HDB cooling: Having the cake & eating it too?

by Leong Sze Hian

I refer to the article “Resale flat price rises are stabilising” (ST, Jan 4)

It states that “The latest data brings the total rise in HDB resale flat prices for 2010 to about 13.3 per cent – a fresh record for prices”.

Actually, the increase for the year is 14 per cent, and not 13.3 per cent. Instead of just adding the total of the percentage over the last four quarters, the increase in the year should be calculated by dividing the index for the 4th quarter by the index of the 4th quarter in 2009 (171.9 divided by 150.8).

The URA Private Residential Property Index also increased by 17.6 per cent for the year.

The 4th quarter increase was 2.4 and 2.7 per cent for HDB and private property, respectively.

So, why is it that the property cooling measures do not seem to be working, despite what the Ministry of National Development said when it announced the declining Cash-over-valuation (COV) data as indications that the measures were working, when it must already have known the monthly resale price data?

Even with the median COV paid in the 4th quarter falling 23 per cent from the third quarter, the total price including COV may still be rising, because the 2.4 per cent price rise may be more than the COV drop.

For example, 2.4 per cent on a valuation of say $300,000, at $7,200, is more than the $7,000 COV decrease.

The king and the cake

Suppose that the king of a small kingdom has a problem of rising cake prices, which is causing a lot of unhappiness amongst his subjects.

So, he decrees all sorts of restrictions on who can buy or sell cakes.

However, the king wants to have his cake and eat it too. So, he continues to raise the prices of cake ingredients and their supply, which is his sole monopoly, to continue to increase his coffers.

So will cake prices drop?

Supply side issues

The above analogy to HDB is that as long as BTO prices set by the HDB continue to rise in tandem with resale prices under its Market Subsidy Pricing policy, and land sales to private developers are pegged to minimum reserve prices that are continuing to rise, prices may never come down.

The supply side of land and HDB flats may in a way be working against the cooling measures.

Why do you think there were no Executive Condo (EC) launches in the five years or so before 2010?

I believe it was because of the refusal to sell land below the reserve prices that developers were not prepared to pay for.

Demand side issues

The fact that every BTO is over-subscribed many times, may simply mean that supply is still not meeting demand.

By changing the Minimum Occupation Period (MOP) to five years, and the apparent longer construction period of BTO to about five years now, means that it will take about 10 years before a BTO flat is available for resale or rental.

Against this, on the demand side, with our liberal immigration policy which has resulted in the population growing by 4.1, 1.5 and 0.9 per cent, for foreigners, PRs and citizens, respectively, the foreign influx particularly have to stay somewhere.

Foreigners, PRs and citizens increased by 51,300, 7,800 and 30,000, respectively, according to the 2010 Census. Given that HDB is the cheapest rental alternative, and most of the foreign labour are lower pay ones, most may not be able to afford private housing. Thus, the relentless rise in HDB prices.

Low interest rates driving property market

As indicated in the article “Singapore’s Home Prices Climb to Record in Fourth Quarter, Defying Curbs” (Bloomberg, Jan 3), historical low mortgage interest rates in Singapore, whereby the first year loan interest is as low as 0.88 per cent on loan tenures of as long as 40 years, may be driving both the HDB and private property market. What will happen if mortgage interest rates start to rise, when the typical mortgage on HDB flats is 30 years?

Wages and cost of living

Against the above backdrop of housing supply and demand issues, Singaporeans’ problems may also be exacerbated by two years of declining real wages in 2008 and 2009, and possibly a third consecutive one in 2010, and increasing cost of living with inflation at a high of 3.8 per cent – the highest since January 2009.

This is further supported by the UBS study on Prices and Earnings, which has Singapore as the 11th most expensive city for Price Levels (Kuala Lumpur is ranked 68th), and at the 43rd rank for Wage Levels. Even the Malaysians have more purchasing power (Malaysia is ranked two places above Singapore at 49th place for Domestic Purchasing Power) than us.

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