National Development Minister Lawrence Wong might have been on to something when he compared HDB flats to cars, in that there is a clear distinction when it comes to ownership between the ownership of a chattel (the physical car) and the right to use it in certain ways.
In car ownership, the ownership of the physical car is separate from the ownership of the right to use that car on the road (the COE). One can buy a physical car and not own a COE. You can use it on a private race track, park it on property you have rights to, or dangle it over your establishment entrance.
You can look at it, get in and out, even drive it around (private places, or abroad) if it can move, you can will or sell it to whomever you wish and they will then have the right to do all those things. You can scrap it, or keep it as a rusting hulk of metal. These are your rights as an owner of a car, in perpetuity. That is ownership of a chattel.
This aspect of car ownership value depreciates not because of the passage of time, but because of the condition of the item. The ending value, far, far into the future, is probably whatever a few hundred kilos of steel is worth.
Then you also own (hopefully) a COE. It lasts for 10 years when it is new. The COE gives you the right to use your Singapore-registered car on Singapore’s roads (as long as you also fulfil your other legal obligations for public driving). It is tagged permanently to a physical vehicle.
This aspect of ownership depreciates because of time, and nothing else. The ending value is zero. You could make money selling your COE/car combination if market forces change, but if I told you that this was an appreciating asset, you would slap me and say that I am stupiak.
A HDB flat is half-and-half. It is, in one payment, the right to take limited-time possession of a space hanging in the air that is made accessible and useable by a physical building. You own the physical item, but only as long as the intangible item (the lease) lasts. If you ever return it to the HDB, you only need to return it with bare walls. The value of your flat could appreciate over the short-medium term, given the right conditions, and you could sell it for a profit with the right purchase/sale timing. But the end value after 99 years is zero.
So when Mr Wong says that we own a HDB flat, he is correct in that we own the right to the dwelling. We do not, however, own any physical thing in perpetuity. This is unlike, say 38 Oxley Road, which is freehold. If LKY’s house crumbles to dust, the land itself is still valuable after 100 years. Its owners (whoever wins the battle of the siblings, perhaps?), will be able to use it or build on it or sell it. They own the physical land, and not just the right to exploit the land.
Leasehold for property is a great policy to make Singapore a place for social mobility, and to prevent a rentier class from forming (ergo the state becomes the rentier). I personally support it. But when Mr Wong says “There is a high likelihood that over a period of time, if the economy does well, if incomes rise, then property values will appreciate together with the fundamentals of the economy, and your stake in the nation – your home – can also appreciate in value.” He is only telling us half the story.
A HDB flat – actually ANY leasehold property – is a depreciating asset. It may not depreciate in a straight line, and it may not even depreciate every financial year, but it is ultimately a depreciating asset. The implication, and what Mr Wong never mentions explicitly, is that we need to plan to sell. We need to have an entry AND exit strategy for our HDB flats.
In Mr Wong’s words, in order for “our homes [to] be an important and valuable asset that we can use as a retirement nest egg”, we need to do the following:
1) buy a property that is larger/more valuable than what we will need in retirement so that we can downgrade (this is inevitable if we want to unlock the value of the “nest egg”)
2) sell it at the right price during the right market conditions (but no guarantee of profit)
3) take as cheap a loan as practicable and pay it off as quickly as possible (interest payments eat into any profits you may make); if you pay 3 per cent interest on 80 per cent of a property for 30 years and the property is sold 30 years later at DOUBLE the original price, YOU STILL LOST MONEY, and you haven’t even counted inflation yet (of course, you have to compare this to the cost of renting).
A HDB flat is an asset with a long lifespan. It gives you more time to cash out. You can argue if it is or isn’t ownership all day long (it is ownership, but not an ownership of land in the way you own a car), but please don’t tell me that a HDB flat is an appreciating asset. Or else you will look stupiak.
P.S.: I was tiring of the word “nest egg”, which is used to describe money saved for the future. That was until I discovered the second meaning of “nest egg”, a real or artificial egg left in a nest to induce hens to lay eggs there, which sounds terribly apt for what is happening right now.