Should SERS be a safety net for Singaporeans?

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The Workers’ Party published an article titled “Is the social pact underlying home ownership in Singapore at risk of erosion?” on its Facebook page and website yesterday. SPK would like to point up the critical points mentioned in the article:

  • The Selective EnBloc Redevelopment Scheme (SERS) is deemed as a social contract – a pact between the government and the people
  • The application of SERS seems to be based solely on economic considerations
  • A chief concern is that the government might leave people high and dry, providing legal and economic justifications for what is undoubtedly also a social issue

Should we encourage people to have a mindset of ‘safety net’ or ‘social contract’?

This is a controversial question for debate. On one hand, the government has to take care of the people’s social welfare, but on the other hand, providing a safety net or social contract can create moral hazard issues and a ‘taking things for granted’ mindset.

For discussion sake, let’s assume the government commits to buyback all old HDB flats at market price and offers new replacement flats with compensation.

What are the costs involved? Probably the buyback costs i.e market value of the SERS units, rehousing benefits, SERS grant, demolition costs for the old flats, construction costs for the new flats, additional manpower to manage the SERS, etc. Part of this costs could be covered by the price of the new flats to be paid by the SERS owners, but the balance costs will need to be paid using taxpayers’ money. Ultimately, there will be a social cost involved in SERS and who will bear these costs? We, the taxpayer, will have to bear it, in the form of higher taxes maybe.

What kind of mindset will such a policy create in the citizens? Everyone will go and buy old HDBs in mature estates since it is a sure-win lottery getting a new replacement flat in the same area. Do we want to create this kind of “government will take care of us” mindset among our people?

What is the ‘safety net’ that Singaporeans need?

It is important to have a clear definition of ‘safety net’ in the context of the article.

If the ‘safety net’ refers to the government offering SERS to all old HDBs, then wouldn’t it mean that all HDB owners will have a ‘perpetual ownership’ of a HDB unit, since they can hold it, wait for SERS, get a new unit and the whole cycle continues in perpetuity and pass down to generations? Once again, SPK would like to remind every one of the moral hazards and social costs involve in such a policy.

But if the ‘safety net’ refers to the ability of Singaporeans to have an asset that they can rely on for income or monetisation during retirement, then the article might be barking up the wrong tree.

What might be some other options to avoid the moral hazard?

To avoid the moral hazard of in a SERS social contract, SPK thinks that we should avoid the ‘safety net’ offering SERS to all old HDBs. Instead, the government should create more ways to help Singaporeans monetise their old HDBs during retirement. Currently, there is already a Lease Buyback Scheme in place to serve this purpose, but maybe the government can relax the criteria to make it easier for citizens to monetise their old assets.

Another suggestion that SPK had brought up in the past is to relax the CPF Housing Scheme withdrawal limits. At the moment, there are restrictions on withdrawing CPF for properties with less than 60 years lease left. This makes it difficult for owners of old HDBs to monetise their assets for retirement. If this threshold is lowered to 40 or 50 years, it will probably make it easier to monetise old assets as the potential group of buyers become larger. You can read my earlier article: “Singapore’s ageing population: Time for a policy review on CPF Housing Scheme?“.

Lastly, let’s not forget that there is always a group of fellow Singaporeans out there who genuinely need help. The government should always govern with compassion and extend help to Singaporeans who face issues with their ageing HDB assets!

SERS is always a hot topic for debate. Feel free to share your comments!

This article first featured on Singapore Property Kaki blog.

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