Recently, there has been a great deal of interest in the run up in property prices. The following are some statistics from the Yearbook of Statistics 2009 which can help explain why.
Number of HDB flats | Total Population | Resident Population | |||||
2003 | 874,183 | 4114.8 | 3366.9 | ||||
2004 | 876,985 | 0.3% | 4166.7 | 1.3% | 3413.3 | 1.4% | |
2005 | 877,546 | 0.1% | 4265.8 | 2.4% | 3467.8 | 1.6% | |
2006 | 878,820 | 0.1% | 4401.4 | 3.2% | 3525.9 | 1.7% | |
2007 | 883,448 | 0.5% | 4588.6 | 4.3% | 3583.1 | 1.6% | |
2008 | 884,920 | 0.2% | 4839.4 | 5.5% | 3642.7 | 1.7% | |
From 2003 to 2008, the total population increased by 17.6% The resident population increased by 8.2%.
The number of HDB flats however only increased by 1.2%.
It is unclear why HDB has been building so few HDB flats from 2003 to 2008. The numbers very clearly suggest that the HDB building program has been unable to keep pace with the increase in population. The current boom in housing prices is therefore not fueled by "irrational speculation" or HDB pricing polices. Rather it is due to a very real supply shortage in housing to meet the demands of our growing population.
The danger in these type of situations is that the large price increases will bring about a very sharp market correction. In response to criticism, the HDB has recently announced that they will step up building.
Large number of private developers have also launched new projects to "cash in" on the record prices.
On the demand side, MOM has also recently implemented policies so that it is more difficult for foreigners to come and work in Singapore.
The market will therefore almost certainly overshoot and we can be assured of a very dramatic fall in housing prices, most probably in 3Q2010 to 4Q2010.
Aurvandil
22 comments:
Hi, Mr Tan Kin Lian
I bet that the HDB pricing will not drop dratically at all.
The HDB asset value (though it is artificially boosted) remain a corner stone of Singapore's asset pricing policy and also, a means to satisfy voters' sentiment. In that, making Singaporeans think that they are worth at least $1/2m or more in asset.
Looks like another job for our local high priced talents.
We will have to bring in new high priced local talents to take a "fresh" look at the problem.
The current team of local high priced talents look a little bit overwhelmed.
The number of unit of HDB flats given in the Year Book does not mean it must be occupied.
Post 1997, many HKer who migrated to Singapore earlier had left Singapore and returned to HK or migrated elsewhere (such as Australia)...Not just HKer "quiters", there were also S'pore "quiters".
There was also a surplus of stock prior to 2003 ... especially period following 911 and SAR crisis.
The HDB stopped building then to clear "stock". I know the HDB had to stop a "precasting technology yard" of a Japanese contractor firm here and compensate them the loss for setting up the yard here. The HDB in fact went through corporate restructuring.
There were also more units available in the re-sale market due to quiters.
HDB had to stop building then. In those days, nobody wanted the flats in Jurong West. If not, the HDB flat prices would have dropped drastically.
Also the sand ban and rocketting steel prices in the last few previous years had pushed up construction cost and prices of new flats. The "market pricing subsidy" does not necessarily mean these price increase are also subsidised.
Makes you wonder how MBT can be "caught offguard by the rising prices.
If they can plan for a 40% surge in population to 6.5 million how can they not plan for housing, especially when he was quoted saying in this article http://findarticles.com/p/articles/mi_m0WDP/is_2007_Feb_12/ai_n17218848/:
'Our goal is not just to provide space, but also to enhance our living environment to the extent that it becomes our competitive advantage in the attraction of talent and investment.'
The definition of being caught offguards means that one could not have expected a situation from occuring - in this case it is hard for anyone to believe that statement to be true.
We need a government that is more accountable and cares deeply for Singaporeans.
Hi Mr. Tan,
First, I'm thankful and glad that you have touched on the topic of public housing in your recent postings.
I believe one of the reason(s) that HDB would argue for building less public houses during the mentioned period was due to the surplus of 10,000 odd unsold flat. These surplus flats was depleted quickly during the last economic bloom and influx of FT. This however does not in sync with their population growth projection then and it is unclear why departments within the ministry holds a different agenda.
Yes, i do also believe that the change of public housing price would not be too drastical in near future as the usual completion of BTO (estimated 4-5 years) and the "lack or lag" of public housing from 2003-2008 was a leap too much for HDB to make up now.
However, i do hope i am wrong so that i could end my resale home search soon. May your voice stays LIANG~!
Hi Mr Tan,
I hope this got published or commented in the papers. Just a dream?
Inflation is another form of taxation.
There have been many indications that the government is aware of the problem and is taking active steps to correct it. Skyrocketing property prices affect operating costs. Left unchecked, it will drive business to move to lower cost countries.
The problem with many of the actions taken is that there is a time lag between implementation and actual impact on the market. For example, it takes between 12 to 18 months for a project to be built. The impact of any new building on supply can therefore be felt only 12 to 18 months later.
People however want action NOW. When they see prices continue to rise in spite of government statements, they wrongly conclude that the government is either impotent or not serious in doing something about the situation. There are some who see others enjoying large windfall profits from the boom and want similar windfall profits for their own. There are also others who need a home and who are fearful that if they do not buy NOW, they will not be able to afford a home in the future.
Hence in spite of good sense saying that the market is probably overvalued, people continue to chase the market and prices continue to rise.
These price rises will continue until the new supply hits the maket. Due to time lag which distorted the decison making process, this new supply will be greatly in excess of actual demand. In economic terms, the market "overshoots" and there is a dramtic drop in price.
Since I've purchased a flat cheaply and I can't sell it anytime soon, I'll be glad for my peers if this prediction comes true.
The new HDB flat prices will not fall in near future. Although HDB has launched many BTO building projects recently, these will take 3 to 4 years to complete. People who can't wait will have to look for resale flats. This will drive up the prices of resale flats. Since the current pricing policy for new HDB flats is benchmarked to resale flat prices, so the new flat prices will also go up for the next few years.
To summarise, both new and resale flat prices will go up in the next few years due to the shortage of supply of HDB flats that are readily available.
CCL
All these unhappiness over rising home prices has to do with perspective. If you are a buyer looking for a home, naturally you will want to buy cheap(thus, complain housing is expensive hoping goverment will suppress the market or deflate prices) though you can afford or find something within your budget but if you are a homeowner, you want to see your prize asset appreciate iin value if not, not lose money.
Therefore, it is tricky balancing the interest of buyers and sellers but at the end of the day, policies must favor those who already committed themselves to this land(90% of homeowners) or had put their money where their mouth is- if we make home buyers lose money, we may end up losing our jobs( indirect impact on our economy)and the whole economic and social dynamic will change for the worse( japan is a case in point)
Furthermore, it is easier to stablize market when supply lags demand.
Not only is there not enought flats built during this period, considering the fact there is a big influx of immigrants. All the other infrustructure are also lacking, like schools, buses, MRT trains, hospitals, polyclinics, temples very crowded on certain days, churches, certain open spaces in the city, etc, etc
Hey Singaporeans,
It is all good "at the western front" scenario... for our housing prices in particular the HDBs.
So that it allows both singaporeans (& PRs) to buy and sell HDBs, making the margins. Becosw this stimulates economic transactions and money flow and the three big local banks make more interest income. (Just look at the bank loans stats, mostly for housing mortgage!).
Nothing wrong with that. This is Asset Pricing Model theory.
So, why complaint?
It is naive to think that this situation is favourable to home owners because unless they own a second property, this situation DOES NOT benefit them either. We are talking about couples who are looking for their first homes or low income families looking for a roof over their heads.
And even if the home owners manage to sell their HDB at a high profit, most of the money goes back to CPF anyway, which means that they won't even smell the money before reaching 65. Or if they choose to invest in a private property now, they will end up buying on the high? I really can't see where the money is going except back to the government or the banks.
We are not looking for cheap housing. We are looking for AFFORDABLE housing i.e. not having to spend more than 20% of monthly income on mortgage repayment. For those who already own a HDB, good for them! But think of our future generation, what will happen when your children need to pay $1million for a 5room flat when 20 years ago it only cost you $400K to buy? You don't think this is possible? I bet 20 years ago, our parents who paid $40K for a point block 5 room flat would never have expected their flat to be worth $400K now.
we cannot reverse home prices without social economical consequences.
press for more housing subsidies for lower income group and for the rest, live within your means.
there are many cheap(affordable) homes still, without or very low cov, if you care to shop around.
The solution is to encourage people to own a second property.
You Guys,
Many HDB owners sold their HDB on the resale market and then go to more remote area to buy another cheaper HDB la... then wait for the next HDB to raise in prices again, after few years.
On average, each Singaporean can turnover twice on HDB property.
Worth the effort. Becos anyway, HDB flat does not worth to be kept for long term like private properties.
So, just use it for turnover la....
Understand now?
Easy solution:
Stop giving out PRs like toilet paper! For goodness sake, implement real quality control in the PR approval process.
Lesser PR growth --> smaller increase in demand for HDB flats --> more gradual appreciation of HDB price. In the near term, prices will go down due to lesser demand & negative sentiment, but will continue up in moderate manner. Win-win for both buyers and owners.
And don't give me the cow dung about how S'pore needs all these foreign talents, companies will leave, wages will become uncompetitive etc. Firstly, MNCs don't invest in S'pore because of cheap "foreign talents". Secondly, if these PRs are so talented, why are they bidding for HDB flats, like the rest of 85% of the population? Where's the talent? I doubt if PRs staying in HDB are able to create meaningful jobs for S'pore citizens.
"If they can plan for a 40% surge in population to 6.5 million how can they not plan for housing,.."
I agree with the comment above, in fact me and my wife had been talking abt this the last few months. You want foriegn talent but don't prepare for their housing. How can a high caliber president scholar overlook this? Don't the MND talk to MOM or MOHA ? Then why so many parliament meetings and don't address key issues ?
The clowns don't talk to each other because this is not their biggest concern. While they might not be the best leaders we can have out of the indigenous Singaporean pool, these folks like Wong Kan Seng and Mah Bow Tan are no stupid individuals, as their educational qualifications stand to prove. The least we could have expected was their ability to foresee such simple supply inadequacies.
Conclusion: They didn't give 2 hoots about this housing inflation issue until now when it is boiling over.
Checked out the HDB website. It states that the new BTO flats take 3 years to complete.
The BTO build rate is one of the slowest in the world. It is almost double the time taken to build equivalent private housing. HDB does not maintain an internal building department to undertake construction. Instead the work is outsourced to private sector contractors. Other than a policy to build HDB flats at an artificially slow rate, there does not seem to be any obvious reason for why it should take so long to put up BTO flats.
The inability of the HDB building program to keep pace with our growing population sparked off the current boom in property prices. Due to the time lag for new supply to reach the market, a destructive boom-bust cycle has been set up. The effects of this boom-bust cycle are worsened by the policy to build HDB flats at an artificially slow rate.
After the boom-bust cycle has run its course, we will have a small group of people who would have enjoyed large windfall profits. We will have a much larger group who will be looking at large paper losses and who will be saddled with a high debt burden for possibly the rest of their lives.
The BTO build rate is slow largely because HDB does not commission construction until there is sufficient take-up rate from home seekers.
Let's say you give 2 months for balloting, 2 months for flat application and selection, and another 3 months for tender and evaluation of contractors, more than half a year would be spent before the first piece of construction machinery breaks ground on site. Give another 2 years for construction and we're looking at between 2.5 to 3 years to the time the couple can pick up the keys.
HDB's fear is that if they were to build flats before selling them, they could end up with thousands of empty units like in Punggol and Sengkang in the not-too-distant past.
It may be a good idea to always keep a ready supply of flats, even in poor locations, so that people can find a place to stay if they are desperate. I don't think HDB wants too many empty flats on their books because it makes them look bad though.
Despite their kiasu mentality, it's difficult to explain why they were incapable of building enough flats to house the large influx of foreign workers. My only conclusion is that the government bodies involved are completely incompetent.
Chee Ken Wing
Apologies but I don't quite follow the logic.
How can a BTO project be "bogged down" by "insufficent demand" if you have to conduct a "ballot" to allocate the flats?
With regard to the rest of the logistical issues, most private developers are also faced with similar constraints but are able to deliver the project within 12 to 18 months. It is a simple matter of managing the timeline.
For example, it does not make sense to call tender and do evaluation AFTER you have hit the minimum BTO occupation rate in order for the project to begin.
It is quite a simple to call a tender and speicfy that the price quoted will be valid for 1 year. This means that you have one year within which accept the quote and for the project to start. If the 1 year is exceeded, HDB can then write in to request for an extension.
This is a fairly standard GEBIZ clause used in Singapore government projects where the start date is uncertain.
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