KHAW CONFIRMS VALUE OF HDB FLATS WILL BE ZERO AT END OF 99-YEAR LEASE

[HitandRun]

Actually, most studies is better than anecdotal evidence, as long as you are able to correct for bias.


In "Social Policy in an Aging Society" By David Reisman, Housing Assets as a percentage of total assets for the total population is : SG 51%, US 28%, Japan 40%. For the age group of 50+, the ratios are 75% for SG and 20% for the US. That, by itself, doesn't mean Singaporeans over consume. After all, a person with 3 million in the bank account and with a fully paid 2 million dollar house is not "over consuming".

http://www.businesstimes.com.sg/banking-...t-adequacy. This was conducted by the Centre of Research on the Economics of Aging based on following 8000 people over 16 months. Some key findings
- 18% of people received a health shock and went through a spike in healthcare spending.
- a large fraction of household wealth is held in property, but especially so for those in 4 room HDB flats or smaller

https://www.cpf.gov.sg/Assets/Members/Do...chemes.pdf Between 1967 and 2007, an average of about 60% of total net CPF withdrawls were for housing annually. [my words: money that isn't accumulating for retirement]

https://www.cpf.gov.sg/Assets/Members/Do...lances.pdf (2011)

• Net balances of CPF members between the ages of 45-54 was about about 8k at the 25th percentile.
  
• At the 50th percentile, the net balance for the age group is about 35k
  
• At the 75th percentile, it is about 95k.'
  
  Note: when I say Singaporeans are over consuming, do not make the mistake of assuming your friends and relatives are typical.
  

I can think of a number of problems with the data highlighted:

1. Let's take year 2010 as a base year. There are ~ 3.3 million CPF members but only ~ 1.7 million members are active. Source: CPF members { I don't think CPF is created for non active members to accumulate meaningful balances. That would be almost like magic.}

2. I suspect Singaporeans might make up only 1.5 million of the active members. I believe that PRs should be not included because that is not your argument and I believe they might have a shorter time to accumulate funds in their CPF accounts.

3. Assuming a person is employed for $1000 per month when he is 20 years old. If he gets 12 months of pay without bonuses but an increment of 2% per year, he will be paid $2165 by the 40th year when he is 60 years old. Just his special account balance would still exceed $100,000 by the time he is 60 assuming the CPF interest rate is 4% p.a. I believe the typical Singaporean can fare much better.

4. Even if one has low balances in the CPF account, most people would have other forms of savings including cash, jewellery or insurance.

5. On top of that, every Singaporean I know provides some allowance to their parents, unless the parents do not need them. I do admit there would be some Singaporeans who cannot afford to do so but that should be in the minority.

To sum up, the median net balance of a CPF account holder is (1) highly distorted and (2) does not provide much evidence that Singaporeans are over consuming housing at the expense of retirement.

[tanjm]

But let's not fall into the Marlboro Tan's fallacy during the down times that Singaporeans prefer 3&4 room flats, even to extent of downgrading.

I'm relatively apolitical, and I feel uncomfortable if you reply to me and "pollute" the thread I'm in, with a derogatory term (I presume "Malboro" refers to Mah Bow Tan). Also, if you are going to say someone said something, I'd prefer you to post a link to the original source so that I can see both context and actual words used.

Back to the topic at hand.

People's baseline is set by what they are used to now. So a person who goes from a 40 sqft living space to a 100 sqft one, would be very happy I presume. While one that goes from a 500 to a 300 sqft would be less so. My point was not to say "Singaporeans should be happy with what they have". My point was to say "Singaporeans are over consuming housing at the expense of retirement savings". I said this very clearly in my post, so I'm not happy its been twisted for some other purpose.

For someone who is apolitical you sounded quite uptight. I have better things to do than twist words in this forum

Here's some links that you can refer to, but it will be laborious to find those exact words that he mentioned in his walkabout (not to mentioned I paraphrased from my memory) but the policy trend is clear. I wouldn't even want to bother comparing his policies vs Khaw Boon Wan's

http://www.nas.gov.sg/archivesonline/spe...303979.htm
https://singapore2025.wordpress.com/2011...singapore/
http://www.stproperty.sg/articles-proper...pt/a/64332

Actually, I'm not very interested in reading up on what Mah Bow Tan said. He could have said the 99% can fly a kite for all I care. I don't even know much about him. I'm relatively apolitical to that extent. The only reason I asked for a link because I always attempt to post a link for any factoid I make and I expect others to. Especially, if it is a derogatory remark.

One reason why I am "uptight" is that I specifically said Singaporeans overconsume housing about 3 times in 3 separate posts, but people pick and choose on what they think I said.

Peace.

[tanjm]

I thought this is a good summary.
https://lkyspp.nus.edu.sg/wp-content/upl...gapore.pdf

Agree with tanjm that the use of CPF was a key policy - first by allowing it for HDB and then for private housing.

However, "over consuming housing at the expense of retirement savings" isn't the real issue here since public housing can be monetised for retirement. The real issue here is the uncertainty of the monetisation dateline if the value will be zero at Year 99. Like in a bubble, when should one leave the party?

Monetisation is not that easy. Reverse Mortages and LBS (Lease Buyback Scheme) is not popular at all. In fact, both NTUC Income and OCBC, which offered reverse mortgages, stopped offering it in about 2009 I think. 

It's not that popular in other countries either. 

The problem is that RMs have 3 key risks. Property Price risk, interest rate risk, and longevity risk. This makes it a problem for a ordinary person to feel certain about borrowing money on the home he lives in. 

Now that Singapore's economy is slowing down, house inflation is going to be subdued. As I mentioned before, housing is an inflation trade. New prospective house buyers should probably think about renting or buying smaller to save money. In the past, when house inflation was higher, it may have made sense esp when using CPF money to pay for it.

[tanjm]

Actually, most studies is better than anecdotal evidence, as long as you are able to correct for bias.


In "Social Policy in an Aging Society" By David Reisman, Housing Assets as a percentage of total assets for the total population is : SG 51%, US 28%, Japan 40%. For the age group of 50+, the ratios are 75% for SG and 20% for the US. That, by itself, doesn't mean Singaporeans over consume. After all, a person with 3 million in the bank account and with a fully paid 2 million dollar house is not "over consuming".

http://www.businesstimes.com.sg/banking-...t-adequacy. This was conducted by the Centre of Research on the Economics of Aging based on following 8000 people over 16 months. Some key findings
- 18% of people received a health shock and went through a spike in healthcare spending.
- a large fraction of household wealth is held in property, but especially so for those in 4 room HDB flats or smaller

https://www.cpf.gov.sg/Assets/Members/Do...chemes.pdf Between 1967 and 2007, an average of about 60% of total net CPF withdrawls were for housing annually. [my words: money that isn't accumulating for retirement]

https://www.cpf.gov.sg/Assets/Members/Do...lances.pdf (2011)

• Net balances of CPF members between the ages of 45-54 was about about 8k at the 25th percentile.
  
• At the 50th percentile, the net balance for the age group is about 35k
  
• At the 75th percentile, it is about 95k.'
  
  Note: when I say Singaporeans are over consuming, do not make the mistake of assuming your friends and relatives are typical.
  

I can think of a number of problems with the data highlighted:

1. Let's take year 2010 as a base year. There are ~ 3.3 million CPF members but only ~ 1.7 million members are active. Source: CPF members { I don't think CPF is created for non active members to accumulate meaningful balances. That would be almost like magic.}

2. I suspect Singaporeans might make up only 1.5 million of the active members. I believe that PRs should be not included because that is not your argument and I believe they might have a shorter time to accumulate funds in their CPF accounts.

3. Assuming a person is employed for $1000 per month when he is 20 years old. If he gets 12 months of pay without bonuses but an increment of 2% per year, he will be paid $2165 by the 40th year when he is 60 years old. Just his special account balance would still exceed $100,000 by the time he is 60 assuming the CPF interest rate is 4% p.a. I believe the typical Singaporean can fare much better.

4. Even if one has low balances in the CPF account, most people would have other forms of savings including cash, jewellery or insurance.

5. On top of that, every Singaporean I know provides some allowance to their parents, unless the parents do not need them. I do admit there would be some Singaporeans who cannot afford to do so but that should be in the minority.

To sum up, the median net balance of a CPF account holder is (1) highly distorted and (2) does not provide much evidence that Singaporeans are over consuming housing at the expense of retirement.

You cannot depend on children to fund your retirement. Many people are now unmarried or if married, may not have children - our TFR is in the 1.2 region (1.2 children per woman. If one woman has 3 children, probably another 2 have no children). The current baby boomer generation is probably the last generation to be able to rely on it. This is an inter-generational transfer in any case. You can get the same effect by taxing the working population - not popular. It also does not fit the traditional definition of retirement adequacy - which needs to be self-sufficient in oneself.

You do have a point about non-CPF balances. But do you have any numbers? Otherwise, it is a case of one assertion over another. Or rather one belief system over another. Actually, there have been surveys conducted by the likes of insurance companies indicating retirement inadequacy, but someone in this thread rubbished the surveys as biased (actually I can believe they are biased, but should have a grain of truth).

Actually, there is a limitation in the CPF data that you didn't point out, which I will. The 25th percentile numbers cannot be relied on since there will be members (like housewives) who only worked a little. The 75th percentile numbers, however, should represent a solid working sector - but with only 95k.

As for your point 3, I will note that in my parents time, a $100 salary was a good salary. Most salaries were likely even lower. Your $1000 per month example only applies to current youths. Also I believe the special account rules have changed over time - will have to look it up.

[tanjm]

Actually, in one way, I don't have to produce numbers to show that housing reduces retirement adequacy. Only logic is needed.

If CPF is not allowed to be used for housing at all, then obviously, nearly everyone would have vastly more CPF balances. Without CPF to be used for housing, people will not be able to pay so much for housing. Housing prices would then fall, and/or more people would rent and/or people would buy smaller houses - this is demand and supply 101.

[tanjm]

ok. I finally found a study that is consistent with my thesis of housing over consumption and effects on inadequacy of retirement balances. Done by an academic (so you can't blame an insurance company for this).

https://www.researchgate.net/publication...nt_Incomes

The abstract reads (in part):
Singapore has a unique policy of allowing the use of mandatory social security contributions to finance home ownership. An intertemporal model of housing demand is employed to demonstrate analytically that the CPF scheme can distort an individuals intertemporal and intratemporal consumption choices, and induce Singaporeans to demand more housing than they would otherwise. The withdrawals for housing have also affected the adequacy of CPF balances for financing retirement.

[corydorus]

At the end of the day, if you are retired and run out of cash, you can still sell your apartment and start renting cheap.
This will extend good 20 years easily for most just on it alone with basic necessity spending. I don't think they can or should ask for more living standard if they fail to plan or has it in them.

[tanjm]

This is a bit dated as its from a 2001 paper quoting a 1995 study, but I would be surprised if it still not relevant in general. Its from "Housing and the elderly in Singapore - financial and quality of life implications of ageing in place" by Kwame, AD and Wong, Grace from NUS.

As I mentioned, with TFR (Total Fertility Rate) at about 1.2, the number of childless (or single child) elderly people is going to increase dramatically. Relying on your children is not "retirement adequacy".

Quote:
According to the 1995 National Survey of Senior Citizens in Singapore, the most common sources of finance for the elderly Singaporean are Central Provident Funds (CPF – the equivalent of social security in the West) and investments (25.7%), financial support from children (64.0%), personal savings and insurance (6.6%), and financial support from spouse (3.7%).

[Temperament]

Actually, the G since(from LKY's time)wants the people of Singapore "own" the homes they stay in.

The G wants Singaporeans to feel in case there is a war, the people at least have a reason to stay and fight.

PAK SEE BUAY CHOW's reason.

So can you blame Singaporeans?

Anyway, i think it's a good policy.

[Big Toe]

The subject of of inadequate retirement funds /over consumption of housing / lease running out at the end of 99 years is a dynamic one where there is no straight answer to it.

Inadequate retirement funds is not as big of an issue if one is willing to compromise on a simple lifestyle/healthcare.
There will always be smaller 3 room flats/rental flats/flats built for the elderly/class C wards.

For housing I think it boils down to what you are buying. Paying a high price for a residential property with short lease is a very bad idea,But the banks are already very careful with that.

Whether the lease will be topped up after it expires is subjective. It may or may not happen. This is already factored into the prices of properties with short lease. The only reasons why it can appreciate significantly is when there is a bull run on property and the newer properties have their tenure cut.(like what happened to industrial properties, which is progressively reduced, which lends some support to the oversupply situation currently)