The SDP (Singapore Democratic Party) has proposed an alternative housing plan. It’s called NOM (non-open market) housing, and it’s the only damn thing I hear about in coffee shops. Since NOM is going to invade my ears every breakfast, I figure I’ll put in my two cents worth. Which is also the exact worth of my opinion when it comes to politics, so excuse me if I only examine the financial factors:
What is NOM?
The sound that Internet cats make when eating. Don’t even try to convince me SDP isn’t stealing Google hits.
That aside, NOM stands for Non-Open Market housing. The idea is to create flats that can only be bought from, and resold to, the government. You can see the full details here.
Because NOM flats are not placed on the open market, they are theoretically shielded from property bubbles and crashes. If you pay $160,000 for a 4 room NOM flat, for example, you can re-sell it for $160,000. This will be the resale price regardless of the market situation.
This is the proposed pricing:
Those prices can be further reduced by HDB grants. Any cheaper and we’ll be comparing tents.
Related to the proposal are:
- An option to convert OM (open market, or normal) flats to NOM flats
- Inclusion of Single and Single Parent Families
- Modified LBB (Lease Buy Back) scheme, which allows the elderly to convert their flats to NOM flats in return for an annuity
- A build-up of “buffer” housing, to reduce the wait time for new flats
The SDP’s stance is that NOM flats will provide housing for the needy, and cool property prices. Indirectly, this might also encourage Singaporeans to start families.
NOM flats would exist as part of a dual property system: So we would have OM flats side-by-side with NOM flats.
NOM Housing Would Lower Default Rates
To me, this would be the greatest benefit of NOM housing.
As a general rule, default rates increases with loan tenure (and the borrower’s age). Because NOM housing has a much lower quantum, loan tenures become shorter. Take, for example, the $160,000 price tag on the NOM 4-Room flat.
A $160,000 loan, even without grants, could ostensibly be repaid in 15 – 20 years. A 30 year old who takes the loan could pay it back by 45 or 50, long before retirement age. The chances of default are almost nil.
(Of course, you could just be extra careful about your loan package, and you won’t default either. Look up comparison sites like SmartLoans.sg, and find something affordable).
What Would Get in NOM Housing’s Way?
The main difficulties are:
- Creating a Sub-Class of Housing
- Location Issues
- Singaporeans Being Greedy
- Reliance on Property as Inflation Hedge
1. Creating a Sub-Class of Housing
You know who will be buying NOM housing?
Hey, I know that sounds harsh and insensitive, but tell me it isn’t true. Where you stay carries class connotations. For example, we divide Sentosa Cove dwellers from Condo dwellers, and Condo dwellers from HDB dwellers, etc.
The problem with NOM housing is the way it pronounces this divide. There is a danger of NOM estates forming enclaves of poverty. Historically, these zones have higher crime rates, and deepen social inequality. We don’t need another Pruitt-Igoe in Singapore.
If we were to execute the plan, we’d need to cope with the social dimension. If we could convince people to choose NOM housing out of financial prudence, for example, it would make all the difference. Then we’ve got people who choose NOM housing not because they’re welfare cases, but because it’s a financial tactic.
In the initial years, NOM estates would require an integrated (and expensive) public relations campaign.
2. Location Issues
My opinion is that the government would have to force NOM conversion on some flats. In particular, these would be flats located in mature estates.
There’s no point having NOM flats only in new, under-developed areas. Singaporeans pick homes based on location. They want the right amenities, the right schools, and the ability to get to town without a pack mule and three weeks’ supplies (sorry Woodlands dwellers).
If there are no NOM flats in mature estates, we can forget about cooling the resale market. Singaporeans will ignore the NOM scheme, and happily suffer the COV (cash over valuation).
3. Singaporeans Being Greedy
Once Singaporeans realize NOM flats are affordable, they’ll flock to them. Because Singaporeans prize financial stability and prudent savings. Also, goats fly and my pet goldfish recites Shakespeare.
Come on, we’ve lived here long enough. We know our national character. Singaporeans are obsessed with capital gains. Fact is, true Singaporean home buyers are a dying breed. Almost everyone’s a property investor, or thinks like one.
With or without the NOM scheme, Singaporeans will overspend on property and overheat the market. This will continue so long as we believe (wrongly) that property prices will never fall. Housing costs aren’t high because we lack cheaper alternatives. They’re high because we’re greedy.
NOM flats may be a great help to poor families. But they shouldn’t be advocated as a means to cool the property market. Singapore will continue to require policy intervention, not alternative housing types, to prevent a property crash.
4. Reliance on Property as Inflation Hedge
NOM flats do not appreciate in value. This negates one of the main benefits of property, which is to hedge against inflation.
For many Singaporeans, CPF is not sufficient to cover retirement (I know MOM has a study claiming otherwise, but I’ll see it before I believe it). In fact, most Singaporeans count property ownership (and appreciation) as part of their retirement plan.
Given our inflation of around 3% – 4% per year, the eventual worth of a NOM flat in 20 + years might be negligible. If the buyers of NOM flats neglect to save or invest, this could widen the income disparity when they get older.
Also, property happens to be one of the most accessible investments: Not everyone knows what an exchange traded fund is, or which equities to buy. If a layperson must make an investment, I’d suggest the best investment is his own home.
If those difficulties can be addressed (and they’re huge), NOM housing strikes me as a useful tool.
I don’t think it’s the miracle that will solve our housing woes. Singapore is land scarce, and housing will always be problematic. But it does provide aid to poorer Singaporeans, without being a hand-out.
In the meantime, if you need immediate help with housing, follow us on Facebook. We’ll let you know about the various options out there.
Do you think NOM Housing would work? Comment and let us know!
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