Is PSP Leong Mun Wai’s ‘buy now, pay later for land’ affordable housing scheme really cheap?

Leong Mun Wai

The PSP proposed an affordable housing scheme in which the buyer of a new BTO pays a ‘user price’ with land cost that is deferred. 

As long as the owner chooses to live in the flat, he does not have to pay for land cost.

is psp leong mun wai buy now pay later for land affordable housing scheme really cheap

The upshot under PSP Leong Mun Wai’s housing proposal is that anyone who wishes to sell their flat will be required to pay land costs with accrued interest. This will be a huge lump sum payment at the time of sale.

The result is that people end up paying more for their flat at the time when they sell than they currently do when they purchase their unit from the HDB.

Using Leong Mun Wai’s own illustrated example, you can buy a flat in Tengah for $140,000 ‘user price’.

25 years later, if you want to sell the flat, you have to pay for deferred land value and accrued interest. By his own calculation, the breakeven price for that flat is $661,404. 

When you sell your flat at that price, you get $0 in capital gain. You are just breaking even. 

is psp leong mun wai buy now pay later for land affordable housing scheme really cheap

In contrast, let’s look at the HDB housing scheme which includes housing grants and subsidies

We will use Leong Mun Wai’s total cost for such a flat with land value included: $350,000.

Assuming this to be a 4-room flat, the maximum housing grant a household is eligible for is $60,000. After factoring in CPF housing grant, the flat will cost $290,000.

For simplicity, we assume 100% loan.

At HDB’s 2.6% concessionary rate for the housing loan, paid in 25 years, the total cost of the flat is $394,692.

The price difference between Leong Mun Wai’s housing scheme and the government’s housing scheme is huge. 

Under Leong Mun Wai’s housing scheme, the flat sold for $661,404 at 25 years will bring zero profit. 

Under the PAP’s housing scheme, the same flat if sold for $661,404 will make a windfall of $266,712. 

'Condemned' to HDB living in the same flat for life

Leong Mun Wai’s housing scheme is nothing more than a prepaid rental scheme with an ‘option to buy’. 

Those who choose to sell their HDB flats will have to pay recorded land cost and accrued interest, but “with no subsidies or grants”.

This makes it so expensive for the home user to sell his flat that he will really be ‘condemned’ (to borrow Leong Mun Wai’s vocabulary) to living in the same HDB flat all his life.
Progress Singapore Party

Is Leong Mun Wai's cheap housing really 'cheap'?

Let’s do further scrutiny. 

is psp leong mun wai buy now pay later for land affordable housing scheme really cheap

First point:

Under the PSP housing scheme, you will pay $129,327 in total interest over 25 years to be a home user of ‘cheap’ housing that excludes land value.

(i.e. 269,327 – 140,000) 

Under the current HDB housing scheme, you pay a total of $104,692 in interest over 25 years to own a HDB flat which includes land value.

Second point

Under the HDB subsidised housing scheme, you pay $394,627 to own a flat which includes land value.

Under the PSP scheme, land value alone with accrued interest is $392,077. This is the amount you have to pay – just for land – if you want to sell your flat after 25 years.

The price for land alone under PSP scheme is the same as what one would pay for a flat with HDB (physical structure and land value).

Why would anyone want a scheme that appears cheap but is actually very expensive? 


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