SDP proposes Non-Open Market flats to address HDB's 99-year lease crisis

6 April 2019

Singapore Democrats

Non-Open Market, or NOM, flats that do not include land costs in their price should be introduced into the public housing system in Singapore.

This idea was raised at the SDP's launch of its housing policy Housing A Nation: Holistic Policies For Affordable Homes. Party Vice-Chairman, Mr John Tan, and Treasurer Mr Bryan Lim presented the landmark policy paper this afternoon.

Such a scheme would resolve the problem over the depreciating value of HDB flats due to the 99-year lease of the land.

National Development Minister Lawrence Wong caused a stir in 2017 when he said that “As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly.”

Singaporeans have expressed much concern over the matter as many hope to sell their flats at a profit that they can use for retirement.

“But depreciating values, especially of ageing flats, mean that owners cannot depend on their flats as a nest-egg,” Mr John Tan said during the launch. “The problem is compounded by the fact many Singaporeans have depleted their CPF savings to pay for their flats.”

The NOM scheme will price new HDB flats to include administrative, material, labour costs only but without land “cost” that is currently the practice.

As a result, prices of flats will be substantially lower, ranging from $70,000 for 2-room flats to $240,000 for 5-room flats or even less.

“As the name implies, however, flats bought under this scheme will not be allowed to be re-sold in the open market,” co-presenter Mr Bryan Lim said.

Owners wishing to dispose of their NOM flats will have to sell them back to the HDB, he added.

Singaporeans who purchase these flats can expect to take 9 to 15 years to pay off their housing loans (based on an interest rate of 3 percent) using no more than 20 percent of their gross income.

This further reduces the financial burden of home-buyers many of whom currently service their loans on a 30-year basis.

The lowered housing expenditure will free up capital for homeowners to save for their retirement.

The rationale for NOM flats, Mr Lim pointed out, is that the government should not profit from Singaporeans when it comes to public housing and Singaporeans should not use it as a means of investment for capital gain.

Public housing is a social good and should be used to meet the housing needs of the population, not profit-making for the government or citizens.

Current homeowners

Existing HDB owners can continue to sell their flats in the open market (OM). Of course, they are subjected to the vagaries of the prevailing market.

However, those who wish to take advantage of the NOM scheme can convert the status of their existing flats.

In such a case, the government will return the difference between the original price of their flats (as purchased from the HDB) and price of an equivalent NOM flat subject to a cap. This money will be credited back to the owner's CPF account or used to pay any outstanding housing loan that one may have taken.

The converted flats will then be subjected to rules governing NOM flats.

The NOM scheme essentially gives Singaporeans an added option of buying a home at a greatly reduced price. First-time HDB buyers can choose to buy an OM or NOM flat.

Ensuring a stable housing market

The NOM system will be introduced in a gradual manner to prevent a shock to the existing system and a sudden market correction.

This will provide stability to the OM prices while making NOM flats affordable for those who want it. The market correction of prices will take place in a gradual and measured way that will not cause financial distress to current homeowners.

Other policy initiatives presented by the SDP include:

1. Implementing the Young Families Priority Scheme (YFPS), a targeted priority scheme that grants balloting priority for first-timer families with children or couples who are expectant for Balance Flats or new Built-To-Order Flats in non-mature estates.

Housing-policy-paper-cover2. Increasing the inclusiveness of public housing by enabling single-parent families with children as well as singles to purchase and own their flats. The SDP plan will also increase the range of lower-income Singaporeans for housing rental.

3. Enhancing the Lease Buy-Back Scheme to more effectively assist needy senior citizens to have a secure retirement.

4. Barring Permanent Residents and non-citizens from buying or renting NOM flats.

Collectively, these SDP policies can contribute towards resolving some of the major problems affecting public housing in Singapore today and ensuring that our public housing system is compassionate and inclusive.

To read the full policy paper Housing A Nation: Holistic Policies For Affordable Homes, click here.