Extract of Speech by PM Lee Hsien Loong at the National Day Rally 2018

Aug 19, 2018

Better Home, Brighter Tomorrows

Housing

Apart from healthcare, many Singaporeans are also concerned about housing. But unlike healthcare, housing is not a simple matter of keeping prices down. Because house prices affect different people differently and the same person differently, at different times. When you want to buy a house, you want prices to be low. When you own a house or want to sell it, you want prices to be high. So, it is not possible to please everybody.

Still, Singapore’s housing policies have been uniquely successful. We are the only major city in the world where nearly every young couple getting married can afford to buy their first home immediately. In other major cities, young couples can only hope to rent a flat, and the monthly rent can cost up to 40% of their household income. And in some cities, you do not rent a flat, you rent a space. Or sometimes a tube, because that is all you can afford. Whereas in Singapore, you buy a flat, you pay for most of your flat out of your CPF, and the flat is yours. 

Take Yong Kuang and Sabrina for example. They got married recently, and bought a four room BTO flat in Punggol. They paid a nett price of $345,000 for their four room flat, after HDB housing grants. This was less than five times their annual income.  As a rule of thumb, housing costing about five times annual income is what is counted as affordable and in this case, they had it less than five times. Having worked for some years already, they had saved enough in their CPF for the down payment. Now their monthly CPF contributions are enough to pay their instalments. So they have not had to pay any cash out of pocket for their flat, either for the down payment or the instalments.

Yong Kuang and Sabrina’s story is not unusual. 8 per cent of us live in public housing. It is the Singapore norm. It is not just for poor families, like elsewhere, but for a wide range of Singaporeans from all walks of life. Public housing in Singapore is really “national housing”. This did not happen by chance. We made it happen through sound policies, unwavering political resolve, and the strong support of Singaporeans. 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.

Take for example, a first generation resident in Ang Mo Kio. His four room flat would now be about 40 years old, and can fetch more than $400,000 in the resale market. In a good location, probably more. When he bought the flat 40 years ago, how much do you think he paid for it? $25,000. Even accounting for inflation, this is a huge appreciation. This is how we have enabled many Singaporeans to have a substantial asset to your name, even lower income households. In fact, if you take our homeowners who are 90 per cent 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.

Young couples buying a flat today probably would not see such a huge appreciation as the Ang Mo Kio resident who bought the flat 40 years ago, because our economy is maturing and it cannot grow as fast anymore. But you still get a good headstart because the Government helps you out with a subsidised flat or housing grants, and often both. And as long as our economy grows, the value of the flat will go up for many years, just not as dramatically.

Why 99 years?

The oldest flats in Ang Mo Kio are about 40 years old. Sometimes residents ask what will happen to their flats as time passes and their leases run down. Will their flats still hold value? What options do they have? Why are their leases for 99 years? Can they be longer? Actually, 99 years is a very long time. Let’s say you buy a new flat from HDB in your early 30s. At the end of 99 years, you will be 130+ years old – and probably would not need this flat anymore. If you have children, they will also be very old, almost as old as the flat itself in their 80s or 90s. And if you have grandchildren, your grandchildren will already be grandparents. So, 99 years is a very long time.

In particular, when you retire, after living in your flat for 30 or 40 years, it will still have a good 60+ years of lease left. That is long enough for it to retain substantial value, and be a good retirement nest egg as you can see with the Ang Mo Kio example I gave you just now. You can continue living in the flat, rent out a room for income if needed, and one day, pass on the flat down to your children. Or you can right-size, sell it and move to a smaller unit. Or you can go for Lease Buyback and return the remaining lease to HDB, then use the money you get back for retirement. I explained how all this works in a previous National Day Rally, 2014. If you look up the clips on the YouTube, you will still find them there. But we can make things better. We can do several things to help residents monetise their older flats. We can expand the Lease Buyback scheme. We can do things to improve the liquidity of the resale market. That means to make it easier for people to buy and see old flats, and MND is working on this.

What if you had bought a resale flat instead? Well, our oldest flats are at most 52 years old, so you have at least another 47 years left of your lease, which is still a long time. Very few of today’s HDB owners will outlive their leases. HDB estimates that it will happen to less than 2 per cent of households, including those who have bought resale flats. So it is not likely to happen to you. It could happen, but not likely. It could happen to your children if they inherit your flat. But this should not be a problem if your children buy their own BTO flat, with its own 99-year lease, as many do. Because then an inheritance for them would be a gift and a bonus. And even if you have to return your old flat at the end of its lease, do not worry because the Government will help you get another flat to live in. It may be a BTO flat from HDB with a fresh 99-year lease, if you are eligible for another one. It may be a resale flat on a shorter and cheaper lease. Or it may be a 2R Flexi flat for retirement. There are different options, depending on your needs and what you can afford. But whichever option you choose, you will have to pay for the lease. This is only fair, because you bought the original flat knowing when the lease would run out, and knowing that the flat would then have to be returned to HDB.

There is one fundamental reason why HDB leases are for 99 years and that is, we need to be fair to future generations. Let me explain. HDB sells the flat to you for 99 years. You own it, and you can pass it on for one or two generations. After that, the flat returns to the state, the Government redevelops the land, and builds new flats for future generations. This is the only way to recycle the land and ensure that all our descendants can buy new BTO flats of their own. If instead the Government had sold you the flat on freehold, that means in perpetuity. Sooner or later we would run out of land to build new flats for future generations. The owners would pass their flats down to some of their descendants, many generations into the future. Those lucky enough to have a flat, they become flat owner. Those not lucky enough to inherit a property would get nothing. So our society would split into property owners and those who cannot afford a property. I think that would be most unequal, and socially divisive. So, that is why 99 year leases are not just for HDB flats. In fact, for private housing also, the Government only sells land on 99 year leases.

There is also a practical reason why we cannot extend the leases easily. If you look at older buildings today, some look rather worn down, even before they are 50 years old. Some condominiums are like that, private property. After a century, I am sure the mechanical and electrical systems will be obsolete. The concrete will have deteriorated in our tropical climate. And even if we could fix all that, the recurrent maintenance costs would be very high. So it is better to let the leases expire, take the blocks back, demolish them and rebuild afresh. We may keep a few blocks which have historical or heritage value, or sentimental reason, or to remind people what the old days were like, but these should be the exception. For the others, we can rebuild newer, better, more liveable flats, blocks, and townships, more suited to what our grandchildren and great-grandchildren will want to live in. Today if I offer you to live in a 100-year old flat, I do not think there will be many takers because you want the mod cons. You want the lifts. You want the power supply. You want the modern sanitation. You want the convenience. You want the finishes, the styles. You want to be up to date. I think our grandchildren will also want to be up to date. It is better we take back. We rebuild. Singapore progresses while keeping an essence of its history and soul.  That is why when the leases expire, the flats will have to return to the state.

HIP Expansion

There are still many decades before the first HDB leases expire. As the flats grow older, the Government will help you to keep them in good condition. We do this through HDB’s upgrading programmes. We started with the Main Upgrading Programme (MUP) in the 1990s. This one happens to be in my own constituency and you can see each one of these red bars is one lift tower. This is one block, this is one block. It’s a block with seven lift towers at government expense, upgraded MUP and LUP together. Later, we replaced the MUP with the Home Improvement Programme (HIP). The HIP has been very popular. It is an essential upgrade. We fix up maintenance problems, like spalling concrete, ceiling leaks, and damaged pipes. This is the new toilet after it has been upgraded. We upgrade the electrical supply too. This is a substation. Because more families have air-conditioners, washing machines, computers, and now personal mobility devices (PMDs), needing to be charged.

The HIP scheme is heavily subsidised. The Government pays up to 95 per cent, so residents pay as little as a few hundred dollars for the upgrading. Not surprising that after upgrading, the flat value usually goes up. We launched the HIP 10 years ago. The final batch of HIP flats will be announced by next year. So within a few years, all flats eligible for HIP will have been balloted. Hopefully, passed, executed and upgraded. That means altogether 450,000 flats upgraded under MUP plus HIP.

Now, HIP covers flats built up to 1986. We launched the programme a decade ago. So the flats which missed qualifying for HIP are also now starting to show their age. I know many HDB residents in these younger flats are also hoping for an upgrading. In estates like Yishun, Tampines and Jurong, there are flats built both before and after the 1986 cut-off. So people ask, why next door got HIP, my flat got no HIP. And then there is Pasir Ris, where residents started collecting keys in 1987. So, DPM Teo Chee Hean used to remind the Ministers regularly that Pasir Ris has not had any HIP projects. And I would console him regularly that Pasir Ris flats do not need any HIP yet, they don’t need HIP yet, you are new, very good. But still he said, my residents are waiting anxiously.

Now that the oldest Pasir Ris flats are 30 years old, they are no longer quite so new. Wear and tear is starting to show, so I am very happy to announce that we will expand the HIP and HIP will now include blocks built up to 1997. That means another 230,000 flats will benefit. So Pasir Ris will get HIP, the older flats. And so will Yishun, Tampines, Jurong and a number of other estates.

New HIP II

Beyond HIP, what more can we do as our flats grow older? The expanded HIP will include flats built up to 1997. In other words, the flats will get HIP about 30 years after they were built. After upgrading, these flats should be good for another 30 to 40 years. By that time, the flats will be 60 to 70 years old, and I expect they will be showing their age again. We are determined not to let our public housing degenerate into ragged, squalid slums, which has happened in many other cities. So we should do a second round of upgrading, at about the 60 to 70-year mark. Let us call this HIP II. 60 to 70 years old. HIP II will keep the flats safe and liveable, and also help them retain their value as their leases run down. It should see the flats through to the end of their leases. So in short, every HDB flat can expect to be upgraded twice during their lease. Once when they are about 30 years old, through the MUP or HIP, and a second time through HIP II, when they are about 60-70 years old. The first flats will reach 60-70 years old about 10 years from now. So that is when we plan to launch the HIP II programme. Akan datang.

HIP II is a huge financial commitment for the Government. If you own a private property, you are fully responsible for its upkeep and upgrading. But because HDB is public housing, the Government will upgrade each HDB flat not once, but twice during its lifespan. Furthermore, the Government will help you pay most of the upgrading cost. The first HIP will cost the Government more than $4 billion. HIP II will probably cost even more, because the flats will be twice as old by then. But it is well justified, and we will do it so long as MOF has the money.

SERS

I know what some of you are thinking. HIP and HIP II are fine if I want to stay on in my flat. But what if I want to move out? Can I get SERS – the Selective En bloc Redevelopment Scheme? SERS is a very good scheme for estate rejuvenation. It brings new residents into the estate, often young families, who inject vitality into the community. I have two SERS projects in Teck Ghee, and recently I visited Teck Ghee Parkview. It replaced the BTO blocks which came into the SERS site. The new flats have made a noticeable difference to Teck Ghee – the estate is livelier, more children are running around, more young couples like this one whom I visited. It has cheered up the neighbourhood. Now we have more babies in Teck Ghee, some even able to dance with their mothers. So yes, SERS is indeed one option, if your flat happens to be SERS-ed and selected. But SERS is a very limited scheme. It is meant for selected HDB blocks or precincts, which have high development value which we can unlock. What does that mean? Take Tanglin Halt for example. It is in Queenstown. It is our first HDB township. It was not built optimally. The precincts were not always well laid out. There are low rise flats, the flats have layouts where there are large surface car parks, empty spaces, odd leftover spaces. So if you take it all back and redevelop it completely, Tanglin Halt is being SERS-ed, you can use the space better, you can create denser housing, greener environments. So from something like this, you can go to something like this, 40 years’ change or 50 years’ change. We are redeveloping Tanglin Halt through SERS, using the space better, and creating denser housing and greener environments. It makes economic sense in such cases for the Government to take back the flats early and redevelop the site. Because there is a lot of value unlocked, we share this value with residents through generous compensation. And with generous compensation, we can make the acquisition compulsory. In other words, HDB decides on SERS, and residents do not get to vote.

However, HDB estimates that only around 5% of flats are suitable for SERS. There will be a few more SERS projects to come, but many projects with high redevelopment potential have already been done. Because HDB chose the promising ones and did them first.

VERS

So what about the flats that do not get SERS? Well, HDB has been studying this intensively, and I have good news to share tonight. More households will be able to benefit from redevelopment before their leases expire. Why? Because the Government has good reason to take back more flats, and redevelop them as they grow older, before 99 years are up. Let me explain. When HDB towns grow older, and the leases in the estates are nearing expiry, we have to redevelop the towns. We want to do this in an orderly way. In the early years, because of the housing shortage, HDB often built in a tremendous rush. Several older estates were built within short periods, especially in the 1970s and 1980s. Marine Parade between 1974-1976 – within three years. Ang Mo Kio and Bedok, after that, 1975-1981 – within six to seven years. This one is Marine Parade. Therefore, if we do not plan ahead, 99 years later, all the leases in such towns will expire around the same time, and all the flats will be returned to the state within a few years. We will have to find new homes for a lot of people at once. HDB will have to tear down and rebuild the old flats in a hurry, just like when we first built Marine Parade, Ang Mo Kio and Bedok. I do not think that is a good idea. The towns will become construction sites all over again, with cranes all over the place. I think we should redevelop our old towns over 20 to 30 years, rather than within four to five years, progressively. That means starting when the oldest flats reach about 70 years old onwards. So some flats, you redevelop when you get to 70 years old, some 75, some and you stretch it out over 20, 30 years and progressively do things in a measured and considered way. Then, just like with SERS, the estate and the community can be renewed progressively. There will be more new and younger residents moving in and the estate will become more vibrant. Those moving out will have somewhere to go to, and those staying will have rejuvenation to look forward to. This is why it makes sense for the Government to take back flats progressively over several decades, starting from about 70 years onwards, and stage out the redevelopment.

We will need a new scheme for this. Of course, we will compensate the residents whose flats are taken back early. We will also help them get another flat to live in, just like we would if their leases had run out. But the terms will be less generous than SERS, because there will less financial upside. There is social merit in it. There is community merit in it but there is not so much financial upside. Therefore, the scheme will be voluntary. I will call it VERS – Voluntary Early Redevelopment Scheme. So if you don’t get SERS-ed, you can hope to be VERS-ed. Residents in the precinct will have to vote for VERS, just like for HIP. If the residents vote yes, we will proceed. The Government will buy back the whole precinct, all the flats and redevelop, and residents can use their proceeds to help pay for another flat. If the residents vote no, then they can continue to live in their flats until their leases run out.

This is a long term plan. We will not start doing VERS for another 20 years. We need time to work out how to select the precincts, how to pace the redevelopments out, the specific terms of the Government’s offer and so on. We also need to study how to afford VERS for the long term. But I think such a scheme is necessary, so we will start planning for VERS now.

Recap

I have covered quite a bit of ground on housing. So let me do a quick recap. There is an examination later. First, we will expand HIP to upgrade 230,000 additional flats built between 1987 and 1997. This will happen when the flats are about 30 years old, and this will start soon. Second, we will do HIP II to upgrade flats a second time. This is a big project. This will happen when the flats reach 60-70 years old. HIP II will start in about 10 years’ time. Third, we will have VERS to progressively redevelop precincts in ageing housing estates. This will happen from about the 70th year onwards. VERS will start 20 years from now.

Click here for full National Day Rally speech. 

Click here for HDB’s press release on the extension of the HIP.