“Owner”, “ownership”, “rent”, “lease”, “leasee” — these are words commonly thrown around in recent debates. But are these all semantic arguments? Before you get out the standard dictionary or legal definitions of these words, think about what they really mean, particularly with respect to your everyday life. These words are often presented in a black-and-white manner, but in life, there are rarely matters which are truly black and white.
The Home Ownership Myth
When I bought my first home (in the States) I was told that I “owned” it. But I knew that if I didn’t pay the mortgage on time, the bank would repossess it. This essentially meant the bank “owned” it until I paid it off. (So if you bought your home with a mortgage, do you own it or does the bank own it? And are you just “renting” from the bank?)
What if I bought that home “free and clear” with no mortgage. Here’s the interesting thing I quickly discovered:
If I didn’t pay property tax on time, the State could take back my home. If I wanted to renovate the exterior, it required a permit from the city. To even alter the landscape or colour of the front door required permission from the Homeowners Association. And if I did any of these illegally (without permission or the proper permits), then my home could be repossessed.
If I decided to dig for gold (literally, as the home was located near a gold mine), I did not own the gold. That is because I didn’t have subsurface mineral rights. If I chose to use the airspace above, I found out that above a certain level, those rights aren’t mine either. I would be in violation of certain laws, and could be arrested.
If my home was used for certain crimes, such as the creation or distribution of illegal drugs, the State could seize it. And they didn’t have to compensate me at all. If the property appeared abandoned for a prolonged period of time, they can also take it (again, without compensating me).
Was I free to destroy the house? This, I found out, was also something I wasn’t allowed to do (without the necessary reasons and permits).
“So what the heck did I really own?,” I thought. And what does “ownership” really mean (in a practical sense)?
So what could I do with that home? I could live in it and enjoy it. I can expect privacy. And I can choose to modify and use the interior space however I please, but within legal means and within the parameters set forth by the government. The exterior space though, is a different matter. Depending on where you live (in the States), there are limitations on the appearance and use of the exterior.
I can also use it as an asset (i.e., as a store of economic value) and can choose to sell it, or to rent it out to others.
So with my first home purchase, I was essentially buying a space. I “owned” only that space.
This is also what you get when you buy HDB. You are essentially buying and owning a space. Do you get to enjoy it? Yes. Do you get to sell it or use it as an asset? Yes. Can you do anything you wish with it, just because you “own” it? Absolutely not!
Any ownership, whether HDB or freehold, in Singapore or elsewhere, comes with restrictions and responsibilities. Period.
Today, I’m happy to say that I’m a proud owner of an HDB flat. Am I worried about the remaining lease term? No, because I didn’t buy the HDB to speculate (ownership doesn’t equal or guarantee positive investment returns). I bought it to live in and enjoy, just like you did.
Two Common Concerns of the 99-Year Lease — Losing Value as it Ages & Passing it to Future Generations
Having a 99-year lease is not uncommon in many parts of the world, particularly where land is scarce. As PM stated in his National Day Rally speech, the 99-year lease is the only way to “recycle the land and ensure that all our descendants can buy new BTO flats of their own.” Not just descendants with inheritances or wealthy families, but all descendants.
This is a very macro, societal argument as to why HDB should have expiring leases. Unfortunately, the average Singaporean is not so concerned with macro issues. They are concerned with two main things: (1) Will my property continue to appreciate? (2) Will I be able to pass it to my children.
Let me address each of these separately. Then conclude with a macro argument of my own (which you may or may not be concerned with).
Will my property continue to appreciate?
If your home is nearing the end of the lease term, it will decline in value to zero. I mentioned in a previous article that we can’t have home prices appreciate indefinitely. That would mean pricing out the next generation. As a current homeowner’s “wealth” increases, their children’s “wealth” ends up decreasing because their children will have to pay even more to buy a house. And it would be harder and harder for future generations to be able to get a foothold into the property market.
But there’s another issue with ever-increasing home prices. You (your future self) will also be priced out. Let me explain why this is a zero-sum game.
According to PM Lee Hsien Loong’s NDR speech, very few people (<2% of households) outlive their lease. And a big reason for this is that most people these days end up moving every 7 to 10 years, as their life circumstances change. It’s just not common anymore for people to live 30+ years in the same home. Just like how people don’t stay in the same jobs (or even in the same relationships). Times have changed.
Let’s assume you bought your BTO for $200k, and it’s now worth $400k. You change jobs, temporarily move overseas, your children leave for uni, or your parents get sick — for whatever reason, your life circumstances require you to move again. When you move, you sell your $400k flat and feel overjoyed because it appreciated. But when you need to buy again, you realise that everybody else’s home also appreciated. So you may be selling “high”, but you will also be buying “high.” A zero-sum game.
The only way it’s not a zero-sum game for your primary residence is when you exit the property market (not sell and buy simultaneously), or you drastically downsize…
Will I be able to pass it to my children?
PM also stated that “you own it, and you can pass it on for one or two generations.” In our earlier example, let’s say you die, and wish to pass your $400k home to your children. They will indeed benefit, but does this mean they will be taken care of for their lifetime, never to be affected by the property market again? No. Here’s why:
If you have two children, do you really expect your two children to live together in harmony with both their families all under one roof? Not likely. They will probably have to sell at some point, split the profit, and then enter into the property market to buy.
If you have one child, then perhaps you can spare him/her from having to deal with buying a property. But as stated earlier, people generally need to move every 7 to 10 years. So eventually, that child will be in the situation where they will sell “high” and also buy “high”, as everyone else’s property has appreciated too.
You may desire for your child to live forever in the home you bequeathed. But would you really want this to happen? “After a century, I am sure the mechanical and electrical systems will be obsolete. The concrete will have deteriorated in our tropical climate. And even if we could fix all that, the recurrent maintenance costs would be very high,” said PM. Wouldn’t you want your child to be in a more modern home?
Passing it on for only one or two generations is a reasonable time frame. It does advantage those who have this inheritance, but this advantage “resets” eventually. And this “reset” is actually a good thing.
If properties were held in perpetuity (freehold), then what would result would be akin to what is happening in Silicon Valley and New York City. Right now, only generational wealth can afford to stay in those areas. And eventually, wealth will be concentrated so much that the average person would have to work twice as hard to get half as much.
I have two friends who inherited (generational) properties in Silicon Valley. Today, they don’t work at all; they just collect rent. Good life right? But I also have a friend who is a very talented programmer that just moved to Silicon Valley. He, and his offspring, will never own property – ever.
For the average programmer, teacher, waitress, taxi driver, or even lawyer, they have to work really, really hard just to make rent. This sort of generational wealth concentration separates the “haves” and the “have nots”. It is not based on talent, merit, or hard work; it’s just luck. This is what often happens to places that are entirely freehold and land scarce; there are grave and harmful consequences.
Everything in Life is Rented
Now for a little macro, societal argument of my own. Let me ask you, what have you owned that can last 99 years, or even 50 years? Doesn’t everything eventually decay (to be worth little or no value) anyway? Think about all the various items you “own”. Do you still have them a decade later? If so, did they appreciate in value or decline in value?
Ownership, and I mean true ownership, is a figment of our capitalistic imaginations. In life, we don’t “own” anything. As Jonathan Larson’s musical “Rent” states, “Everything is rent.”
In life, we are simply temporary custodians of physical objects — our home; our belongings; heck, even our body. But all physical objects, like us, will fade or decay over time. Even our most prized possessions will eventually transfer to someone else; or they will perish. We, too, will eventually pass away.
In actuality, we “rent” this life. And when you really, really understand this, you will recognise that we are just stewards who are responsible for maintaining this planet and everything in it for future generations. Nothing is really ours to own.