live in their flats until their leases run out. At the end of the 99-year term, the flats will be returned to HDB and the land the flats occupy will be surrendered to the state.

In addition, Lee announced an extension of the Home Improvement Programme, which will see HDB flats undergo upgrading works when they reach around 30 years old and again at the 60- to 70-year mark.

On the face of it, the two new housing initiatives announced at NDR 2018 will work in tandem to revitalise what is often a Singaporean’s most valuable asset — and maintain its value.

“HIP II and VERS are sweeteners in that they allow potentially three rounds of ‘refreshing’ for HDB flats, which should improve their liveability as well as maintain their resale value better. This should be positive for HDB flat owners,” Selena Ling, head of treasury research and strategy at OCBC Bank, tells The Edge Singapore.

The way Jefferies equity analyst Krishna Guha sees it, the announcement of new public housing initiatives addressed concerns of HDB owners related to the depletion of the 99-year lease and is likely to improve sentiment in the HDB resale market.

“With the announcement of the new schemes, HDB owners now have some certainty about future asset value,” Guha says in an Aug 21 report. “The new schemes may shift upgrader and investor demand away from the private property market… and help converge HDB resale and private property prices.” He notes that these schemes come after a prior announcement suggesting that leasehold properties will completely lose their value at the end of their lease tenure.

Lee’s reassurances at NDR 2018 come just a year after National Development Minister Lawrence Wong warned in March last year that HDB flat prices would fall towards the tail end of their leases. In other words, if the HDB flat does not qualify for SERS, its value will be zero when its lease expires at the 99-year mark. Further, Wong had noted that only 4% of HDB flats had been identified for SERS since it was launched in 1995.

Not surprisingly, Wong’s comments stirred up a storm among Singaporeans. After all, the national approach towards home ownership was based on the idea that a flat was an ever-appreciating asset that provides financial security for retirement.

Need for change in mindset

Real estate agent Ku Swee Yong, CEO of International Property Advisor, believes Singaporeans need to rethink their “outdated ideas” on home ownership and accept that those who pay for an HDB flat are in fact lessees for its 99-year term.

“Singaporeans should accept the immutable fact that HDB flats will be returned to the government with zero residual value after being leased out for 99 years,” Ku says in a commentary in The Straits Times on Aug 14.

The government will be keen, however, to reinforce the notion that Singaporeans are indeed homeowners. After all, the assurance of a nest egg during retirement keeps its citizens economically and psychologically connected to the city state.

“Our founding fathers started the Home Ownership Scheme in 1964. They wanted every citizen to benefit from the country’s growth and prosperity, and to have a valuable stake that would be theirs that they would defend, if necessary, with their lives. As a result, generations of Singaporeans have been uplifted by home ownership,” Lee said in his NDR speech.

“In fact, if you take our homeowners, who [make up] 90% of the population, and you look at the poorest one-fifth of homeowners, each have on average $200,000 of wealth in his or her HDB flat. $200,000 of wealth. That means you take the value of the flat, you subtract off his mortgage unpaid and he still has $200,000 to his name. This does not happen anywhere else,” he added.

His views echo those of the late Minister Mentor Lee Kuan Yew, who vowed to make home ownership the most valuable possession for Singaporeans. “Our families own their homes and are rooted to Singapore. Owning their homes gives everybody a sense of ownership,” he had said at the launch of the Tanjong Pagar Town Council’s Five-Year Masterplan in 2011. “Eighty-five per cent of Singaporeans live in HDB flats and we intend to keep the value of these homes up. It will never go down.”

Subsequent to NDR, Wong seems to be backtracking from his earlier comments. He now says an HDB flat will appreciate in value as the country prospers, describing it as a fundamental tenet of Singapore’s home ownership policy.

“There is a high likelihood that over a period of time, if the economy does well, if incomes rise, then property values will appreciate together with the fundamentals of the economy, and your stake in the nation — your home — can also appreciate in value,” Wong was quoted as saying at a forum organised by government feedback unit REACH on Aug 21 to get comments on NDR.

Minister of State in the Ministry of Foreign Affairs and Ministry of Social and Family Development Sam Tan is reported to have said at the same event that “our homes will be an important and valuable asset that we can use as a retirement nest egg”.

Uncertainties remain

However, some observers say VERS, which would only start about 20 years from now, could simply be placating today’s owners and kicking the proverbial can down the road. For residents such as Sharon Tan, it could be seen as merely ignoring the problem, which will have to be dealt with further in the future.

Either way, the value of a Singaporean’s nest egg is bound to be a hot button issue ahead of the next general election, which must be held by mid-January 2021 but is widely expected to take place next year.

“We do not feel that the government is kicking the can down the road. There is still some time before the next batch of HDB flats reaches a remaining lease of 40 years, and the government is already addressing the issues now,” says Christine Sun, head of research and consultancy at real estate agency OrangeTee & Tie.

“Overall, we feel positive about these new announcements and that the government has responded to concerns on the ground. However, there are still many details that need clarification and we can only see the impact of these new policies many years down the road.”

Indeed, the devil is in the details. But Wong has said the government is “not quite ready with all the details”. He denies the VERS announcement is a way of “fobbing off questions on housing” ahead of the next general election. But, in an interview with local media on Aug 21, he says “it would be rash to rush into details now when some of these things can only happen decades from now”.

The way Tan sees it, the new housing initiatives are likely to be positive, but leave plenty of uncertainty — at least for now. “They call it a nest egg. But you can’t help but wonder if it’s a real egg, or an artificial egg to trick chickens into laying eggs here,” she says.