The Big Read in short: The hard truths and trade-offs of homeownership in Singapore

SINGAPORE — When Mr J Parasuraman and his wife moved out of his parents’ three-room flat and bought his first house in 1986 from the Housing and Development Board (HDB) at the age of 29, there was only one thing on their minds: To have more living space. 

“Even though there were only the two of us at that time, we knew we would be having kids. So, we decided to go for the executive maisonette,” said the 67-year-old executive director and consultant of a financial advisory firm.

He forked out about S$111,000 — a sizeable sum back then — to get his dream home in Hougang. Today, his unit can fetch between S$830,000 and S$1.2 million on the resale market, based on the listings of similar maisonettes in Hougang. 

Almost four decades on, it is not only property prices that have risen in tandem with Singapore's rapid economic growth — housing expectations and aspirations of the younger generations have gone up too.  

Take 25-year-old entrepreneur Lhu Wen Kai for example. He moved out of his parents’ flat in 2021 and had rented a one-room condominium because he wanted more personal space. 

A few weeks ago, he returned to living with his parents, as the rent has gone up too much. Having had a taste of living in a private property, he said he is unlikely to buy a public flat in future if he were to get a place of his own.

He added that if the prices of private properties are out of reach, he would move to a neighbouring country to "fulfill my private housing dream". 

WHY IT MATTERS

Mr Lhu is not alone in having the aspiration of owning a private property. 

The latest edition of the TODAY Youth Survey found that eight in 10 youths said owning a private property is one of their life goals, and six in 10 expect to be better off than their parents in terms of housing. 

The TODAY Youth Survey 2023, which was conducted in August, polled 1,000 respondents aged between 18 and 35. 

On its part, the Government has continuously sought to meet the rising expectations including by raising the standard of public housing and surrounding amenities, while keeping flats affordable using benchmarks such as home price-to-income ratios and the proportion of monthly income that buyers use to service mortgage instalment payments, which remain lower compared to international benchmarks.

Meeting Singaporeans' housing needs and aspirations is a perennial concern, with the topic being aired in Parliament from time to time. Outside of Parliament, it is also a common topic of discussion, be it in the coffeeshops, on internet forums or social media. 

What is less talked about, however, are the trade-offs involved when a land-scarce city-state measuring 719 sq km seeks to meet the housing needs and aspirations of over four million residents (out of a total population of 5.92 million). 

Given Singapore’s limited land space and constraints as a city-state, some trade-offs are inevitable, economists and property analysts reiterated. 

THE BIG PICTURE

On youths' housing aspirations, economist Song Seng Wun noted that these were part and parcel of a society becoming more affluent. While Singapore's economic growth has moderated in recent years as its economy matures, median household income has grown by 33 per cent in the past decade based on latest public statistics — from S$7,566 in 2012 to S$10,099 in 2022.

“The needs and the basic things may differ as economic development generates employment opportunities to allow people to aspire towards higher minimum basic needs,” said Mr Song, who is an economic adviser at financial service provider CGS-CIMB.

When the push for home ownership began during the early years of nation-building in the 1960s, the majority moved to affordable public housing, said Mr Song. 

Today, while public housing ownership is still high — about eight in 10 Singapore residents live in public housing — the proportion has been on an overall downward trend over the last decade. 

Based on data from the Singapore Department of Statistics, about 81.6 per cent of residents live in public housing in 2012. The proportion dropped to about 79.0 per cent in 2017. Last year, it fell further to about 77.9 per cent. 

“More people, even first timers, can afford private housing as their first home”, Mr Song noted.

Trade-off #1: More subsidies = higher taxpayer expenditure

To keep public housing affordable, the Government currently provides targeted subsidies for certain groups deemed to need them the most, such as first-time homeowners, property analysts noted.

Huttons Asia's senior director for data analytics Lee Sze Teck said handing out more subsidies is the “easiest” way to help home buyers but cautioned that this is “not sustainable”.

Agreeing, Mr Nicholas Mak, chief research officer at property technology company Mogul.sg, said: “The subsidy that is paid up in the BTO exercises today is actually from the taxpayers of yesteryears.”

Handing out more subsidies to flat buyers simply means growing a bigger bill that the latter would “end up also paying for” indirectly through taxes, he added.

Trade-off #2: Cheaper resale price = Lower asset appreciation

Mr Christopher Gee, senior research fellow and deputy director at Institute of Policy Studies, said that subsidies for new flats have benefited first-time buyers by making such homes affordable. And when these owners sell their flats, they can enjoy capital gains and are able to “monetise” the subsidies.

Mr Mak of Mogul.sg noted that as of 2022, there were over 1.2 million owner-occupied HDB flats.

Pointing out that Singaporeans typically use CPF savings to pay for their flats, he noted that suppressing resale market prices would effectively “reduce your wealth, (affecting) the flat in which your CPF money is invested in”.

Mr Song said that realistically, a homeowner cannot have it both ways. “Unless obviously, you're looking at different (housing) areas, where you hope to benefit from the higher selling prices from that particular area, and benefit from an area where you may not have to pay as much (for a house),” he said. 

Trade-off #3: More new homes in popular locations = possible traffic congestion, displacement of existing residents 

Experts said it would be untenable to keep building new homes in existing housing estates to place everyone near their parents, for example, given the limited land availability.

Can't the Government build taller flats and increase the supply of flats at mature estates? 

Not only would this involve displacing residents from existing flats to make way for new ones but building taller flats is also not without its limits, the experts pointed out.

“There is a limit on how high we can build our flats. We need to consider the flight path of planes, wind flow and shadow cast by tall buildings on shorter buildings,” said Mr Lee from Huttons Asia.

Dr Tan Tee Khoon, country manager for Singapore at PropertyGuru Group, added that other limitations include higher construction costs with taller buildings and potential traffic congestions.

“The vision of the Master Plan is to create employment clusters and make suburban areas more appealing, like Tengah,” said Dr Tan. 

“The demand for mature and popular locations is infinite. Hence, how to temper demand while ensuring viability would be top on the agenda for building HDB estates.”

Trade-off #4: Increasing supply of private homes, making them more attainable = fewer public flats, private home prices won't necessarily fall 

Experts say that even if more land were to be set aside for private property developers, there is “no guarantee” that prices would fall. 

IPS’ Mr Gee said developers in the private market are at liberty to set prices “however they wish”.

“If you (the Government) sell more land to private developers, are you then able to control the price of housing? They (developers) can charge whatever they want,” he added.

Mr Mak of Mogul.sg said that while there may be some degree of competition among different developers, it would not lead to lower prices as they would first and foremost want to protect their profit margins.

He added that developers would also need to bid for the land parcels which they intend to build the housing project on, which would then be taken into account when selling the properties.

Mr Song said that from a policy standpoint, the Government's priority is to cater to first-time homeowners and ensure that they are able to afford public housing.

“(It is) not about making private housing more affordable because that's not the policy objective of homeownership,” he reiterated. 

Trade-off #5: More flats for singles = fewer flats for families

Experts said that lowering the age for singles to buy HDB flats would potentially lead to more demand in the market and push up prices.

Mr Lee of Huttons Asia said that in such a scenario, it is likely that BTO flats would see a higher demand than resale ones, given their greater affordability.

“This may lead to calls for more flats to be built for singles. A balance needs to be struck between building for families and singles,” he said.

The experts also pointed out that even though singles and families may not compete for the same type of flats, diverting some space meant for bigger flats to build smaller ones for singles instead could still reduce the supply of flats for families.

While the analysts welcome the Government’s move to increase housing accessibility, some stressed the importance of a gradual and calibrated approach.

Mr Alan Cheong, executive director for research and consultancy at Savills Singapore, said that meeting the housing aspirations of singles should be done “with some lag effect, otherwise you’re (effectively) promoting it”.

“You can't move in anticipation (of demand) or otherwise you're encouraging certain lifestyles (such as singlehood) which are not necessarily good for the demographic of Singapore in the long run,” he said.

THE BOTTOM LINE

While more can still be done to meet the evolving homeownership aspirations of Singaporeans, property analysts said that by and large Singapore’s housing system has fared well.

IPS' Mr Gee called HDB's public housing programme a “success story” compared with other global cities, when it comes to affordability and home ownership. 

The latest Home Attainability Index, which was published in May by the Urban Land Institute (ULI) Asia Pacific Centre for Housing, found that the median price of a private home in Singapore was the highest among 45 cities which the report looked at. The median price of private homes was 13.7 times that of the median annual household income in Singapore, the report said. 

But in terms of public flats, the median price in Singapore was 4.7 times that of median annual household income. On this count, Singapore is the second-most affordable city in the Asia-Pacific, after Brisbane which has a ratio of 4.5. 

The report also showed that Singapore has the highest proportion of homeownership at 89.3 per cent, leading by a significant margin ahead of second-placed Melbourne, which recorded 66.7 per cent.

Mr Mak from Mogul.sg said it is important to note however, that countries such as Australia — which Brisbane is a part of — have an advantage when it comes to supplying housing for its population.

“They can just keep letting the cities expand to build more housing and so on. We, unfortunately, face challenges in this sense,” he said, pointing to Singapore’s limited land supply compared to sprawling Australia.

At the end of the day, Mr Gee pointed to how much the housing system in Singapore has already achieved.

“It's allowed multiple generations of Singaporeans to become property owners. There’s a genuine national benefit, societal good in having that ownership ethos for Singaporeans,” he said.

“It anchors people to the society, they have a tangible stake in this society in this country called Singapore. Because we are a nation of home owners, not just tenants.”