From January 1, 2012, the premiums for the Home Protection Scheme (HPS) will drop by 12%. I think this news has gone under the radar because of the small numbers involved. But let’s not lose sight of its possible significance: this comes on the heels of earlier cooling measures, and suggests the policy toward affordable housing didn’t end with stamp duties. In this article, I ponder what the lower premiums might mean:
Lower HPS Premiums were unexpected; like opening the door and seeing Santa Claus, then getting all embarrassed that I never quite believed. Speculatively, it might indicate the following:
- More moves towards affordable housing
- More moves to stretch our CPF
- Competition against private sector insurance
What’s HPS Anyway?
The Housing Protection Scheme (HPS) is a mandatory mortgage-reducing insurance scheme. It started in 1981, and applies to people who use their CPF to pay their housing loan (as opposed to getting a bank loan). Because really, what else can you use the CPF money for?
In the event you end up dead before 65, or permanently incapacitated, the HPS helps to pay off the remainder of your home loan. So yeah, they can extract payment over your dead body.
Anyway, HPS premiums vary based on different factors, but for someone aged 25 – 30, it’s typically $230 a year. A 12% reduction will drop that to $202.40. According to Minister of State for Manpower and National Development Mr. Tan Chuan Jin, about 80% of HPS contributors will be affected. The remaining 20% are already paying subsidised rates.
But besides a week of value meals at Burger King, what else could this mean?
1. More Moves toward Affordable Housing
Comparing the lower premiums to the new stamp duty is like comparing a punctured kiddy pool float to the sinking of the Titanic. But there’s a similar, underlying theme at work: these efforts address long ignored issue of affordable housing.
The government is reacting to the the last general election. While the dramatic timing seems orchestrated, we’re at least getting a rise out of them. I’m being an optimist, but I think lower HPS premiums are a good sign. Affordable housing isn’t restricted to slowing foreign purchases, or kicking property speculators in the metaphorical crotch. It also means lowering existing prices, and lower HPS premiums are a step in the right direction.
2. More Moves to Stretch Our CPF
Singapore’s approximate inflation rate is 5.4%, and our CPF growth is around 2.5%. It’s like trying to put out a fire with spit. Right now, every little bit that stretches our CPF savings will help.
The worry is the most obvious answer to stretching our CPF: Make us contribute more. Since that’s the kind of solution that involves riot shields and water cannons, let’s not go there. Let’s make the lowered premiums a precedent: make the CPF last by lowering costs, instead of pushing back pay out dates or demanding more.
12% savings may not seem like much, but housing loans take a long time to repay. Over a period of 20 or 25 years, the amount is significant.
3. Competition With Private Sector Insurance
Private sector insurers are probably going to review their mortgage insurance costs. Before the reduction of HPS premiums, private insurers had a definite edge. While their premiums matched the HPS, the range of their coverage was wider.
HPS only covers permanent disability and death, whereas private insurers also cover critical and terminal illness. Likewise, HPS is not transferable; buy a new house, and you’ll need a new HPS policy. As such, people “in the know” overwhelmingly opt for private insurance. HPS needs the reduced premiums to make it a serious contender.
With lower premiums, the HPS is facing private sector insurance at a more competitive level. However, I estimate that long before the second quarter of next year, private sector insurers will match the HPS premiums. Best case scenario? They price-war each other even further, and I break out the popcorn.
Either way, it’s great news for HDB owners. Let’s hope there’s more to come.
Do the lower premiums make a big difference to you? Comment and let us know!