HDB flats and the illusion of wealth

Posted: April 25, 2011 in Policy
Tags: , , , , ,

The escalating prices of Housing Development Board flats are in the spotlight once again, and the upward climb is likely to continue into the future.

The Singapore government, from time to time, uses the rising prices of HDB flats as an indicator of the rising affluence of Singaporeans. Most Singaporeans ‘own’ (technically, Singaporeans lease the flat from HDB as possession of HDB flats are either through the signing of a joint-tenancy or tenancy-in-common Agreement of Lease with HDB, not an agreement of sale) at least one piece of property, the HDB flat, and with the increasing prices of HDB flats, the implication is that Singaporeans are becoming more and more affluent.

Rising prices of HDB flats across the board is not a sign of affluence; it is merely an illusion of wealth for the lessee.

The HDB flat is worthless in actual monetary terms unless it is exchanged for cash, i.e. sold. Paper value isn’t real money. Given that Singaporeans can only possess ONE HDB flat, if they sell the lease to their HDB flat, they’ll need another one to stay in. If the prices keep climbing upwards, even if you make a profit from selling, because of the fact that you have to buy the lease to another flat to get a roof over the head, most of that profit will vaporise because the new lease is going to be at a high price.

If Singaporeans continue to believe that their flats are worth lots of money, the logical result is that there will be an upward spiral in flat prices. How sustainable this upward spiral is, that’s anybody’s guess. With an upward spiral of flat prices, the biggest winners are not the people who own HDB flats, but the government and property agents.

There is almost no politically safe solution for this upward spiral of prices, other than trying to contain the speed of the increase. The reason is because it is politically suicidal for the PAP to force down the prices of HDB flats after years of telling Singaporeans that their flats are valuable assets. With many upgrading schemes in the works that are being marketed as enhancers of flat value, even an older HDB flat will not be cheap. Cheap public housing is not possible in Singapore anymore, which explains why PAP ministers are very judicious in their choice of words these days, talking about HDB flat prices in terms of affordability rather than price.

Even then, the affordablity of HDB flats are increasingly being questioned, and the Minister of National Development had to defend his policies frequently over the past week.

If you own the lease to a HDB flat that’s worth a few hundred thousand dollars, you are not wealthy at all, especially when most flats are around the same price. You are only wealthy if you can make someone cough out more money than what your current flat is worth and buy the lease to a new flat that’s equal to or lower than the value of your current one.

Editor’s note:

This entry was previously published on the blogger’s previous blog,Hear Ye! Hear Ye! on Dec.15 2009. It has been revised to include new information and edited to suit the editorial style of this blog.

  1. Amused says:

    On the flip side of increasing HDB prices, there must be more people falling behind (i.e. who can’t afford) in their payments. Has anyone looked into the trend/situation? What percentage of HDB flat “owners” are currently arrear and at risk of losing their flats? What options are available to them? (In the U.S., the government policy is loan modifications.) Where do they go after losing their home?

  2. Ren_ren_ai_wo says:

    Every ppl had forgotten the interest while servicing the loan for their HDB. For example myself: bought a 1st hand flat at $257K, monthly repayment for 25 yrs is $1K plus, but actually more than one third is for the interest. And who earn this interest? HDB again? … lol… We are subsidies

  3. Aaron Ng says:


    I assume you use CPF to pay your loan, and when you go that, you are effectively forgoing the interest on your CPF, so it’s doubly painful; you pay interest to service your flat and you forgo the interest that could have been earned in your CPF account.

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