Affordable homes for citizens
City state's successful system vastly differs from Hong Kong's, writes Tara Loader Wilkinson
Singapore has pioneered how public housing, or Housing and Development Board (HDB) flats, can benefit locals without creating a financial burden. The system is credited with clearing Singapore's slums of the 1960s, allowing low-paid workers a chance to live in state-built housing for a fraction of the cost. Today, Singapore's HDB flats house around 82 per cent of Singaporeans and are considered a model for modern government.
An HDB home helps young families to own their own home and provides a stepping stone to upgrade - after five years, they can sell the property to a permanent resident and pocket the profit. It's also another way to improve family formation - Singapore's fertility rate is below the global average at 1.29 births per woman, and the government hopes to push this figure to 2.1.
Could Hong Kong ever re-create Singapore's success with public housing to address these problems? Hong Kong and Singapore have many similarities - both are urban cities and globally competitive economies with high levels of foreign workers, an ageing demographic, low fertility rate, scarce land and an extreme wealth gap.
But Hong Kong took a different approach than Singapore on public housing, and now is paying the price, with images of low-paid workers forced to live in cramped "cage" homes that have horrified the world. Even though Hong Kong does provide some subsidised housing, there is a three-year waiting list, according to the city's Housing Authority, and residents have to be extremely poor to qualify. Subsidised units rent for around HK$1,500 per month, and are available for a household of two or more earning up to HK$10,000 per month.
"Hong Kong, contrary to Singapore, has chosen to optimise public-rental housing, which 30 per cent of the population uses," says Sean Tan, Singapore general manager and chief business development officer of iProperty Group. "Subsidised home ownership flats serve 17 per cent of the population. Prices for private homes are very high, considerably higher than a comparably sized property in Singapore. Despite measures to cool the Hong Kong residential property market, a huge portion of the middle class still cannot afford public housing."
The question is, could Hong Kong at this stage change its housing model to emulate its Asian neighbour?
Desmond Sim, head of research for CBRE Singapore and Southeast Asia, believes it would be possible but requires the government to risk becoming deeply unpopular with Hong Kong's wealthy landowners. "It could work in Hong Kong, but it would take a lot of political will," he says. HDB housing is easier to implement in Singapore because the government controls most of the land.
"It would be a jolt to the private market in Hong Kong," he adds. "Should the Hong Kong government try to swing to a higher home ownership model like Singapore, it may affect existing landlords in Hong Kong who at present benefit from a high level of leasing demand. Should the state create more affordable public homes on a home ownership model, the slice of the demand pie for existing landlords may be affected."
The problem with Hong Kong's present situation, says Paul Ho of mortgage comparison site iCompareLoan.com, is that the salary ceiling is too low. The households that earn over HK$10,000 per month need to rent privately, and are often unable to buy. "The required down payment of 30 per cent to 40 per cent prevents them from buying. This group of people will be stuck in the renting trap forever."
The situation could be solved, Ho says, by changing Hong Kong's Mandatory Pension Fund (MPF) to be more like Singapore's Central Provident Fund (CPF).
The MPF is purely used for retirement needs, and the maximum contribution income ceiling is HK$30,000. The employer and employee each pay 5 per cent. Meanwhile, the CPF can be used for many things, including down payments on property. The maximum contribution income ceiling is S$5,500 (HK$31,000) and typically the employer pays 16 per cent while the employee pays 20 per cent.
Ho suggests that an extra 3 per cent contribution to the MPF could come from employers for people earning less than HK$30,000, and another 2 per cent from employees earning above HK$10,000. "By increasing the contribution, these savings can be channelled into an account for a property down payment."
He says this would allow property to be within reach of Hong Kong residents, freeing them from always having to rent. "There will be no money to retire if they are still renting a place when they reach retirement age. This will be an outcome that MPF [providers] do not want to see," Ho adds.