Saturday, September 08, 2012

Price of HDB flats

A HDB maisonette in Bishan sold was sold for nearly $1 million.

This should be a personal matter between the buyer, who can afford to pay the price, and the seller, who  pockets a hefty capital gain. It should not bother the rest of the people, IF our government has adopted the correct economic policy.

The flaw is in our government policy to link the price of new HDB flats to the resale market. This bad policy can be changed. And, if it is changed, things will be so much better.

Let us see what should be a better policy. If the Government prices new HDB flats based on the mean income of the citizens, and a new 4 room flat cost say $250,000, it should more than meet the cost of construction and land (based on its holding cost). The public would be able to afford these flats and would be happy if the sellers can fetch a high price!

I call on the Government to adopt a new approach to price new HDB flats.


sgcynic said...

Even ex-PAP MPs are speaking up. Shows that the policy of boiling the frogs is reaching a tipping point.

Everlearning said...

Hi Mr Tan,

What a publicity given to the public that HDB flat can fetch a million dollars.

My private apartment, the size of a HDB 3-rooms flat has reached more than a million dollar last year. This happened by one property investor who shrewdly converted such unit into 5 and now collecting massive rents from his ever-changing tenants.

Then, many units here put up ads for sale for nearly nine months, but no takers. Apparently, the asking price is much higher than the last transaction done.

I am truly glad that I have been spared from the noise and disruptions of renovation works.
Imagine every two to three years, the same unit is under heavy-hacking just because of changed ownership.

I don't know how this madness has started but it just revealed the greediness of men's nature through such activity.

yujuan said...

Anyone who tuned in the interview conducted by CNA with Professor Xiang, a prominent economist from China, would find this interview food for thought.
Professor Xiang said,

"The Chinese Govt's cooling measures on property are not so much to rein in the real estate proper, but to address income inequality and its social problem.
The wealthy would buy property with bank credits(loans), which enable them to buy more and more and pushing up prices, dashing the hopes of the poor from owning their own homes.
The Archilles's heel is the incentive structure of political office, based on GDP growth,(which property construction
forms a major constituent) -
I have done well, I must be
compensated in promotion
(and its subsequent monetary
returns for my efforts)".
Xiang quoted Deng Xiao Peng - Economic reforms must be accompanied by fundamental political reforms, but unfortunately Deng died before he could do anything. Ditto with the present soon to retire top Chinese leaders, unable to fulfil Deng's dreams of political reforms, manifesting in today's moribund weak efforts at only putting in short term stop gaps to rein in property price rises.
In Singapore' s situation, other than the above twining similarities, collapsing the property market with one stroke will have nightmarish implications for the Govt, both political and economic - the present property owners, both private and HDB, will dive immediately into negative equity, and the FIs, whose business derives a big chunk from mortgages, would collapse overnight. What happens if their foreign mortgagees decide to abandon ship and flee abroad?
A reminder from American Economist Roubini's quote,

" The path of least resistance is to go forward."
He's referring to China, can be applied to Singapore also. Dun dare to stop.
For people hoping for property to reverse path meaningfully, afraid you have to "tan gu gu", unless a catastrophe strikes from abroad.
Our Govt is bed fellows with China, dun dare to rock the boat too hard.
This is the danger of a One Party political system, no one effective enough "to slap the driver awake, who's dozing at the wheel".

C H Yak said...

This could be the start to another vicious cycle of price increase.

Although the MND Minister dismissed it as a "unique" case, it may soon lead to more complications if left unchecked. Certainly, real estate agents would exploit the trend to make more money themselves.

We have Bishan and now Queenstown...what's next?

And certainly that would culminate in the next bubble burst because HDB prices just could not sustain itself.

One just need to recall how the previous MND Minister "reverse engineer" the trend of the previous fall of the HDB market by not letting out more lands and not building enough HDB flats while Singapore let in more foreigners ... and have more PRs and citizens...after the 2006 / 2007 private property boom / 2008 slump.

And KBW has no such luxury now ... by letting in more

I predicted 2 years back that severe correction would take place around 2012~2013 ... & in view of external economic drivers, especially the China economy. If it takes a little longer then maybe by 2013~2014...

And this could be the start of it ...

Shoe Box units had gone out of hand and GOVT is controlling only at suburbs. The high end condos above $2000 psf, the returns are not there and with the control measures still on, the foreigners are not buying ... so property agents must find a market segment to exploit next ... and so choosen the "downgraders" from private properties and on to the "high-end" of HDB market...when one makes money, he must get out by liquidating, especially if he owns only 1 property.

EC prices is quite ridiculous but Singaporeans just jumped at it...but this category be the worst hit comes a BURST. In about 2 years there will be big supply entering the market...although purchasers could not easily sell...but if more adverse economic conditions affects jobs and then a property bubble BURST ... I am not sure about banks will delay enforcing foreclosures if mortgages could not be serviced...

One must understand the "mechanics" of the property market.

Solomon said...

I would say this round of property price hike is due to prolong low interest rate.

The bank is giving out virtually nothing to depositor. Business can borrow money almost free from financial instituitions. The borrowing cost is less than inflation for these business men, amazing!!

There is no place to get reasonable return other than property market which people are familiar with and they can see and touch their properties. 2008 minibond, notes and HN5 had taught people not to trust the banks and their products, so they invest in something they can see and touch, that is real estate.

michael13 said...

Runaway property prices, rental costs, medical/health costs, education/tuition costs, COE/transportation costs accompanied by inflationary instability, rapid widening income gap, slow GDP growth, low productivity and structural unemployment, etc.. All these are worrying signs that Singapore's economy is not properly managed at macroeconomic level.

In this respect, the United States of America is more blessed in the manner of running their economy. An independent body of Federal Reserve which is not politically affiliated to manage their economy by utilising various tools like interest rate to control the money supply in the market.

Unfortuntately, our MAS is too politically influenced by the ruling PAP to act in the same likeable manner. Hence, we are stuck with the current unpleasant situation which requires a huge influx of FIs(Foreign Talents) to help to grow our economy/GDP. We have paid an unnecessary high price for achieving this result because it was done at the expense of National Unity.

The above-mentioned points of view are my humble contribution to National Conversation.

C H Yak said...

@"I would say this round of property price hike is due to prolong low interest rate."

Low interest rate does not equate "low cost of borrowing"...people are actually paying the "cost of investment" upfront now through the higher price of the may go into the pockets of developers first...developers actually borrow from the banks to develop properties...The bank would certainly hope that "interest" rate will shoot up in the long run...that is long-run investment for banks which they hope to re-coup from property buyers later.

It is a vicious cycle...and buyers are entrapped now if they commit.

michael13 said...

Big boys are exiting the property market.

Property developer Wing Tai forsees a growing possibility of a correction in Singapore's property market. When announcing its fourth(Q4) earnings on 21 August 2012, Chairman of Wing Tai Holdings, Cheng Wai Keung said: "A number of you have been asking why have we not been tendering for URA projects and we have not been active in the market for quite some time". He continued: "I would still maintain that the correction will be coming and the way I look at it, is that if there is a cycle, if you take away that 2008 temporary drop, you smooth out the curve, it is actually the eighth or ninth year of the rise in this cycle."

C H Yak said...

@"you take away that 2008 temporary drop, you smooth out the curve,"...that 2008 drop was for the PPI.

What was said was exactly what happened to the HDB resale index...due to the "re-engineering" of MBT. LOL.

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