Has reached Singapore property on the ground

Homeownership turns out to be an illusion for many Singaporeans

A paradigm shift is taking place in the Singapore real estate market. Fifty years ago the government launched a home ownership program. The first apartments that were given building rights for 99 years are getting old - and many of their residents are in trouble.

Bedok Reservoir, Block 15 on the third floor: Around 150 m2The 23-year-old is often envied in the apartment that the singer Luwani Ittawis lives in with her grandmother, parents and two offspring. There are currently four generations living under one roof, which sometimes gets on the nerves of the student. The apartment is also getting a bit old. But it is spacious and laid out over two floors and offers the comfort that a medium-sized family in Singapore expects today.

Downstairs on the ground floor there is a kind of corner shop, nearby there are public schools, a bus stop, shops and a children's playground, where there is always something going on. Here Luwani was born; The young Malay cannot imagine living anywhere else at the moment. You know and greet each other. The Chinese, Indians and Malays - the three most important ethnic groups in the city-state - live together here without any significant tensions. In the past, coconut plantations and fishing settlements dominated Bedok. Due to the state-subsidized housing construction, the district is one of the most densely populated areas in the republic today.

It's over after 99 years

But the development, which is one of the first-generation apartments that the Singapore government built at the time as part of its home ownership initiative, reminds of a problem: it is half-time for the buildings put forward by the Housing & Development Board (HDB) towards the end of the 1960s ringed. The HDB apartments were (and will be) surrendered under construction law for 99 years as a rule. So one practices «property for a time». The McPherson development, the first of its kind, turned 50 in December. In the years to come, more and more HDB pioneer buildings will reach this mark and thus pass their zenith. What happens after that?

Almost all of them live in HDB apartments

Proportion of residents in Singapore in an HDB apartment in%

The question is central. Owning an apartment, which is widespread in Singapore, is part of the state idea and is correspondingly important for the future of the city-state. HDB, by far the largest builder who practically functions as a developer in the nation, controls 90% of the housing stock and thus also shapes the architecture of society. Those who start work, want to start a family and plan ahead, usually register on an HDB waiting list the day after registering at the registry office. The corresponding apartments, which are often only under construction at this point in time, are allocated and then given away at subsidized prices.

Singapore is a country of immigration par excellence. During the British colonial period in the 19th and early 20th centuries, mainly Chinese and Indians settled down as traders and craftsmen. The idea of ​​the founding fathers around Lee Kuan Yew, who at the time were by no means sure whether this state was viable at all, was captivating: every local citizen should be able to become an owner. This created roots and a sense of community and at the same time also created national wealth. With over 1 million apartments built and an ownership rate of around 85%, this goal has now largely been achieved.

Element of retirement provision

The purchase of an apartment supported by the HDB means much more. So far, the real estate market in Singapore has almost always only gone up. The HDB owners have also benefited from this so far. For most of them, having their own roof over their heads is an important element of their retirement provision. It stays that way: a large part of the individual pension fund savings - in Singapore's Central Provident Fund (CPF) - is used today to pay down an apartment. The loan granted by the HDB on favorable terms (mostly 90% of the purchase price) is then paid off in the course of working life, ideally by both working spouses.

So far, this concept has worked extremely well for the founding generation of the state that was founded in 1965. A leasing contract for 99 years finally allows planning for two or three generations. With the apartments, which are now aging and which will revert to the state in 49 years, things are getting trickier. For financial reasons, three generations now live there, in the case of Luwani there are even four. And Luwani belongs to that age group who - for the first time in the history of the city-state - cannot expect to grow old in their apartment. In a few decades this will revert to the state without compensation and presumably give way to a new building.

For the first time, the citizens of Singapore are asking themselves the fundamental question of whether they are really owners (“homeowners”) or not just a kind of tenant (“lease-owners”). They can probably make certain structural changes inside an apartment, and the contract can be transferred to their descendants. But you are not an owner in the private law sense; no bank in Singapore regards an HDB apartment as an asset and would consequently not accept it as collateral for a loan. One economic factor is of particular concern: in contrast to real residential property, which is tellingly described as "private property" in Singapore, the price dwindles towards the end of the term and, to a certain extent, vanishes into thin air, as does the pension fund monies usually invested.

Also a partisan instrument

The emerging «50-year anniversaries» now represent a paradigm shift: Broad circles, whose natural goal was to acquire an HDB apartment, recognize that home ownership is actually an illusion. There are also limits to the increase in value. Anyone who buys a new apartment now and sells it after a waiting period of five years - a common practice - can still count on a profit. But this “flip-over” no longer works in the old apartments. The state counteracts aging with modernization programs every 30 years - at least in those neighborhoods where the ruling party wins clear majorities in elections. But after a certain time, the decline in value can no longer be stopped in one way or another.

The discussion about the “true value” of “one's own” apartment is taking place on an economically quite dramatic background. On the one hand, the land prices and with them the valuations of the genuinely private single and multi-family houses have skyrocketed. You can now easily pay several million dollars for condominiums in so-called "condos" in good locations, and often tens of millions for houses with a reversal. In other words, these prices are completely out of reach for the vast majority.

At the other end of the wealth spectrum, the situation is becoming increasingly precarious. Life in Singapore has gotten expensive. The older generation in particular suffers from this. Many have no savings and sometimes have to keep their heads above water with odd jobs into old age. The situation has become so acute in recent years that even prominent voices like Professor Tommy Koh speak of a shame for the nation and are now campaigning for a minimum wage.

Buyback before the lease expires

Singapore has to address both of these challenges. In fact, the increasing fear of the decline in the value of older HDB apartments and growing social inequality and the phenomenon of old-age poverty are related. The "sandwich generation", that is, those young families who have to look after children and their parents at the same time and are faced with rising prices on the real estate market, groans under the burden. The city-state government, meanwhile, likes to bask in the reputation of having created an oasis of prosperity. For many, however, the situation is not that terrific - and critical voices are increasing.

There are initial indications of how the government could allay the fears of older HDB owners. Prime Minister Lee Hsien Loong noted in his recent Republic Independence Day speech that she was considering buyback offers for those homes that turn 70. This would mean that the owners would at least be paid a residual value before the end of the 99 years. This "Voluntary Early Redevelopment Scheme" (verse) will not solve all problems and inconsistencies. On the one hand, a clear majority of the respective "owners" must agree to such buybacks. On the other hand, those affected will probably immediately be confronted with reality: real estate prices that have become unaffordable for most.