Comments, opinions and an occasional ramble
Home ownership as a hedge against inflation
Finance Minister Tharman Shanmugaratnam said in a Straits Times report that home ownership helps to hedge against inflation.
“The 95 per cent of Singaporeans who own their homes are not affected by inflation in the rental market, which is especially worrisome if you are a retiree householder.”
On its face, what Tharman said is valid. If indeed so many Singaporeans are owning their own home, the effects of inflation is already mitigated. However, I do wonder, how many people own a fully paid home?
For example, I would fall into the category of Singaporeans who own their homes as I signed the lease agreement with HDB. However, I don’t exactly own my home, at least not until December 2037, because I have a 30 year home loan to pay off.
Only people who have either finished paying their home loan or who bought their homes when the economy is in a slump some years back would have the effects of rental inflation mitigated. If you just bought a piece of property in recent months, technically you own your home and do not suffer rental inflation but, you are still suffering from inflation in property prices.
Add in the loan interest over the next 20 – 30 years and you probably are not any better off than those who rent their homes. The good thing for those who rent is that their rental drops when the economy dips but if you have a home loan, you have to pay the monthly installment regardless of whether the economy dips or not. Of course, I must qualify that you eventually get to own that piece of property but that doesn’t mean that home owners don’t suffer the effects of housing-related inflation.
Considering how hot the property market was in the past year, I’m quite sure there is a fair number of people who are now saddled with huge loans to pay off as a result of a bouyant property market. Certainly, one can make the argument that it’s not the government’s business to tell people whether they should or should not sell their homes and saddle themselves with fresh loans. However, if the government is serious about home ownership as a hedge against inflation, I think there should be policies that encourages people not to sell their homes and land themselves in fresh debt.
One possible way would be to revise the current subsidies system for first time home owners to one that is such that the longer a person owns a flat, the more housing subsidies a person can enjoy, of course, subject to a maximum cap. The subsidies will be paid out yearly, with low subsidies in the initial years and higher subsidies as time passes. This system is flexible and allows home owners who wish to sell their flat within a few years of purchase the option of doing so, which is not possible under the current system.
The problem with this system is that it makes the buyer pay full market price initially and this results in a whole new set of problems for certain groups of people so this idea might not be very feasible after all. However, if we truly desire for home ownership to be a hedge against inflation, we have to create incentives (I favour incentives over disincentives) for people to own a fully paid home and get them to stay in that home. If people are going to keep on selling their homes and taking out fresh loans, it will be difficult to escape the clutches of housing related inflation.
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about 3 years ago
Frankly, the way our HDB policies are structured, we are merely “renting” from the government, albeit paying “rent” for 30-years for a 99-year agreement…
Even if the home loan payments don’t hit us, inflation will still be felt via higher conservancy charges, car park charges, utilities etc etc
Last but not least, don’t forget how rising Net Annual Value can come and bite us later when inflation pushes rental high enough to warrant us having to pay higher property taxes…
about 3 years ago
xtrocious,
Well, I guess if we can’t outlive the lease, it’s as good as owning it. After all, we can’t bring the flat with us when we die, no?
But I do have something to say about the en bloc scheme of HDB flats. People finish paying off their flats, HDB comes along and decide the flat is due for en bloc and then people have to pay for a new flat again.
about 3 years ago
Hi Aaron, true we can’t bring our flats along with us when we pass on but we can still pass it on to our descendents (for those who intend of having any) or next of kins…
However, given that the government now expects everyone of us to live to ripe old age, there may not be much to pass on in terms of lease…
Anyway, it is true that each time the HDB enblocs the apartments, they are effectively asking people to top up and pay for another apartment…
about 3 years ago
Legally, all those who signed a 99-year lease, or any lease, cannot be defined as the “owners” of any property, let alone a govt-controlled and political-party-dominated HDB (Highly Dictated Bureau) flat. The use of the word “OWNERS” (when defining the status of HDB flat dwellers) has been too frequently and speedily dispensed off by people who seek personal popularity and recognition, without giving any due respect to the intelligence and literacy of the common people, the very people whom they are seeking support from.
Sad it is that a tiny island, boasting of being 1st World this and that, still harbor such naive ostriches that can be easily mesmerized by the self-enriching and cunning foxes and wolves in white sheep skins!
By now some, if not all, should very well know that each and every new rule or regulation is politically motivated to seek the continued control and dominance of a single political party, not as it would like to have been believed, to and for the benefit of the majority of the people. View all policies in the overall strategic objective, and one would easily feel and sense the ultimate and final objective of all those in control of your life!
This has been a country I once loved but it has been too long for me to want to continue living here under such make-belief conditions. Even the news and tv programs that we read, listen to and watch, have been a mass of nothing but propaganda with political objectives.
Wake up, educated ostriches!
about 3 years ago
One possible way would be to revise the current subsidies system for first time home owners to one that is such that the longer a person owns a flat, the more housing subsidies a person can enjoy, of course, subject to a maximum cap. The subsidies will be paid out yearly, with low subsidies in the initial years and higher subsidies as time passes. This system is flexible and allows home owners who wish to sell their flat within a few years of purchase the option of doing so, which is not possible under the current system.
better still, why not give free housing?