HDB owners vs tenants: unpacking the great illusion

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If you have a HDB flat on a 99-year lease, are you an owner or a tenant? The real answer: you are actually an owner of a lease. This might sound even more confusing, but bear with me.

What does ownership mean?

Ownership has no universal definition, but most would consider the ability to use and dispose of something without substantial restriction as a precondition of ownership. I say ‘without substantial restriction’ because we commonly face restrictions in relation to the use and disposal of things we incontrovertibly consider our own. For example, you cannot drive your car through a park, or exceed the speed limit, but nobody would say that because of these restrictions, you do not really own your car. On the other hand, if I told you that “this is my car, but I need to ask for my dad’s permission every time I want to use it”, you would laugh at me. Why? Because the need for permission is a significant enough restriction to my use of the car such that it is difficult to say that this is my car, even if it is registered to me.

What does a tenancy mean?

A tenancy is a technical legal concept. The word ‘tenant’ should not be used loosely as the law has a very strict understanding of what is or is not a tenancy, and if a court considers someone a tenant, they will automatically be awarded a special bundle of rights. Those interested can read the seminal case of Street v Mountford (followed in Singapore law), but in this article, we’ll keep it simple.

If you were to book a hotel room, are you a tenant? No. You have permission to use the room, but you do not have exclusive possession of the property – e.g. you do not have the right to renovate the hotel room or sell your right to use the room to someone else. You are a lodger; not a tenant.

On the other hand, tenants have exclusive possession of their property. They may renovate the property within the boundaries of the tenancy agreement and sell their tenancy to give someone else the right to use the property. This is the case when you have a HDB flat on a 99-year lease.

Another feature of a tenancy is that it must be for a term. A tenancy can be for a fixed term (expires at the end of a period), at will (by the landlord giving reasonable notice) or periodic (renews from year to year until the landlord gives notice) – as long as there is some way for a tenancy to end. A tenancy that cannot be ended is not a tenancy. If I have exclusive possession of a property, and nobody has the right to take it back from me, I cannot be said to be a tenant because there is no limit to my possession. In other words, I am not a tenant if there is no opportunity for me to surrender my lease. In such a case, I would be an owner. This makes sense – think about your furniture, or your clothes: once you have bought them, nobody has the right to take them back from you.

So am I an owner or a tenant?

Both. What you own is a tenancy. Clearly, if you have a flat on a 99-year lease, you are a tenant (as opposed to a lodger) because you have exclusive possession of the flat. However, it is also clear that you are not an owner of the flat itself (at least not in the traditional, unlimited sense) because your right to use the property exists for a fixed term – you will have to surrender your lease at some point.

So it is clear – you do not own the flat itself, but that does not mean you are not an owner of anything. What you do own is the tenancy. This is because a long-term tenancy is an asset that can be bought and sold and your freedom to deal with your tenancy fits with the idea of ownership described above.

However, a tenancy is a special kind of asset in one important way – there is a time limit to its existence; at the end of this limit, it evaporates into nothing. Here’s a useful analogy – imagine that you own a barrel of water. Eventually and inevitably, the water will evaporate, and there will be nothing left. Now, the fact that the water will evaporate does not change the fact that you own whatever water that is in the barrel at any point of time. It does mean however, that the more the water evaporates, the less people are willing to pay for the water that’s left, up to the point when all you have is an empty barrel, which is worthless to a thirsty person.

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Hence, it is not entirely wrong to say that if you own a 99-year lease, you are an owner. But this simplistic statement obscures the full picture. First, you do not own the flat, you merely own the lease; hence you are not a homeowner merely a lease-owner, or leaseholder. Second, the product that you own is not permanent, unlike for example a gold necklace or a piece of furniture. Like the barrel of water, it is an inherent feature of the lease that its value will keep declining up to the point where there is nothing left.

Wait a minute, you might ask, does this mean that what I own is worthless? Not at all! A long term-tenancy is still a valuable asset – the only thing to note is that it will depreciate in value as the expiry date approaches.

Finally, it is worth noting that long-term tenants differ from short-term tenants in that short-term tenants rent from year to year, and cannot transfer their entitlement to their property. Long-term tenants however have a bundle of rights that resemble that of a freehold owner; the only difference is that those rights expire after a certain time.

So why is it all so confusing?

All this should be quite straightforward, but it has become confusing for several reasons.

First, people seem to think that a tenancy and ownership are the only two distinct ways to hold property. In fact, the rights that a person can have to a property exist along a spectrum and there are many overlaps between the idea of ownership and tenancy. Both share many characteristics – owners and tenants both have exclusive possession, and may generally use and dispose of their property freely. Hence, it can get confusing.

Second, the Singapore government has repeatedly told people who have HDB flats that they are ‘homeowners’, and that a HDB flat is an investment. The former is completely untrue (as explained above), and the latter is true only to a limited extent – it becomes a bad investment the closer to the lease expiry date we get.

Third, (perhaps due to the first reason above) the HDB is completely confused between what it means to own a flat and what it means to own a lease. According to the HDB:

“… (people) can decide to live in the flat, renovate it, rent it out or even sell it once they meet the eligibility conditions. They can decide on the selling price or rental rate of the flat, and they get to keep the proceeds from these transactions… these are rights and benefits that only a flat owner can enjoy.”

This is completely wrong! These are rights and benefits that both leaseholders and property owners enjoy. The difference is that property owners can enjoy this forever, while leaseholders can only enjoy this until their lease ends. Either the HDB is confused, reckless, or deliberately trying to mislead.

So why create this facade of ownership? Perhaps it is to imbue in Singaporeans a sense of belonging to the country and the sense that they are being taken care of. After all, why defend a country that you do not have a stake in? As then Minister of National Development Khaw Boon Wan said in 2014, ‘home ownership remains Singapore’s key social pillar’. One Straits Times Forum writer even suggests that we must call people who have 99-year leases owners, because calling them tenants is bad for our psychological defence. These species of self-delusion are unhelpful. Calling my guppy a luohan fish might make me feel good, but does not change the fact that when I try to sell it, people will only be willing to pay the price of a guppy, not a luohan. At the end of the day, when an elderly couple realizes that the value of their home which they ‘bought’ with their life savings has depreciated into nothing, they will not thank you for giving them psychological defence.

Misrepresentation or miscommunication?

As noted above, a tenancy is a technical legal concept, and the differences between ownership and tenancy can be difficult to see. As a result, it is unsurprising that many people would trust what they have been told by persons in authority. They are not legally educated, and they don’t read the fine print. If they are repeatedly told that they are homeowners, they would actually think that they own their flat in the traditional, unlimited sense, no different from the way that they own their furniture or their jewellery or their money. This is of course not the case, and when people find out that they have been misled, of course they will get upset.

Buying a long lease is a big deal. People save for their entire lives to do this, or take out mortgages which can stretch over decades. I argue that the HDB should be candid with the public, and put an end to the use of confusing terminologies which can undermine the decisions that people make in relation to property purchases – something which can have a powerful and irreversible impact on people’s lives.

By Rio Hoe

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*Updated on 28 August 2018 to reflect the ‘spectrum’ of property holding.

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7 thoughts

  1. How would you categorize a private property on 99 years then? Another main difference between a HDB and private property is that you can get a loan from a bank with your private property as collateral but you cannot do that with your HDB.

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  2. quite ezi to differentiate btw them. One own d flat n the other doesnt. This is regardless whether the prop is leasehold of freehold. If it is a leasehold then u hv d right to renew it by a fee by extend the duration of the lease. If the govt doesnt grant mean their intention is to rob from u. Don tell me as a govt a simple thing also cant diffrentiate. Because it d past the govt get use to rob the prop right from d owner, as the case was not so big, that why not many care. But now, it becomes a big issue because a lot of HDB flats are old and d lease about to expire.

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  3. We pay property tax for our HDB flats. What does that define our status? Flat owners or tenants? Does owners of tenancy agreements pay property taxes?

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